Axonics Inc

NASDAQ:AXNX

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Axonics Q1 2020 Results Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded.

I would now like to turn the conference over to your host, Mr. Neil Bhalodkar. Sir, please go ahead.

[Neil Bhalodkar, executive]

Thank you, and thanks, everyone, for joining the Axonics quarterly results and update call. Presenting on the call this afternoon are Raymond Cohen, Chief Executive Officer; and Dan Dearen, President and Chief Financial Officer. Ray and Dan will provide prepared remarks and commentary on the first quarter financial results, U.S. commercial progress and a general business update followed by a Q&A session.

Before we begin, I would like to remind listeners that statements made on this conference call that relate to future plans, events, prospects or performance are forward-looking statements as defined under Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and belief, these statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause results to differ materially from the expectations expressed in the conference call, including the risks and uncertainties disclosed in Axonics' filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date, May 5, 2020. Except as required by law, Axonics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances, unanticipated events that may arise.

With that said, I'd like to now turn the call over to Ray for his remarks.

[Raymond Cohen, executive]

Thanks, Neil, and I'd like to thank everyone who's dialing in for today's call and to those of you who will be joining by webcast.

As you know, this was Axonics' first full quarter in the United States as a commercial stage company. We're incredibly proud to report this quarter's exceptional revenue result of $26.3 million, of which $25 million was generated in the United States. In fact, our result tops product launches by Nevro and iRhythm with one having to go all the way back to 2008 and Boston Scientific's Promus stent launch to find a company whose first full quarter following FDA approval generated a higher U.S. revenue total.

The results are testament to our -- to the quality of our product and our 170-person U.S. commercial team and were driven by overwhelmingly positive response from the sacral neuromodulation implanting community and their patients. It's clear that implanting physicians appreciate the professionalism of our field team, and that Axonics is providing an excellent product at a competitive price. They also appreciate our bespoke sacral neuromodulation device given that it is intuitive, fuss-free, long-lived, full-body MRI compatible and has been proven to be safe and clinically effective in both our pivotal clinical study and, more importantly, in everyday clinical practice.

In addition to executing one of the most impressive commercial launches in medtech history, Axonics continues to invest in product development and innovation for the benefit of physicians and their patients. For example, in January, the FDA approved an enhanced, second-generation programmer for the Axonics SNM system that incorporates, among other things, a predictive programming algorithm that translates interoperative responses and suggests how to program the patient for optimum therapy, thereby reducing the need to adjust therapy post-implant. In mid-April, the FDA-approved a next-generation rechargeable implantable neurostimulator under a PMA supplement.

Our new IPG decreases how frequently a patient needs to recharge their implanted device to only once a month for an hour, or for some patients once -- only once every 2 months. We began manufacturing this new IPG in late April and expect to begin shipping this next-generation device to U.S. customers early in the third quarter of 2020. Also in April, Axonics submitted a PMA supplement to the FDA for the purpose of gaining full-body MRI conditional labeling for 3T MRI scans in the United States. Just to remind folks, we already have full-body labeling for 1.5 MRI scanners approved in the United States by the FDA. And in Europe, we have both 1.5 and 3T full-body labeling.

So I plan to provide some more color and information on today's call. But first, similar to our past quarterly calls, Dan Dearen, our President and CFO, will start by reviewing the first quarter 2020 financial results. Dan?

[Danny Dearen, executive]

Thank you, Ray. For the first quarter of 2020, we reported net revenue of $26.3 million. This compares to $1.1 million in the first quarter of 2019. Net revenue from the United States accounted for $25 million, with certain European markets and Canada accounting for the balance of first quarter 2020 revenue. There were no stocking orders in the quarter.

Gross profit for the first quarter of 2020 was $9.9 million, representing a gross margin of 62.4%. We are pleased with the gross margin we have seen at this level of sales and continue to expect gross margin to expand to the low to mid-70s over the next few years. Total operating expenses for the first quarter of 2020 were $31.1 million, which is an increase of $17 million compared to the same period in 2019. This increase was primarily due to higher personnel costs for the U.S. commercial team and other parts of the organization.

