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Edited Transcript of SIEN earnings conference call or presentation 12-Mar-19 8:30pm GMT

Q4 2018 Sientra Inc Earnings Call

Santa Barbara Mar 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Sientra Inc earnings conference call or presentation Tuesday, March 12, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles Huiner

Sientra, Inc. - COO and Senior VP of Corporate Development & Strategy

* Jeffrey M. Nugent

Sientra, Inc. - Chairman & CEO

* Neil Bhalodkar

Sientra, Inc. - Senior Director of IR and Business Analytics

* Paul Sean Little

Sientra, Inc. - CFO, Senior VP & Treasurer

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Conference Call Participants

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* Anna Marie Nussbaum

William Blair & Company L.L.C., Research Division - Associate

* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* Christopher Cook Cooley

Stephens Inc., Research Division - MD

* Jonathan David Block

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst

* Richard S. Newitter

SVB Leerink LLC, Research Division - MD, Medical Supplies & Devices and Senior Analyst

* William Fafinski

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Sientra's Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Neil Bhalodkar with Sientra. Please go ahead.

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Neil Bhalodkar, Sientra, Inc. - Senior Director of IR and Business Analytics [2]

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Thanks, operator. In our remarks today, we will include statements that are considered forward-looking within the meaning of the United States Securities Law. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current assumptions and expectations of future events and trends, which may affect the company's business, strategy, operations or financial performance. A detailed discussion of the risks and uncertainties that the company faces is contained in its previously filed 10-Q and in its annual report on Form 10-K that the company will file with the SEC shortly. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The company undertakes no obligation to update or review any estimate, projection or forward-looking statement.

Today, on our call, we have Jeff Nugent, Sientra's Chairman and Chief Executive Officer; Paul Little, Chief Financial Officer, Senior Vice President and Treasurer; and Charles Huiner, Chief Operating Officer and Senior Vice President of Corporate Development and Strategy; Oliver Bennett, General Counsel and Vice President of Compliance and Legal. With that, I'll hand the call over to Jeff.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [3]

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Thanks, Neil, and good afternoon, everyone. Thank you all for joining. On today's call, I'll provide an overview of our fourth quarter and full year 2018 performance and review our near and longer-term corporate objectives, before Paul provides a detailed commentary on our financial performance.

Overall, we remain on track to achieve our goal of becoming a leading, diversified global partner to aesthetic physicians. Through 2018, we achieved a number of important milestones, including receiving FDA approval to manufacture our OPUS breast -- breast implant portfolio in Wisconsin. In our first full year of ownership, we meaningfully scaled miraDry, a business which has proven to be a significant growth driver and validated our diversification strategy. We also achieved robust pro forma sales growth for the full year 2018 with 18% and 104% year-over-year increases for Breast Products and miraDry, respectively. In total, we achieved consolidated net sales of $19 million in the fourth quarter and $68.1 million for the full year 2018, which translates to year-on-year pro forma growth of 72% and 46%, respectively, demonstrating our continued momentum.

Focusing first on our Breast Products segment, we realized numerous objectives in 2018 that, I believe, position Sientra for market leadership in 2019 and beyond. First, we achieved the FDA approval of our PMA Supplement in April, allowing us to initiate commercialization of our Vesta manufactured, OPUS-branded, silicone brand breast implant line. We remain committed to recapturing and growing market share, as we continue to ramp up manufacturing capacity through the first half of 2019 and beyond.

Second, we published the results of our 10-year FDA core study, showing the long-term safety and effectiveness of our OPUS implants as demonstrated by our low reoperation, capsular contracture, rupture rates and incidence of ALCL.

Third, based on the best-in-class safety profile of our OPUS implants, we launched the Sientra Platinum20 warranty program, the longest and most comprehensive warranty in the industry by far. The 20-year warranty is grounded in the confidence that we've gained in the 10-year clinical data and has already resonated significantly with plastic surgeons and patients alike. Fourth, we have clearly advanced our position in the estimated $300 million U.S. breast reconstruction market, which was our first significant move into diversifying our portfolio.

I'm very pleased that we've achieved 3 consecutive quarters of sequential sales growth in our tissue expander portfolio, and we plan to aggressively leverage its clinical advantages to drive increased penetration of our hospital accounts through 2019.

Fifth, beginning in 2018, and consistent with our renewed focus on innovation, our R&D team remains actively at work, developing a pipeline of both incremental and substantial additions to our Breast Product portfolio with the objective of providing our surgeon partners with the most comprehensive and advanced breast aesthetic solutions available on the entire market.

