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Edited Transcript of VIVE earnings conference call or presentation 8-Aug-19 8:30pm GMT

Q2 2019 Viveve Medical Inc Earnings Call

FRANKLIN Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Viveve Medical Inc earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeannie Swindle

Viveve Medical, Inc. - Senior Director of Corporate Communications

* Scott C. Durbin

Viveve Medical, Inc. - CEO & Director

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Conference Call Participants

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* Jeffrey Scott Cohen

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research

* Joshua Thomas Jennings

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Viveve Second Quarter 2019 Financial Results Conference Call. (Operator Instructions) Speaking today are Viveve's Chief Executive Officer and Director, Scott Durbin; and Jeannie Swindle, Senior Director of Corporate Communications. Following an overview of the second quarter corporate update and results, the call will be opened up for questions. Please note this event is being recorded.

I'd now like to turn the call over to Jeannie Swindle. Ms. Swindle, please go ahead.

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Jeannie Swindle, Viveve Medical, Inc. - Senior Director of Corporate Communications [2]

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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 not 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.

Also, 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 now like to turn the conference over to Scott Durbin, our Chief Executive Officer.

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Scott C. Durbin, Viveve Medical, Inc. - CEO & Director [3]

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Thank you, Jeannie, and good afternoon, everyone. Thanks for joining us today. I'd like to start today's call by commenting on the major commercial transformation that was initiated in June in the United States from a capital sales model to a recurring revenue model, highlight its rationale, program components and positive traction to date.

I'll follow with comments on our regulatory and clinical development programs, specifically the additional results from our LIBERATE-International stress urinary incontinence trial reported yesterday and our ongoing sexual function trial, VIVEVE II, that continues to represent a significant near-term opportunity for the company to support label expansion for a new indication in the U.S. After a brief update on Viveve's international business and before opening the call for questions, I'll conclude with an overview of Viveve's current and continuing areas of focus.

As previously reported, we underwent a major transformation to our commercial strategy in the U.S. with the shift to a recurring revenue or rental-based commercial model at the beginning of June 2019. The strategic intent of the transition was to increase adoption rates of our CMRF technology by reducing the barrier to entry that the initial upfront cost that the Viveve System represented to physicians under a traditional capital sales model. This barrier required extended amounts of time spent by field-based sales reps to place systems and to close sales. And by significantly reducing the initial upfront cost, we've already seen customer adoption rates increase and foresee additional consumable utilization increasing and per system profitability improving by greatly reducing the selling time and sales expense per unit.

We're pleased to report the positive response from new physician customers. In fact, the first month of the transition resulted in the highest level of productivity in our company's history, and the success of this model has continued in July and August.

Introduction of the monthly rental model will reduce revenue on a per unit basis in the near term, but it's projected to be offset by higher unit placements and improved revenue performance in the future. The program offers the potential for significantly improved profitability for Viveve based on multiple factors, including greater long-term revenue per customer, lower selling cost per unit placed, improved revenue from consumable sales and importantly, establishes a revenue pattern with sustainable growth and predictability on a quarterly and annual basis.

As stated in our July 22 press release, the change to the recurring revenue model in the U.S. and the associated accounting impact of transitioning to revenue recognition over time under lease accounting required us to withdraw our revenue guidance for 2019.

In addition to lowering upfront cost to increase adoption rates, the launch of the new U.S. commercial model is now supported by an expanded suite of customer services designed to enhance the success of our new physician customers and to optimize the benefit of Viveve's CMRF technology for patients.

A dedicated and specialized customer care team is now the primary point of contact for new customers who will coordinate and assist with practice development, triage medical or technical issues, promote product offerings and execute programs to increase and drive higher utilization rates.

Viveve University, our new on-site comprehensive training program for customers, now provides clinical training, expert demonstrations, patient selection guidelines and communication tips for use in consultations with prospective patients. I can proudly say that the inaugural session of Viveve University started today with 30 to 40 enthusiastic customers participating. We believe that the training on best practices offered in Viveve U will lead to provider success in providing CMRF procedures to their patients, expanding patient demand and growing their clinical practices.