In the first quarter, we hired 22 additional field-based clinical specialists for the U.S. market and numerous other internal support personnel to ensure physicians and their patients receive best-in-class service and clinical support from Axonics. We also added manufacturing personnel to increase capacity and keep up with demand that has exceeded initial launch expectations. At this point, we've substantially completed the build-out of our commercial and manufacturing infrastructure to a scale that can support the level of business we anticipate once elective procedures return to the levels seen pre-COVID-19.

Net loss for the first quarter of 2020 was $14.6 million as compared to a net loss of $13.1 million in the first quarter of 2019, driven by the same factors mentioned before. Cash and cash equivalents on the balance sheet were approximately $159.8 million as of March 31, 2020. I will touch on COVID-19 before Ray provides more color on this quarter's commercial and operational progress. During this past 7-week period, Axonics is focused on protecting the health of our employees and their families, while at the same time continuing to manufacture products for inventory. We have made certain accommodations such as splitting our manufacturing and quality personnel into 3 shifts to limit the number of folks in the facility at any one time. And of course, we have provided the appropriate personal protective equipment.

Our suppliers have delivered in accordance with our purchase orders, and our team has managed to be very productive building inventory during this period. This will accrue to our benefit as product demand comes back online. Moreover, as outlined in our 8-K issued in mid-April, we determined that in light of the disruption created by the COVID-19 pandemic and its anticipated impact on the company's operations, most employees will take a 20% reduction in compensation for the remainder of the second quarter of 2020. The reductions apply to the majority of our workforce, including senior management as well as worldwide sales and clinical personnel. Certain manufacturing employees who are working full-time are getting a 10% increase in their hourly wages. The Board of Directors will also see their cash retainer temporarily reduced by 20%. These reductions in compensation were effective as of April 16 and are expected to last through June 30, 2020.

I will now turn the call back over to Ray.

[Raymond Cohen, executive]

Thanks, Dan. In the first quarter, our sales momentum accelerated throughout the quarter. It peaked in mid-March prior to COVID-19-related postponement of elective procedures. And as you've heard from many other medical device companies, sales dropped off considerably for Axonics in the last 2 weeks of March. During the quarter, we were averaging approximately $3 million per week in new sales orders.

In the first days of April, particularly the first 23 days or calendar days of April, new sales were very light. However, we have seen new orders during the last few days, particularly last week, and a number of procedures being rescheduled in the month of May. When and exactly how quickly things recover will depend on the scope, intensity and duration of the pandemic and the shape of the recovery. As everyone understands, there are external COVID-19 related factors, which are out of our control. Europe, for instance, which accounts for less than 5% of our business, went dark earlier in March and appears to be on a much -- appears to be much slower coming back online than in the U.S.

Our field -- our U.S. field team reports that as of May 4, approximately 35% of cases we originally had on the calendar in Q2 have been rescheduled. These include external trials along with permanent or full implants. The location of this activity varies widely. There's very little activity in the Northeast as compared to, say, Florida, Texas, parts of the Midwest and the Rocky Mountain region. We do not see New York, New Jersey, Massachusetts, Louisiana opening up until June. California also looks to be slow to reopen, although we were just notified that UC Irvine will begin doing a modest number of elective procedures on May 13.

In any case, we are ready to support physicians and their patients as facilities continue to reopen and elective procedures come back online. Despite these encouraging signs, we expect revenue in the second quarter to be significantly reduced, given the modest number of scheduled procedures. And in addition, we expect gross margin to be negatively impacted due to the lack of manufacturing overhead absorption.

With all that said, given that approximately 65% of our procedures are in ambulatory surgery centers and approximately 50% of our patients are of Medicare age and that sacral neuromodulation is one of the most profitable procedures for urologists and urogynecologists, we believe Axonics is in good shape to recover quickly. Moreover, we know that our customers are anxious to begin generating income for their practices and hospitals. And assuming the recovery is in full bloom in June, Axonics is well positioned to continue to grow during the second half of 2020 and into 2021.