Finally, we remain on track for regulatory approval of our breast implant and tissue expander portfolios in Canada, later in 2019, following the submission of our medical device license application to help Canada in the third quarter of 2018. We're excited about the prospect of becoming only the third company with FDA approval to sell breast implants into the estimated $500 million breast aesthetics market outside of the United States. Going forward, we will continue to explore the best path to leverage our unique Breast Products portfolio to expand into the highest potential ex-U. S. markets.

Before turning to our miraDry segment, I'd like to highlight Sientra's deep commitment to patient safety, which has been consistent since day 1. At Sientra, we're guided by science and scientific data, has repeatedly confirmed the long-term safety and effectiveness of all Sientra implants. We want women and their board-certified plastic surgeons to feel confident in their decision to select Sientra's FDA-approved breast implants for both their breast augmentation and reconstruction surgery. We're aware of the concerns surrounding some textured implants following the nonrenewal of a competitor CE mark for their textured implant surface. It's important to keep in mind that there is an extremely low overall incidence rate associated with textured implants. According to the FDA, the risk for a woman with textured implants to develop ALCL is between 1 in 3,800 to 1 in 30,000. And in fact the European Commission's task force recently noted that there is sufficient scientific evidence to limit the use of textured breast implants, as they provide positive clinical and psychological outcomes for their patients. And several other textured brands remain or retain their CE mark approval and remain in the market. I also want to emphasize that it's important not to categorize all textured implants as 1 and the same. Each manufacturer employs distinct differences throughout the manufacturing and texturing process, resulting in various types of finished product available in the market. Therefore, the incidence rates for ALCL and other adverse events for that matter similarly have not proven to apply uniformly to all implants and their manufacturers. The products differ. Importantly, Sientra's OPUS implants have a significantly lower worldwide ALCL risk compared to our competitors.

Researchers have estimated in a peer-reviewed publication late in 2017 that the worldwide risk frequency in Sientra-textured implants is as low as 1 in 200,000. Nothing remains more important to us than patient safety, and as discussed previously, our strong 10-year clinical data was actually the basis for launching our industry-leading, 20-year warranty.

We continue to work collaboratively with regulatory agencies, our physician partners, leading professional associations and patients to uphold our commitment to safety. We're looking forward to the FDA panel meeting later this month, which the FDA convenes periodically for all medical device categories. The breast implant panel, which was last held in 2011, is being convened to ensure that patients and healthcare providers have accurate information on breast implants. Breast implant associated ALCL will be one of several topics of discussion at the meeting. The panel is also focused on how to better collect and utilize safety outcomes data and best practices for informed consent decisions between patients and the physicians. Our recent dialogue with plastic surgeons indicates that consultants and -- consultations, rather, and procedure volumes in the first quarter have declined modestly due to the media coverage of breast implants that has increased over the last few months. We expect this to potentially continue into the second quarter and impact the first half of the year.

I would note, however, that with history as our guide to the extent that some women may be on the sidelines temporarily because of breast implant headlines, we expect once the FDA panel is complete and the long-term safety profile of breast implants is affirmed that women's concerns will mitigate and these patients will ultimately proceed with breast implant surgery. Further, as the conversation between plastic surgeons and their patients increasingly focuses on safety, Sientra's unique differentiation and advantages will be even more evident as clinical outcomes and the durability of our implants move to the forefront.

With this backdrop influencing more broader U.S. market conditions for 2019, we are confident that Sientra's OPUS gel implant portfolio is well positioned to continue to recapture market share, driven by increased customer conversion activities throughout '19 as implant supply levels steadily improve and new products are launched. In light of this, and our view of the near-term FDA panel being primarily a first half event, we expect to grow our breast implant sales by at least 25% for the full year 2019 compared to breast implant sales of $21 million in 2018.

With that, I'd like to focus on our miraDry segment, which we believe is also well-positioned to remain a significant growth driver for Sientra. In our first full year with miraDry, we fully integrated operations, grew the commercial organization, implemented the streamlined miraDry fresh procedure protocol and reported 4 consecutive quarters of sequential growth. Our year-over-year growth on a pro forma basis of 104% in 2018 was driven by strong system placement and consumables growth, with particular strength in our international markets.

MiraDry's performance in 2018 has validated our assessment that demand for miraDry, the only FDA-approved permanent solution for underarm sweat and odor, remains both large and highly underpenetrated.

As we look ahead into 2019, we will maintain focus on growing system sales in the U.S. specifically, which will in turn provide an even stronger foundation for driving higher-margin consumable sales in the medium to longer term. Our strategy for miraDry remains focused on practice activation, building brand awareness to drive patients into the practice asking for miraDry by name.