Finally, our new commercial model now includes unbranded consumer marketing campaigns, geographically targeted around Viveve accounts to build broader awareness of prevalent women’s intimate health conditions. These campaigns will also help connect patients directly with local physicians who offer Viveve procedures. While this was a massive transformation from an organizational and financial perspective, we look forward to reporting on the growing success of this new commercial model in the months ahead.

Turning to our international business. Sales of Viveve products will continue to be supported by the company's current distribution partners without significant change to the international business model. Our partners outside the U.S. continue to support our technology and remain enthusiastic due to positive physician customer feedback and the benefits experienced by patients treated for vaginal laxity, sexual function and stress urinary incontinence.

In the second quarter, we also expanded our commercial footprint in the Middle East through a new partnership with a leading medical distributor, Dansys Group. They have a large, well-established customer base of gynecology and urogynecology medical specialty practices, hospitals and women's health clinics in the Gulf region. However, during Q2, we also made the decision in conjunction with our shift to the recurring revenue model to allow our international distribution partners to refill sales pipelines and shift them closer to real-time ordering, which resulted in few international system placements during the quarter, and as a result, lower revenue. However, this was an important effort towards improving ordering predictability and will also help us to drive international ASPs higher in the future.

On the regulatory front, Viveve announced in the second quarter U.S. Food and Drug Administration 510(k) clearance for our next-generation Viveve 2.0 system in the U.S. and CE mark clearance in the European Union. These clearances represent achievement of significant regulatory milestones by the company and expands our commercial opportunity and potential future profitability. Our 2.0 platform has significantly reduced manufacturing costs for both the next-generation system and its consumable treatment tips that we expect will continue to have a positive impact on our overall gross margins going forward, particularly as our recurring revenue model begins to scale in the future.

On the clinical side, scientific rigor has long been a hallmark of Viveve and differentiates us from other companies in the women's intimate health industry. Our leading clinical development programs in pursuit of expanded labels in sexual function and SUI indications are testaments of our mission to enhance women's lives by providing clinically proven high-quality products that improve their overall health and well-being.

The first quarter brought a great advance to our sexual function program with the completion of enrollment in VIVEVE II, the multicenter randomized, double-blind, sham-controlled trial in the U.S. And this important trial is ongoing, and we look forward to the data readout in April of next year and anticipate positive results that should support our marketing application for a new U.S. commercial indication, and an estimated $6 billion to $7 billion total available consumable market opportunity globally.

As a reminder, this trial was preceded by VIVEVE I, our robust, published, blinded and sham-controlled trial that we conducted internationally on 174 patients, which showed a clinically meaningful improvement in vaginal laxity and sexual function that was highly statistically significant.

Unfortunately, the second quarter brought the surprising and disappointing readout of our LIBERATE-International SUI trial. As recently reported in this trial, both the active and control groups demonstrated substantial improvement on the primary endpoint, the 1-hour pad weight test at 6 months post treatment. However, the comparison in the active group and the control group did not achieve statistical significance. A full review of the secondary end point data was performed and reported on August 7 and consistent improvements in the active and control across all 6 end points was demonstrated at 6 months post treatment.

The median percentage change from baseline at 6 months based on observed case data for the 1-hour pad weight test was 77% for the active group and approximately 80% for the control group. The median percentage change from baseline at 6 months, again, on observed case data for the 24-hour pad weight test was 71% for the active group and 61% for the control. And reduction in incontinence episodes as measured by the 3-day voiding diary, the median percentage change from baseline at 6 months was 83% and 73% for the active and control groups, respectively.

Additionally, the quality-of-life measures and urodynamic questionnaires were equally consistent between both groups. We are continuing to analyze the confounding data. However, the consistency of improvement in both the active treatment and the sham-control groups and the magnitude and duration of these improvements may indicate that the effect is unlikely due to placebo. As a result, we are currently evaluating potential options to continue our SUI clinical and regulatory development program.