So back to talking about the first quarter and our results, which, in fact, validate the feedback we had received from physicians since our commercial launch in November of 2019. As many sell-side analysts saw firsthand at the seminar series we held -- or seminar series -- or the series of seminars that we held in Q4 2019, our entry into the U.S. market was met with great enthusiasm from physicians. In fact, we're pleased to report that approximately 2/3 of the 325 physicians that attended the seminar series have already purchased products from Axonics, with more waiting, I dare say, impatiently for their institutions to complete an agreement with us. Needless to say, this was a very successful program that provided a significant return on our investment of time and capital.

Implanting physicians tell us that because of our product, they are more confident and enthusiastic in highlighting the benefits of and recommending sacral neuromodulation therapy to their patients. Their staff members report a high level of satisfaction with our product. Meaning that charging is perceived by patients to be easy due to our constant current stimulation and easy to use patient remote. There is little to no reprogramming required by the nursing staff at the office. So this gives physicians more confidence to recommend sacral neuromodulation, and this is an important consideration. In that, for some physician implanters prior to Axonics, sacral neuromodulation was being used only as a last resort therapy.

However, based on the attractiveness of our embodiment and the level of confidence being projected by physicians to their patients, physicians are telling us that more of their patients are saying, yes, to sacral neuromodulation therapy than ever before. So this quarter's results reinforce our confidence that the sacral neuromodulation market is poised for meaningful expansion in the years ahead, driven, to a large extent, by Axonics' commitment to innovation and increasing patient awareness. We are bullish about the future and fully expect sacral neuromodulation to become the preferred third-line therapy for patients suffering from overactive bladder and fecal incontinence.

So some additional information that I trust people will find interesting. So we've made great progress on the customer acquisition and contracting front. And during the first quarter, over 350 ambulatory surgery centers and hospitals in the United States implanted patients with the Axonics Sacral Neuromodulation system. That represents about 1/3 of the top 1,000 centers that practice SNM. And those centers, if you may, account for about 80% of all implantations.

Further, over 110 facility agreements with both national and regional IDNs as well as large urology groups and ambulatory surgery centers have been signed since our U.S. launch in 2019. Now included in this group executed in March are 3 of the largest IDNs in the United States. Now we have another 85 agreements that are currently in -- approximately 85 agreements that are currently in progress or in process. And we've continued to execute agreements during March and April. And while there may be some delays due to COVID-19, we fully expect that the remaining agreements will be wrapped up by summer 2020.

In addition, our data is showing that nearly 90% of the patients trialed with our External Trial System are implanted with a permanent device. This is running about 10% to 15% higher than what has historically been reported in clinical literature. And while we were not expecting to participate meaningfully in the InterStim IPG replacement market at the time of our U.S. launch, we have been pleasantly surprised that over 20% of all of our implants to-date have been associated with physicians replacing InterStim with Axonics. So this is the main reason why we decided to get our new IPG with the extended interval between recharging completed and approved by the FDA in lieu of moving forward with an IPG that is compatible with an already implanted InterStim lead. And on the R&D front, we are -- or we continue to work diligently on a number of incremental advancements to the existing system as well as a nonrechargeable device to round out our sacral neuromodulation line.

So in closing, we're very proud of this quarter's results. We're grateful for the trust physicians and their patients have placed in Axonics. And in addition to the strong commercial execution, we continue to make excellent progress on product development and regulatory initiatives. As Dan and I have said many times in the past and as supported by numerous independent physician surveys conducted by analysts and investors, we believe the global sacral neuromodulation market, in particular in the United States, will expand meaningfully and can double in size over the next 3 to 5 years.

So with that said, we are confident and bullish about the future prospects of Axonics, and we continue to work diligently every day to fulfill our vision. So I'm happy to answer -- Dan and I, Neil, are happy to answer questions at this time, and we're going to pass it to the operator to open it up.

[Operator]

[Operator Instructions] Your first question comes from David Lewis with Morgan Stanley.

[Marissa Bych, analyst]

This is Marissa Bych on for David Lewis. Ray and Dan, thank you so much for the commentary. I just wanted to touch on -- I know you're not providing guidance, and that would be almost silly to do so. But earlier in the year, you had expressed some level of comfort with consensus numbers that were out there. Could you just comment on your various levels of comfort with the numbers there today and sort of how that aligns with your recovery models?