In February, we appointed Kirk Gunhus as General Manager of miraDry. Kirk previously led our international sales, and under his strong leadership, miraDry gained significant traction internationally, achieving 4 consecutive quarters of sales significantly overperformance. MiraDry's innovative technology has tremendous runway for growth in the United States, and I'm confident that with Kirk's involvement, we will aggressively implement the same successful growth strategies in our U.S. business that he developed while leading miraDry's international commercial organization, and in the similar leadership capacity that he held at ZELTIQ.

In recent months, we have also expanded our marketing team with top industry talent, while launching a new branded web platform. In 2019, we expect investments in miraDry to accelerate our goal of building a millennial focus, digital brand to target the estimated 100 million people worldwide, including 15 million in America, who our market research indicates are bothered by underarm sweat and odor and would be interested in a permanent solution like miraDry.

Specifically, we kicked off our no sweat global campaign, placing cost-effective targeted digital ads across millennial-focused digital platforms, including Instagram, Facebook, Google and others, while leveraging social media influencers to build interest in miraDry. During 2019, we'll also be supporting our digital direct-to-consumer efforts with national media and public relations campaigns to further grow the market. We also expect to continue to benefit from an expansion of our co-op marketing strategy and lead-generation efforts, which involve partnering with physicians to drive utilization. That in the end is the key to success. These efforts will help us to target consumers most likely to be interested in miraDry at the local level, while helping to forge stronger ties with our physician partners.

Importantly, driving a digitally savvy and younger patient cohort into aesthetic-focused practices benefits both Sientra and our physician partners. Based on our research, approximately 75% of miraDry customers are between the ages of 18 and 44. Bringing these patients into the practice early represents a critical lifetime value opportunity for physicians as most aesthetic practices focus on an older subset of patients. In fact, our market research indicates that nearly 85% of miraDry customers have never been in an aesthetic practice before. However, following their first visit for miraDry, we estimate that approximately 35% to 40% of them will return to the practice for other aesthetic treatments. This is an extremely compelling value proposition to physicians, as they are considering miraDry to their suite of services.

And we are rolling out specific tools for our sales team to accentuate this unique value as part of the detailing efforts. In sum, we are confident that coming out of a strong 2018 for miraDry, which we are, we believe we have identified and are executing on exactly the right initiatives to build on what is clearly a unique aesthetic lifestyle treatment. miraDry is still very early in its life cycle, and we're pleased with the progress that we have made to prepare the business for real scale both in the U.S. and OUS. With that, I'll hand the call over to Paul who will review the company's fourth quarter and full year 2018 results in greater detail, and I'll be back later for a conclusion and open to questions. Paul?

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Paul Sean Little, Sientra, Inc. - CFO, Senior VP & Treasurer [4]

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Thank you, Jeff. As a reminder, with the exception of adjusted EBITDA, all of our financial metrics are reported on a U.S. GAAP basis. Additionally, we will continue referencing an adjusted EBITDA margin, which we define as earnings before interest, tax, depreciation, amortization, fair value adjustments, legal settlement expense and stock-based compensation. Specifically, we are removing noncash items and/or nonrecurring items for this non-GAAP measure. Again, please refer to our supplemental financial information, earnings release and 10-K for tables on GAAP and non-GAAP pro forma net sales, and a full reconciliation of adjusted EBITDA to its GAAP counterpart.

Consolidated total net sales for Q4 '18 was $19 million, an increase of 72% compared to total net sales of $11.1 million for the same period in 2017. Total net sales for the full year 2018 were $68.1 million, an increase of 46% compared to 2017 pro forma net sales of $46.7 million. Within the breast segment, net sales totaled $10.4 million for the quarter, a 28% increase compared to $8.2 million for Q4 '17. Total full year 2018 net sales for the Breast segment were $37.0 million, an 18% increase compared to $31.5 million for the same period in 2017. The increase was driven primarily by the continued traction of our OPUS implant relaunch and strong performance of our tissue expander portfolio, partially offset by relatively soft bioCorneum sales.

Our miraDry business segment achieved net sales of $8.6 million in Q4 '18, representing a 196% year-over-year increase, compared to $2.9 million in Q4 '17. For full year 2018, miraDry net sales were $31.1 million, a 104% increase on a pro forma basis compared to $15.3 million for the full year 2017.

Gross profit for the fourth quarter was $11.4 million or 59.7% of sales, compared to gross profit of $5.3 million or 48.1% of sales for the same period in 2017. Gross profit for the full year 2018 was $41.3 million or 60.6% of sales compared to gross profit of $22.4 million or 61.2% of sales for full year 2017. Changes in consolidated gross margins were driven by the overall mix between Breast Products and miraDry as well as the geographic and capital versus consumable mix within miraDry.