The extremely positive and durable results reported from this trial and our independent SUI 12-month feasibility study are being replicated commercially by an increasing number of physicians and KOLs globally, who have adopted and continue to adopt Viveve's CMRF technology as an effective noninvasive single-session treatment for women with mild-to-moderate SUI. A vast number of these physicians have contacted us to voice their support of our efforts to continue our pursuit of a regulatory approval for SUI indication that would address the unmet need of an estimated 25 million to 30 million women worldwide who suffer from this intimate health condition.

As Viveve moves forward through the remainder of this year and into 2020, our focus and organizational efforts are to: number one, ensure the continuing success and growth of the recurring revenue model and integral support programs in the U.S.; two, prepare for the upcoming VIVEVE II data readout in April and potentially achieve FDA clearance for a new sexual function indication in the U.S.; and third, evaluate and execute on potential options to further advance our SUI clinical development program.

Anita, at this time, we'd like to open the call to questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Josh Jennings with Cowen.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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I appreciate the download. I guess just a follow-up on some of your last comments around clinician's optimism for the SUI indication. I think, I guess, the market has interpreted the data as a regulatory failure, but from a commercial use standpoint, I mean why would practitioners stop using the system for SUI, when the study group showed such stellar efficacy relative to other therapies? I mean, clearly, they're placebo. It's hard to fathom that a placebo effect would drive step -- improvement in stress urinary incontinence the way it did in the control group. I mean -- but could this data actually spark utilization, off-label utilization clearly in the United States and internationally? And I guess maybe if you could give us some more color on the feedback from your loyal users and particularly their anecdotal experience outside the trial? And then what they're telling you they're planning to do from utilization standpoint for SUI?

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Scott C. Durbin, Viveve Medical, Inc. - CEO & Director [3]

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Yes. Thanks, Josh. I appreciate the question. I think -- as I tried to highlight in the prepared remarks, I think we've received an outpouring of support from our current users and KOLs, who, quite frankly, have never seen this kind of data before. I think you underscored it nicely for me, which is we continue to see tremendous commercial outcomes for patients out in the field. That's been consistent. It was -- that's consistent in the outpouring of response we've gotten post trial.

Most of the feedback has been, we're really disappointed for you guys from a regulatory perspective. But this data of achieving a 77% reduction in pad weight or a 70% reduction in 24-hour pad weight and significant reduction in incontinence episodes in our patients is consistent with what we're seeing in our clinics. And we hope that you guys continue to pursue potential labels in the United States and internationally.

So importantly, the active group performed tremendously well, far beyond the U.S. or international regulatory hurdles that are required for this indication. I think our job going forward is to figure out how to potentially run a more effective sham-control group. And we have a lot of ideas about that in this regard. We're not really ready to talk about them yet. We've got some more work to do, but we do -- we don't think the program from a regulatory perspective is dead. And certainly, this data as well as results in SUI from our earlier studies is useful in helping to convince physicians and patients that this is an effective onetime treatment option.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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And maybe you could also share now, we're waiting for VIVEVE II readout next year. But similar to the reports you received on success and efficacy with SUI, can you just talk about some of the anecdotal feedback you've gotten from your users on improvement in sexual function with some of the patients that have been treated?

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Scott C. Durbin, Viveve Medical, Inc. - CEO & Director [5]

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Yes, sexual function and -- for the improvement of vaginal -- as measurement for the improvement of vaginal tightness or vaginal laxity continues to be a procedure that is adopted frequently by our physician practitioners. And physicians around the world continue to report success in treating for that particular indication, consistent with our published fully double-blinded, randomized, sham-controlled trial in sexual function. So we're anxious to get the outcome from that study. As I mentioned, that was predicated by -- or preceded by our VIVEVE I trial, which was again, double-blind, randomized and sham-controlled, with a highly statistically significant outcome. So I think we believe that this treatment works effectively, better than anything out there, our job -- and our physician customers and patients do as well who have been treated. Our job at this point in at least in SUI is to go forward and figure out how we clinically prove that, especially with respect to the sham-control group.