[Raymond Cohen, executive]

Yes. So look, I appreciate the question. I think the issue really depends upon how quickly we can see a recovery in the economy. I mean it's pretty clear that elective procedures are now being allowed in a lot of the states around the United States. But I qualified my remarks earlier with saying if things come back online in June, then we're very confident about making some pretty impressive numbers in the second half of the year. And I really think it depends on the timing. So if things continue to be sluggish, and we don't get back on the beam in June, then obviously, it's going to be tougher. But we feel pretty good about it. But once again, this is very, very difficult for us to project how quickly things come back online at this point. So I think, hopefully, that is a reasonable enough answer.

[Marissa Bych, analyst]

Okay. Great. And just a quick follow-up. I know you touched on this with the InterStim lead commentary, but I just wanted to ask, given COVID-19, have your views on the competitive landscape changed in any other detail? Or how are you evaluating the competitive opportunity in light of COVID-19?

[Raymond Cohen, executive]

Well, I mean, I'm not really sure how to answer that question. It's not that any of us could have ever anticipated a pandemic in the middle of our march towards becoming a major player in this segment. So I think it's -- look, it's a setback for everybody in the medical business. But on the other hand, our team is motivated. We're ready to go. We've used the time in between to make sure that we've got our knives sharpened or swords sharpened, as the expression might go. We have developed a lot of very loyal customers. We don't anticipate any change in their view because of these external factors. And in fact, we're starting to see new orders come in to the company. Now clearly, they're spotty based upon geography, but we have no reason to believe that really anything has changed. And we've always anticipated a competitive response from the incumbent, if you may. So all of that is factored into our thinking. So thank you for the question.

[Operator]

Your next question comes from Robert Hopkins with Bank of America.

[Travis Steed, analyst]

This is Travis Steed on for Bob. Congratulations on a great first quarter out of the gate post-FDA approval. I did want to get a little more color on the trends in Q2 so far. I would assume, April is probably close to 0. And you said, May, so far, bookings are around 35% of original expectations. Just any other color you can provide on the May trends and what the original expectations were just so we can kind of get a sense for how to model Q2.

[Raymond Cohen, executive]

Well, so just to be clear, what I indicated was that we have approximately 35% of cases being rescheduled that were on the calendar at the end of Q1. That's not the same as saying we have 35% of our anticipated orders coming in the door. So -- just so we're clear. We are not bullish about Q2. I mean let me be just super clear about that, right? There is no doubt that Q2 is going to be dramatically lower than what we saw in Q1. And we don't have an absolute crystal ball. The good news is we've got some orders coming in, right? So we're not dead in the water. Things are happening. Cases are getting rescheduled. Some new orders are coming in. But they are a far cry from where we were experiencing $3 million average per week, right? We're nowhere near that right now. So we believe that, once again, May is going to be a light -- April was virtually nonexistent in terms of order flow. May is going to be light, although it's the fifth day of May, and we got a lot of time ahead of us yet. It really -- it depends on how June shapes up. So I -- we are not bullish about Q2. Do we think that by Q3 things will be back, and we'll be in much better shape and could be back on historical growth trend? Then yes, sure. But I think there shouldn't be a lot of expectations for us in Q2.

[Travis Steed, analyst]

Okay. That's helpful. And just as a follow-up, what portion of the procedures that were canceled do you think can come back this year? Do you think you can recapture all those procedures that were canceled in Q2 at some point this year? And then also on the strong Q1 results, any sense for how much of that was market expansion versus share gain?