Operating expenses for Q4 '18 were $35.7 million, an increase of $13 million or 57% compared to $22.7 million of expenses for the same period in 2017. For the full year of 2018, operating expenses were $121 million, an increase of $36 million or 42% compared to $85 million of expenses for the same period in 2017.

Operating expenses for the quarter were driven higher primarily by increased investments in sales and marketing expenses as well as higher stock-based compensation as we build out our miraDry commercial organization. Adjusted EBITDA for the fourth quarter and full year 2018 was a loss of $19.5 million and $60 million compared to a loss of $13.9 million and $41 million in the same periods of 2017, respectively. The year-over-year increase in adjusted EBITDA loss can primarily be attributed to the inclusion of miraDry.

Net cash and cash equivalents as of December 31, 2018, were $87 million compared to $103 million at the end of the third quarter 2018. I will now turn the call back over to Jeff for his final closing remarks.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [5]

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Thanks, Paul. In closing, 2018 was a year of significant progress in building the foundation for a strong long-term growth in both of our Breast Product and miraDry segments. We're encouraged by these results and committed to continue to build on what we've accomplished. I am more confident than ever in our long-term outlook as a fully scalable, diversified global aesthetic company. Throughout '19, we will focus intently on execution, execution, executing on our commercial strategy to deliver strong growth for both our Breast Products and miraDry segments that we will continue to drive as aggressively as we can, the establishment and leveraging of a highly visible, digitally focused brand for miraDry, continuing to build supply chain scale and efficiencies at Vesta, and investing strategically in innovation, and continued diversification across the business. Last, I want to thank our extremely talented team for their hard work and dedication. And we look forward to driving forward on our growth initiatives through 2019 and beyond. I'll now turn the call over to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jonathan Block from Stifel.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [2]

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Paul, I am going to start with you and then Jeff, I'll give it to you for the second question if that's okay. I think the first one, Paul, just on the OpEx spend. Just coming little bit higher than what we were anticipating in 4Q. I know you did have a lot of stock comp expense hit, the P&L 2018, but maybe if you can talk to us about the OpEx spend. Is that the run rate that we should expect getting into 2019? And then I have got the follow-up.

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Paul Sean Little, Sientra, Inc. - CFO, Senior VP & Treasurer [3]

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Sure. Quarter 4 is a little bit higher. As we ramped up spending in, in the miraDry business in the fourth quarter, starting the third quarter going into to the fourth quarter. I'd say our R&D, G&A were pretty much in line. It was a little heavier on the sales and marketing side on the other businesses, I wouldn't expect that quarter-over-quarter into this year if you want to try to annualize that over 4 quarters, Jon.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [4]

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Are right. Maybe just a quick follow-up to that same question, Paul. Are you willing to give us an estimated cash burn number that you anticipate in 2019, I don't know if you want to get that granular or not?

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Paul Sean Little, Sientra, Inc. - CFO, Senior VP & Treasurer [5]

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That's where I want it. We've been communicating about $15 million to $16 million average quarterly burn. You can annualize that for simplicity. That includes also a potential milestone payment and therefore the miraDry acquisition.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [6]

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Okay. Very helpful. And then, Jeff, I'm going to pivot to you and hopefully I've got some of the helpful metrics you gave. So the consoles in speaking with the physicians have seemingly been impacted modestly like you said in 1Q. You think that may persist into the second quarter. You are still comfortable with growing your breast product by 25% up to $21 million figure that you gave in 2018. Maybe you can just help translate into what that means for share? In other words, does that reflect the same share gain assumptions as you would have anticipated 3 months ago, offset by a slightly more modest end market due to the ALCL concern. I guess [what I'm trying to do their job, is just] tease out the rate of your share gains versus a softening end market due to some of the recent concerns?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [7]

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Jon, that's a great question. And as you know, regular market share data is very difficult to get our hands on. But my overall assumption is that the, call it, uncertainty of the FDA panel coming up in a couple of weeks is affecting each of the manufacturers in some ways similarly and other ways more significantly. I would expect the impact is affecting Biocell and Allergan more so, that the short answer to your question is, I believe, we have the potential to, at least, achieve the market share gain that we have previously contemplated. And as we indicated that we're being conservatively realistic in providing the guidance that we expect to grow our implant business by at least 25% for the full year, and that it depends on what the total market does. But we're expecting share gains in the mid-single digit range, which is certainly a start to what we want to accomplish. We could talk more detail separately, but as you know, we're trying to keep to the facts as based on what we already know as possible, and right now there's a fair amount of uncertainty.

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Operator [8]

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Our next question comes from the line of Anna Nussbaum from William Blair.

