Axonics Modulation Technologies Inc., of Irvine, Calif., reported revenue of $1.3 million for the third quarter of 2019, up from $0.2 million in the same period last year, but below Wall Street's forecast of $1.4 million. CEO Raymond Cohen attributed the miss to a seasonal slowdown in implants of Axonics' rechargeable sacral neuromodulation (r-SNM) system in international markets, as well as some U.S. physicians who were waiting for the device to win urinary approval.
That milestone came Thursday when the U.S. FDA approved Axonics' r-SNM for the treatment of overactive bladder (OAB) and urinary retention. The indication for urinary retention represents the largest segment of the market for SNM devices and comes just two months after FDA approved the r-SNM to help patients with fecal incontinence. (See BioWorld MedTech, Sept. 10, 2019.)
This latest approval paves the way for Axonics to challenge rival Medtronic plc and its Interstim II SNM system, which has dominated the SNM space, on both crucial treatment fronts. During a third-quarter earnings call, Cohen said the company's 146-person commercial team has been marketing the product in the U.S., "albeit on a limited basis and without the ability to discuss exceptional efficacy results associated with the ARTISAN-SNM pivotal study for urinary incontinence."
Axonics now can launch fully without any limitations or postapproval delays, he added, noting the company dealt with any postapproval regulatory requirements in the weeks following the first approval.
Focus on U.S. launch
"We are satisfied with the results of the third quarter, considering the fact that a significant number of our small, but growing customer base in Europe did not perform implants in August during the summer holiday season," said Cohen. "While we continue to add new customer accounts in Germany and Switzerland and look to increase implants in England to close out 2019, the company is now focused on the launch of our product in the U.S. market."
Axonics implanted its first U.S. commercial patient late last month, but has held off on launching r-SNM stateside pending the OAB approval. Cohen said the company is only taking orders. "Our business philosophy ... is very clear: Do not put stock on the shelves of these customers." That strategy could dial down growth expectations, too, but Cohen expressed optimism about the long-term outlook.
"Whatever happens with some new product launch ... we're convinced that on a count-by-count basis, based upon having a product that more patients will say yes to, that in effect is going to expand the market, and it's going to expand the market on a customer-by-customer basis," he said.
The r-SNM system offers several advantages over Interstim II, namely a 15-year functional life and the ability for patients to undergo full-body MRI scans without needing to explant the device. Last month, Medtronic filed for FDA approval of its rechargeable Interstim Micro and Interstim Surescan MRI leads.
Medtronic, which recently filed a lawsuit against Axonics alleging infringement of four patents related to its Interstim lead placement procedure and implant recharging technology, issued a tepid statement following Axonics' OAB approval. "Medtronic believes competition drives innovation and broader market awareness, which is good for the industry and for patients, and we welcome competitors who play by the rules and existing laws," the company said. "Also[,] we are committed to protecting our proprietary technology and intellectual property, which drives our continued innovation."
Axonics has called the claims meritless and an attempt to stifle competition. During the earnings call, Cohen reiterated that belief and accused Medtronic of attempting to confuse implant physicians with scare tactics. "Clearly, we've gotten under the skin of the folks in Minneapolis," he said in response to a question from Piper Jaffray analyst Adam Maeder. "Medtronic had this market to themselves for 22 years, okay? And competition is part of the reality of the business. And so we're happy to compete on a fair basis in the field with honesty and integrity, and we would invite people from Medtronic to do the same."
Turning to the pipeline, Cohen said that Axonics hopes to get FDA clearance for a next-generation implantable pulse generator in the second half of 2020. The device, which will be compatible with Medtronic leads, is expected to increase Axonics' access to the SNM replacement market.
All of the $1.3 million in third-quarter sales came from outside the U.S. The company now has 32 hospitals implanting r-SNM systems in England, the Netherlands, Germany and Switzerland, and one in Canada. Gross profit for the quarter was $677,000, representing a gross margin of 51.7%. Total operating expenses were $25.7 million, up from $18.1 million the prior year period and largely related to commercial and manufacturing scale up, according to Axonics CFO Danny Dearen.
Results of a recent Wells Fargo Securities survey of 36 U.S. urogynecologists and urologists bode well for r-SNM adoption. The median of physicians surveyed expect de novo SNM implants to grow more than 27% year-over-year in 2019 and 12.5% year-over-year in 2020. With high physician awareness of Axonics' device, the company is expected to grab about 29% of the market in 2020. Notably, 67% of respondents said they believe r-SNM's efficacy is comparable to Interstim II, and 11% rated it superior.
Wells Fargo Securities analyst Larry Biegelsen said he remains "bullish on AXNX given the positive outlook for share capture and underlying SNM market growth." He noted the company's comfort with current 2020 consensus revenue estimates of $82.4 million and an expectation that operating expenses would remain at third-quarter levels each quarter until the middle of next year.
Biegelsen revised his 2019 revenue outlook for Axonics to $8.2 million, down from $12.6 million, based on the "slightly later than expected" U.S. OAB approval. "We maintain our 2020 revenue estimate of $82.4 [million]. We are lowering our EPS estimates for 2019 and 2020 to -$2.87 and -$1.80 (from -$2.77 and -$1.37 previously)."