[Raymond Cohen, executive]

So let me take the last part of your question first. So it's extremely difficult for us to be able to answer the question about market expansion as we are a new entrant into the market. We will know in about a year from the existing customers that we have who told us what their volume was when they started with us what they actually wound up doing and buying and how many procedures they did. So we'll then have firsthand information. The problem is there is no public information about the size of the sacral neuromodulation market or how things are occurring in real time. The data that we have quoted in the past is from third-party claims data, but it's typically 2 years old. So this is very difficult to measure in real time. What I will tell you is that the physicians are telling us, which is granted it's anecdotal, but they're telling us that patients are saying, yes, more often to the therapy when they present it. And that to us is a clear-cut example or evidence that the market is definitely growing. Can we put a number to it? No. And of course, we have no idea what the competition is doing and how their first quarter went. And I would doubt that we're going to know that. Maybe the analysts will ferret that information out. So anyway, that's as much as I really could say.

The big surprise for us, as I mentioned in my prepared remarks, were the number of replacements that we participated in, which was clearly something that we didn't believe that we would be meaningfully participating in that part of the market. So that's the good news. Now the question you asked about, well, what percentage of the procedures do I think will come back and be rescheduled, it's really an unanswerable question for us as a company. I mean, we went out. We did some surveys, if you may, of our team and our customers to get a sense about the percentage that I quoted to you, right? So we know in actual numbers and by whom, how many of their patients have been rescheduled. But it's very much a real-time situation, right? This is dynamic. It's fluid. It's happening every day. And we heard -- as an example, I used that one example where University of California, Irvine, indicated in California they're going to start doing some elective procedures. Our customer was the one who told us that. But on the other hand, we did not get a specific number. This is how many of my patients I have been able to reschedule. So it's dynamic. We're going to be obviously paying attention to this. And it's inevitable that some of these patients won't be back because they've lost their job, they've lost their insurance and so forth. This is why I wanted to point out that 50% of our patients are Medicare age or approximately 50% who should be unaffected by this from a financial standpoint. So we've been very transparent. We'll continue to be transparent, and we'll let people know as much information as we can as we gather it.

[Operator]

Your next question comes from Larry Biegelsen with Wells Fargo.

[Unknown Analyst]

This is Kevin on for Larry. And congratulations on the results. A few quick ones here. So 350 accounts, it's an impressive number. I'm just curious if you can provide any color on how clinicians are using the device across those accounts. Specifically, can you touch on what type of reorder rates you're seeing? What type of estimated conversion you'd expect? I'm curious if it's trending any differently than you expected last quarter. And then looking ahead, understanding Q2 and some of Q3 may be tough, how many incremental physicians do you think you can expect to convert some share to your product in 2020? Anything meaningful along with getting those IDN agreements wrapped up? And then I have one follow-up.

[Raymond Cohen, executive]

So there were a number of almost assumptions that you've made in your question, so I'm going to try to unwind it. The fact is that getting 350 customers on board in 5 months, I think, is a pretty amazing result for the company. As we have said many, many times, we really have focused on those top implanting centers who do the most volume. And I think that it's fair to say that about 1/3 of them are onboard. It's also fair to say that there are quite a number of physicians or centers, right? I want to convert the language to centers because some centers have multiple physicians who are implanting. They want to work with our product but need to get the green card, if you may, from the hospital organization or that IDN -- the regional or national IDN. So we think that is -- it's not a handful. That's like hundreds of new accounts that would be forthcoming. So we believe that the kind of uptake that we've demonstrated in 5 months, once we get back -- everybody gets back to work here, we think that would continue. And we have seen that accounts -- and maybe this gets more to your question, but accounts that switch to Axonics, they switch wholesale to us.

We are not in a situation where people are dabbling with our product. You're either in the boat or you're not in the boat. That has been -- we have been thrilled that that's the case. And why is it? Because in their own hands, they're replicating our pivotal clinical study results. Because their patients are coming back in and they're interfacing when they interface with the nursing staff. The nursing staff is saying to those doctors this product works better. This is easier. The patients are not having a difficult time using their patient remote. The charging is easy. They appreciate the frequency. Now we've obviously raised the bar there as well, so it's going to make it a lot easier for patients. So imagine a rechargeable product that you only have to recharge once a month or, in some cases, once every 2 months. This is pretty amazing and so forth. So the feedback has been really positive from patients back to the nursing staff and then the nursing staff back to the physician. Because the physicians, honestly, they do the implants. We've designed our implant kit to be similar to what they're used to. So there's no learning. There's no training. That's the easy part. But they don't usually interface with the patients afterwards once they've got a full implant on a regular basis. It's the staff who is dealing with those patients. And if they're happy and they say they see a difference, then that gives the doctor even more confidence to talk to the next patient about sacral neuromodulation, and that's what we're seeing. So hopefully, I've given a reasonable answer to that question.