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Anna Marie Nussbaum, William Blair & Company L.L.C., Research Division - Associate [9]

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This is Anna on for Margaret. The first part is on the breast side. As you guys are prepping for a full implant relaunch in 2019, are you guys happy with the sales and marketing investments that you've made in that regard? What changes should we expect this year in terms of rep advertising or anything else?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [10]

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Well, we've -- we have taken a much more direct and, I would say, aggressive marketing campaign and messaging to our customers based on a number of things, not the least of which is the superior results of our clinical trials and that we've gotten positive response to date that, as I indicated in my remarks, that as the results of the FDA panel become more clear and just to create realistic expectations, the panel is March 25 to 26, and that my experience with the FDA is that it takes a while for them to assimilate all the testimony and input from all the experts that they're involving. I have detailed copies of their agendas for the 2 days. But the point I'm trying to make is that we are not going to know precisely what the FDA outcome is going to be and that I go back to saying that we expect this to impact the first half primarily, but we're providing as much information as we can at this point on full year objectives that we'll achieve the market share numbers that we previously had identified.

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Anna Marie Nussbaum, William Blair & Company L.L.C., Research Division - Associate [11]

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Okay. And then are you thinking about your sales force and its size, and any different ways you think?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [12]

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Well, on the Breast Products side, we have -- we have a very loyal, committed group that, as you know, have been extremely loyal to us. And the advantage of that is that they have, in my experience, superior relationships with their plastic surgeon customers, both currently served and those previously served. So that we are -- we're considering expanding the number of PSCs to be able to accelerate bringing in past customers and expanding the ability to supply them with the increased output from our manufacturing facility. So we don't have a specific number that we've locked on, but it's really a question of cost benefit and the revenue per rep assumptions that we can compare going back to 2015 as well as doing a comparable analysis with our competitors. So I'm not giving you an exact number because, frankly, those are decisions that we're in the middle of right now.

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Anna Marie Nussbaum, William Blair & Company L.L.C., Research Division - Associate [13]

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Okay. And then if you will allow me to pivot to the miraDry side quickly. With Kirk under the helm now, how will his strategy potentially differ from the existing strategy for miraDry in the U.S.? International miraDry under Kirk has done particularly well, so how are those International and U.S. markets similar and different? And how does Kirk plan to bring his expertise to the U.S.?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [14]

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Well, if I understand your question, you're really asking what are the advantages in our international approach? And how do they differ from the domestic strategies? And the basic answer to that is, frankly, with Kirk's leadership, finally honed in his years at ZELTIQ has established a very successful discipline that he's in the process of installing domestically. So we've got the experience of other similar businesses, CoolSculpting among others, and we have confidence that increased discipline is going to work. I'm encouraged by what I'm seeing so far. And relatively early days with the new marketing campaign and strategy of building awareness in addition to the increasing discipline on the part of both the sales reps as well as the practice development managers. This isn't the most complicated commercial strategy, but we'd like to share more in terms of how we're going about it. But it really is forming a much stronger partnership with the physicians and driving interested consumers from that 15 million target audience, and that we expect that to continue to accelerate through the year, while we also continue to grow the international side.

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Operator [15]

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Our next question comes from the line of Richard Newitter from SVB Leerink.

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD, Medical Supplies & Devices and Senior Analyst [16]

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Thanks for taking the questions. The first one, just on the I appreciate the at least 25% breast implant growth in 2019 and that the first half is going to be -- you are seeing some impact and you are dialing that in for the first half end market volume's moderate declines, but what exactly are you dialing in for the outcome of the FDA panel into the back half? And how have you factored in kind of the possibility, if at all that textured implants continue to go away? Our maths suggested that kind of maybe a small, maybe $1 million to $2 million impact to your breast implant business, but is that contemplated in that 25% growth target? Any color would be helpful.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [17]

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Yes, Rich. I think that you've made some, I think, very insightful comments previously. And what -- to make it as simple as I can, given, frankly, our inability to forecast precisely on a quarterly basis, we realize that the FDA overhang is going to impact our first half quarterly expectations. But based on considerable input collaboration partnership with a number of well-known experts that we don't want to presume or get ahead of the FDA outcome, but the advice that we're given is that this panel is focused on evaluating the risk-benefit of breast implants with an objective, specifically, to conclude with the development of action items for stakeholders, to improve patient education and informed consent about the risks and benefits of breast implants. And again, I don't want to get ahead of the panel's conclusions, but the impact on Sientra for the year is, there is some downside softness in the first half that we expect to pick up in the back half, because we expect a lot of the concern that I prefer to talk about uncertainty, because that's really what it boils down to. There is a significant amount of uncertainty associated with the risks that we are expecting to be clarified, mitigated to a significant extent in the back half. Does that help?