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Operator [6]

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(Operator Instructions) The next question comes from Jeffrey Cohen with Ladenburg Thalmann.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [7]

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Just a couple of questions. So talk about the rental program, so that will be monthly revenue. Do you report it out as separate line item? And are there minimums on number of months for placements as far as monthly revenue?

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Scott C. Durbin, Viveve Medical, Inc. - CEO & Director [8]

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Yes, as the program scales depending on the magnitude and materiality of the corresponding capital sales that we have, we will likely begin at some point in the future to report that as a separate line item. Right now, obviously, we have just made the transition, so it's not reported that way in Q2. Yes. And so right now the program we're offering is a 6-months commitment, and it's a little to no upfront for a new customer, there are 2 programs in the field right now, let's just say, it's $2,000 a month for the system, but -- and all consumables are still purchased outright.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [9]

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Okay, got it. And then could you walk us through where the company stands now on kind of going through some of the data that was read out recently on the trial and trying to understand actually what's the therapy and where is it being derived from, whether that be the continuation of the RF and the constitution of the RF or perhaps constitution of also the cooling as well? And where do you stand as far as clinical on the upfront?

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Scott C. Durbin, Viveve Medical, Inc. - CEO & Director [10]

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Yes, it's a great question. Thank you. I think we don't have a definitive answer at this point there. We are discussing multiple paths forward. One hypothesis is that our sham treatment tip, which is not inert. So it does deliver cryogen cooling. It was designed that way to maintain the double blind of the trial, but it has no RF energy. So it's sort of the common denominator between our active treatment tip and the sham tip, is this pre-cooled cryogen phase.

So we need to ferret out quickly whether our sham tip is having some kind of therapeutic effect since we, along with the vast majority of our advisers, do not believe that this kind of efficacy effect at 6 months at this magnitude across 6 different end points is placebo. So it is one theory, and I'll underscore again that this is a theory. We've got some work to do to figure that out. But again, I think our SUI regulatory path we don't believe is dead. We have to figure out the fastest cleanest route to discern what's going on and what our next steps will be, which could be a small international trial to 3 months in multiple arms assessing a new sham tip that delivers no energy.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [11]

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And could one of those arms be cryogen alone possibly?

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Scott C. Durbin, Viveve Medical, Inc. - CEO & Director [12]

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Yes. So basically, our sham tip is cryogen alone. We've proven in the animal model and in tissue studies that the RF delivered, which is mainly just to make sure that the machine goes through the typical sounds and processes of every pulse. The level of RF delivered in that phase of a pulse is less than 1 joule of energy. And by contrast, our therapeutic dose in the active tip in what we sell commercially is 90 joules per centimeter squared. So effectively, the current sham tip we're using is or could be considered cryo-only. So one concept we could use to ferret this out is treat for SUI with our active, which would be a combination of RF and cryo, with our current sham tip, which would be cryo-only and with a tip that delivered 0 energy.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [13]

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Okay, got it. And then lastly, could you just walk us through a little bit about OpEx and how that may look for the balance of the year and beyond and kind of weave into that the marketing and support initiatives as well and how they may affect it?

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Scott C. Durbin, Viveve Medical, Inc. - CEO & Director [14]

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Yes, we see little effect. We're running pretty cost-effective social media unbranded marketing campaigns in limited geography. So we, currently, today, now for the rest of the year, will have a sales force focused on 7 different markets in the U.S. with one leader. We have focused our social media campaigns in those 7 markets for right now. So there'll be little impact to the overall OpEx from a marketing perspective. I think we see R&D probably coming down a little bit in the back half of the year as we figure out the timing around a U.S. study for SUI and what we need to do to get there and probably see SG&A staying pretty consistent for the rest of the year in terms of what it was in Q2.

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Operator [15]

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This concludes our question-and-answer session, and also concludes our conference. Thank you for attending today's presentation. You may now disconnect.