[Unknown Analyst]

No. Perfect. That's great color, Ray. I just have one last one, kind of, on the financial side. You exited the quarter with $160 million in cash on the balance sheet. Can you talk broadly about whether you'll have the ability to kind of take that amount through cash flow positive? Or any sort of sense of cash burn that investors should be expecting in light of circumstances?

[Danny Dearen, executive]

This is Dan. We believe that the cash of $159.8 million at the end of the quarter is sufficient to carry the company through to positive cash flow, even with the setback with COVID-19. I think as we reported previously, in Q4 of 2019, we had operating expenses of, I think it was $28.1 million. And then for the quarter ending March 31, 2020, it was $31.1 million, which is what we had not provided formal guidance but directed toward, which is we'd see an increase quarter-over-quarter -- slight increases in OpEx as we added additional people to the commercial and the manufacturing teams, but certainly no large incremental increase in OpEx over the course of the year. And then I think as you would expect in Q2, look, it's -- we're all expecting this to be a very slow quarter on the revenue side. In the same vein, look, we're also not going to likely spend as much money because there's just a lot less activity in terms of conferences, travel and other activity.

[Raymond Cohen, executive]

But I would add just that operating expenses is not necessarily cash burn, right? I mean we actually -- we build inventory now. We sell it, and then we have receivables and we collect the money back. So it's not -- it's a new day. It's a much more exciting day for us at Axonics. Some of that money comes back. Thanks for the question.

[Operator]

Your next question comes from Adam Maeder with Piper Sandler.

[Adam Maeder, analyst]

Congrats on the great start to the year. My first question is just on the group of patients that had procedures pushed out. What's the process for ultimately getting them back into the OR? I mean do they need to repeat any part of the process, so just doing another trial, or are they just greenlighted for implant once the OR time opens up? And then just an adjacent question. Just curious, was the company or physician base using telemedicine in recent weeks? And could this be another lever that brings more patients online once stuff starts to open up more? And then I have a follow-up.

[Raymond Cohen, executive]

I mean, I think I understand the question, but as you might imagine, Adam, the process by which physicians bring patients back in or reschedule patients -- I mean if I gave you one example, I'd have to give you another 200 examples because there is no consistency across the market as to whether -- are you in a hospital system? Are you an employee? Are you a private physician? I mean are you working in an ASC? I mean there's so many variables. It's really impossible to describe exactly what anybody is going to do. Now having said that, there are hundreds of patients who've had an external trial, and they've been successful. And they don't need to do anything more. They've had their external trial. They were out in the world for 3 or 5 days. They had a success. They are ready for a full implant or a permanent implant, as we say. There's nothing to do. There's no other testing or any other qualifications. So it's just a matter of those centers contacting those patients and getting them back on the calendar. We have really good visibility through our patient care management system. We know who all -- obviously, patients have to opt into the system, but we found a high 90 percentile they opt in. They would like support from the company.

So we know who they are. We know which physicians they're associated with. And obviously, our people are offering to do whatever they can to support their customers in this regard. But it's all over the board and so forth. But there's nothing particular that anybody needs to do. And I know that there's been -- because I am an avid reader of your research and others that are on this call today. I mean I know there's a lot of talk about telemedicine, but this is not really -- it's not really something that we have seen or would be specific or applicable to sacral neuromodulation. Is it a good idea? Yes, it's a good idea. I mean everybody's learned how to use Zoom even if you've never done it before. So is it a good idea for Dr. Dearen to reach out to his customers, have somebody on his staff reach out to his patients and have a chitchat with them, see how they're doing, et cetera. So -- and please don't take this in the wrong way, but COVID-19 does not cure urinary incontinence or fecal incontinence. So these patients are not getting any better that are out there. We just hope that they've got insurance and that they're not afraid to come back in. And I do believe that this 35% number will grow dramatically over the next 4 to 6 weeks. So I think that's about as much as we could say.