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD, Medical Supplies & Devices and Senior Analyst [18]

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It does. So I guess just to simplify (inaudible) it sounds like if you are expecting some level of resolution on some level to that uncertainty into the back half. Is that a fair statement, Jeff?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [19]

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Yes, a mitigation of the uncertainty in the back half and -- look, we've -- we're very familiar with the history associated with breast implants. And using history as our guide, that we believe that there will be a responsible action taken by the FDA, that at the end of the day, will reduce the uncertainty about the risk associated that, we believe, will pick up procedures in the back half of the year. And there are several statistics and relatively recent summaries of augmentation growth from ASPS for the full year of 2018, where augmentation procedures grew by 4%, that we're trying to understand to what extent that may have been affected by some of the early concerns through the media. But like I said, there is a modest indicator that is affecting first quarter consultations and procedures. But again, based on collective experience with a lot of people who go back decades on this that we are factoring in a mitigation of that risk for the back half.

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD, Medical Supplies & Devices and Senior Analyst [20]

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Got it. And I just want to clarify, Jeff, when you talk about kind a negative impact in the first quarter potentially lingering into the second, just order of magnitude, are we expecting to see possibly like 0% growth in breast implants in 1Q with a huge ratcheting in the back half? Or just maybe 25% for the year, it's something solid double-digit still on the first half is attainable, is that correct?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [21]

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Let me let Paul comment on that.

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Paul Sean Little, Sientra, Inc. - CFO, Senior VP & Treasurer [22]

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I think, Rich, on the -- we gave some flavor on the year that point. That's what we are going [to give it for, just] on the year -- the yearly event and we're not going to get any -- get into the [quarterly] cadence at this point.

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Operator [23]

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Our next question comes from the line of Chris Cooley from Stephens.

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Christopher Cook Cooley, Stephens Inc., Research Division - MD [24]

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I apologize if I missed this, but I didn't hear you give guidance for miraDry for the growth for the full year. And so while I fully had anticipated that with the uncertainty associated with the upcoming FDA panel that you might preserve, establishing formal guidance for the year, you did give us a bogey for the breast implant business. So if I missed that, I apologize. Could you remind me what the guidance is for miraDry? But if there wasn't a guidance, could you maybe help us understand why no guidance for the total company? And also similarly for adjusted EBITDA?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [25]

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The issue of guidance has been discussed for a number of quarters here. And that we are committed to providing guidance during 2019, but at this point, we've decided that it is not in anybody's best interest to provide guidance with this potential, and I'll call it uncertainty associated with the panel. So one of the things...

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Christopher Cook Cooley, Stephens Inc., Research Division - MD [26]

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Jeff, if I could interrupt you, you did provide guidance amidst this uncertainty, by telling us that you would grow the breast business 25-plus percent this year more so in the second half, less so, obviously, in the first half, which we'd already assumed in our numbers. I'm asking about miraDry and then the total company.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [27]

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And what I'm trying to explain is that we are delaying full company guidance and details associated with that guidance that we plan to share when we get past this FDA panel. Now guidance is a variable definition, but our intent is to provide more concrete estimates for the full year, which would include miraDry as well as latest information on breast implants. And at this point, it is interesting, because we keep saying that we're not ready to provide guidance, and we've been consistent on that. But at the same time, we've provided some fairly granular information to all of you. And I think the best way to answer that, in the absence of deciding to provide guidance today that we expect the miraDry business to continue to grow at an accelerated pace on both international and domestic sides. And I guess the best way I can answer it, again, is that we're giving you a sense of confidence that the business is going to continue to make significant progress and that the difference between giving you information on breast implants is really driven by the fact that we know that because of the uncertainty, we want to give you a sense of our commitment to grow at least 25% given these new circumstances. miraDry, for right now, I would leave it, that we continue to have very high confidence with a number of the things that we're aware of right now. But that we will -- we plan on providing you official guidance as early as the end of the second quarter, assuming that we resolve the primary issues that we're facing right now. So -- and that's the best way to put it.

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Christopher Cook Cooley, Stephens Inc., Research Division - MD [28]

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Understood, I appreciate the color. If I could just quickly -- just on the -- maybe as my quick -- as my follow-up. You alluded in your prepared remarks about expanding OPUS' availability to select international markets and it would seem that would be very opportune at this juncture, especially with Allergan's removal from the marketplace. Can you just address from both a capacity and from a capital structure standpoint if you have the wherewithal to do so right now? And how you think about that moving forward, especially with what I'm assuming is an increase in terms of the use of working capital to grow the miraDry install base here in the U.S. as we look through 2018?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [29]

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Charlie, you want to talk about that?

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Charles Huiner, Sientra, Inc. - COO and Senior VP of Corporate Development & Strategy [30]

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Yes, and I will. Chris, let me just quickly address the guidance point that you made earlier and just add on to Jeff's statement. Because I -- we -- as Jeff mentioned, but just to clarify, we wanted to specifically provide the breast implant guidance this quarter or into this year, specifically due to the -- due to what's going on with the breast panel. And we felt it was the right thing to do to give you sort of an anchor to give you and analysts and investors as an anchor as it relates to our breast implant business. And so that was really the effort we made to provide some level of certainty and confidence around our breast implant. So again, as Jeff mentioned, going forward, our intent is to provide broader business guidance, but we thought, given the specifics of the panel and a lot of the questions and uncertainty around that, we wanted to provide our insights in color as validated by our guidance of breast implants for 2018. And hopefully, that's -- for 2019, and hopefully that's appreciated as it relates to that particular part of our business.

As it relates to our international business and capacity and capital structure, as we've made clear, our first objective is Canada. And Canada is sort of an extension in the sense of our North America -- of our U.S. business. It's a -- an application we filed in third quarter of last year. And certainly, we believe that that's the next big step for us to be able to leverage our FDA approval, and all of our clinical data through 10 years into Canada as an adjacent market. And in particular, as we've been hearing now for many years that Canada -- Canadian surgeons and patients are looking for choice just as the United States market was looking for choice 6 or 7 years ago. And they're asking for Sientra. So we feel very good about Canada as the first step and our ability, frankly, to supply Canada in line with our ramp supply from Vesta through this year.

As it relates to further international expansion whereas we mentioned, and Jeff mentioned in his prepared remarks, we are looking at other opportunities to expand our business in the select international markets. You can expect we'll be very intelligent about the way we expand into international markets as opposed to the traditional way that many companies have done it, which is just to basically sell to everybody. Our goal and objective is to develop the right strategy, to pick the 10 or 15 markets, where Sientra implants and our data can be most impactful and to develop our go-to-market strategy around those.

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Operator [31]

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Our next question comes from the line of Alex Nowak from Craig-Hallum Capital.

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William Fafinski, [32]

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This is actually William Fafinski on for Alex today. So we've been bouncing around between a dew different calls this afternoon, so apologies if this was already asked. But regarding inventory, based on the current manufacturing schedules, when do you think you'll get out of a backlog situation? I understand you have hundreds of SKUs, but when will you be at a point that you can comfortably be with inventory on hand and comfortably order more product when needed?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [33]

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Charlie, if you want to talk about that?

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Charles Huiner, Sientra, Inc. - COO and Senior VP of Corporate Development & Strategy [34]

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Yes, so as I just mentioned, in terms of supply and as Jeff mentioned in the prepared comments, we are -- we're pleased with the continued scaling and yields that we're seeing from Vesta, which are making their way through to increased supply quarter-over-quarter. And we've said that pretty consistently. Certainly, since the fourth quarter that we expected that, and we've indeed seen that and that did allow us to open up some more aggressive conversion programs that we mentioned in the fourth quarter, which underpins some of the success we had with our Breast Products business during the fourth quarter. We expect to continue to see that ramping through the first half of this year, as we mentioned in prepared remarks. And in terms of sort of full supply, the first part of that and what we've been saying is that, we have sort of a core set of SKUs around our round implant line, and we do expect that will continue to be at sort of healthy supply levels for those implants really through this year. And then we'll continue to work on some of those other implants in terms of building scale and supply through the first half of this year.

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William Fafinski, [35]

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Great. I appreciate it. And then just -- I know this is going to vary among your customers. But when you look at your Tier 1 orange accounts, what is Sientra's implants share in those positions? And how does this compare to the same time last year?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [36]

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We don't -- I do not have the specific share information among the core 200 that we've been focusing on for the last couple of years. What we -- I can give you a rational estimate that among the current focused core customers, we -- I would say, we average approximately 50% of their -- the products they use in their procedures. That varies depending on the type of implant and whether it is a shape, ultrahigh profile, larger sizes, et cetera, which we're moving aggressively to be able to supply from Vesta. And that's one source of growth to increase the share of our core customer base. But I look at a more significant opportunity to be able to, like we've said in the remarks and couple of times here, that with the increased availability of product, we have our PSCs working aggressively with previous Sientra customers to bring them into the fold and that net-net, the -- our market share is going to be determined by a combination of, first of all, those that we have and we are serving. But at the same time, we know that we had a run rate close to between 13% and 15% market share in 2015 and that, that was strictly limited with augmentation products. So we've got a very different profile right now. We're moving into reconstruction and having made the progress we already have, is going to accelerate that market share target, based on how quickly we're able to penetrate, not only the past Sientra customers, but also to expand into largely incremental reconstruction practices, which are largely controlled by hospitals, and many of the larger hospitals. So I don't have that specific market share data, but that's going to be part of what we hope to include in our guidance in the very near future.

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Operator [37]

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Our next question comes from the line of Anthony Vendetti from Maxim Group.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [38]

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Okay, yes. Okay. So my follow-up -- my question is, on the breast product portfolio, you said for breast implants what we talked about greater than $25 million or greater, it looks like there is $16 million in revenue in 2018. Can you tell us what you expect for the rest of the Breast Product portfolio, excluding implants, for 2019?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [39]

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Well, I think the 2018 implant number was $21 million, and that we're looking at a 25% increase on that. And again, that's an annual number, and that's going to be impacted by how quickly we're going to be able to bring online some of the additional SKUs, like I said, larger sizes, shape, et cetera. Ultrahigh profile and so forth. That this is not the most complicated medical device business, but there are a lot of pieces involved here. So I'd just like to verify that what we're talking about is a moving from $21 million with a 25% increase into 2019.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [40]

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And so just to follow-up. So the rest of the business around $16 million or so, is that pretty much static? Or do you expect some growth in that business as well?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [41]

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That gets too close to the guidance word. But I can say that we have high confidence in the entire Breast Products group. But I can't give you any specifics.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [42]

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All right. Shifting gears to miraDry. How many sales reps do you have now for miraDry in total? And then what's Kirk's or your view of what you need for 2019?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [43]

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The domestic number in total, including capital reps as well as practice development managers is in the order of total of 40, 44, is that right?

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Unidentified Company Representative, [44]

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Yes.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [45]

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And that is really a question of developing the skills and being able to integrate the approach to bring on new practices and bringing in the practice development manager to build the business in those new accounts, once they've made the commitment to buy the unit. So right now, we feel that we've got an adequate number of representatives, and that we're looking at -- and on the international side, and I think the number is close to 20 to 22. And that I would consider that to be an extremely high-functioning team over there. And again, the result of what Kirk brings to the business. And it's all based on discipline and aggressiveness to be able to convince practices that this is going to make a significant contribution to their overall objectives.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [46]

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So lastly on miraDry, you estimated that 35% to 40% of miraDry patients come back for another procedure of some type. Is that just an internal number that you have? And if so, what's the -- what was the sample size that you tracked to determine that?

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [47]

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Well, it's certainly been part of our market research and pilot program. I don't have an end value that I can give you right now. But we're seeing -- and again, this is relatively new, at the tail end of fourth quarter going into first quarter, but we're pleased with the feedback that we're getting. That people who come in for miraDry treatment have predominantly not been to an aesthetic practice before. And once in, they see the advantages of other aesthetic treatments that are available. But yes, we're encouraged by that estimate. And the further along we get, we may find this to be conservative, we may find it to be a bit aggressive. But it depends on practice by practice. And we've could get into a longer discussion on that, but we worked hard at making this an integrated approach to onboarding -- not only onboarding new practices, but also to take the installed base that we have, that are approximately 1,000 installs, and to work with them to increase the productivity and the number of procedures per week, per month so that, that has the double advantage of increasing the consumables volume, which makes a significant improvement to our overall gross margins. Consumables have a -- north of a 70% gross margin, whereas the capital equipment, obviously, has a lower gross margin.

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Operator [48]

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This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jeff Nugent for any further remarks.

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Jeffrey M. Nugent, Sientra, Inc. - Chairman & CEO [49]

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Well, I just want to thank all of you for your interest. And I know that there is a high level of support for the Sientra business opportunity. And that even with some of the headwinds that we faced, and I think you're all familiar with most of them, we've lived through it. But we're extremely proud of the progress we've made in getting through those headwinds. And right now, the primary one we're dealing with is waiting for the FDA panel to conclude, and that we remain optimistic, an informed optimism, that the results of the FDA panel will actually benefit patients in terms of informed consent. And that we still feel that we have such an advantage with our superior safety data that, that's going to play a significant role in driving market share going forward. So again, I thank you for your interest, and I can't say enough about my confidence that we've made the progress that we have and that this is the basis for a significant global business. So again, thank you very much. And look forward to seeing you -- as many of you as possible in the near future. So thank you.

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Operator [50]

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Thank you. Ladies and gentlemen, for your participation in today's conference. You may now disconnect. Good day.