[Adam Maeder, analyst]

Okay. That's really helpful color, Ray. Appreciate it. Just for the follow-up on the competitive side of things. Anything new in the field that you're seeing or hearing from your competitor there, I guess, both OUS and then here in the U.S. market.

[Raymond Cohen, executive]

Yes. Thanks. And look, OUS, in terms of what we saw, we knew 3 centers that did one procedure with the new Micro product from our competitor. That's all we know, and then Europe went dark. And so there's been nothing coming out of Europe, nothing at all. And so there's really not much we could say about it because nothing has changed from the beginning of March. And when -- or from -- even from the beginning or when in January, I think, was the time that, that product got a CE Mark. So I'd love to provide color. I just don't have any.

[Adam Maeder, analyst]

Okay. And I guess, no kind of change to the competitive landscape here in the U.S. from a marketing message from the competitor pricing, et cetera, Ray?

[Raymond Cohen, executive]

No, not at all.

[Operator]

Your next question comes from Kaila Krum with SunTrust.

[Kaila Krum, analyst]

Great. So you mentioned that these facility agreements with national and regional IDNs and then as well as, I guess, with urology groups and ASCs. Can you just give us a little bit more detail on what those agreements look like and what they'll do for you in strengthening your position as we come out of the pandemic?

[Raymond Cohen, executive]

Yes. So I mean, I'll keep it somewhat brief. I mean here's the bottom line. If you are a national or regional IDN or I'll just start -- just focus on them. These are facilities that are managed by professional management teams, right? And they have processes in place. And vendors just can't willy-nilly walk in the door and get purchase orders. I mean, doesn't happen, not in the -- I mean there was a time. I've been at this for 40 years. There was a time where you could do these things, but not any longer. You have to have an agreement, and these agreements are very straightforward. They're very simple, but they're necessary, and they deal with HIPAA compliance. They deal with payment term. They deal with -- is it FOB origin, these kinds of things. There's nothing acrimonious about any of this. It is not difficult. It's just that we have to work with the supply chain personnel in these institutions to get these agreements. They are, in effect, hunting licenses, okay? There's no guarantee. We're not negotiating firm contracts with delivery schedules and minimums and things of that nature.

If we did that, it would take 2 years to be able to get these things done. So they're just fundamental agreements. They include the price of the product, the payment terms, things of that nature. And they want proof of insurance from us and things of that nature. They want us to agree to the HIPAA compliance items. So -- but it's a necessary evil that you just have to have them. We have -- we're dedicated to this. We have a function in the company focused on this. Our field team works with our inside people. We get these contracts. I personally see, review and sign every single one of them. So this is not some obscure thing that's happening in the background that I don't know about. The agreements that I mentioned that are in process, there's like 7 dozen or so of those. They're in process. We are back and forth to some red lines and so forth. So that's really the story. And in today's world, you're just -- that's part of the business. And then the last comment is, from our standpoint, it's important that our terms and conditions are spelled out, right? So we -- as a company, we also need some protection when you do business with somebody because if you don't have an agreement then how do you operate? Everybody needs to know what the parameters are and the rules for the road. So nothing controversial, just standard part of business.

[Kaila Krum, analyst]

Perfect. Okay. Great. That makes sense. And then I guess second question, you guys -- I mean you have a decently high percentage of your business coming from ASCs. So as you're thinking about recovery and your early conversations about rescheduling cases, are you finding more ASCs are sort of prioritizing procedures? Do you think that 65% of your business could move higher in the second part of this year? Just -- I just want to understand the recovery process.

[Raymond Cohen, executive]

Yes. Thanks. It's a good question. So look, we're fortunate that ASCs are the predominant centers that we do business, and it absolutely is a fact that the ASCs in certain geographies are coming back online very quickly. It's still about -- more about geography right now than it is about the type of center. I think that's a fair statement to make. As you might imagine, in Nebraska, South Dakota, North Dakota, parts of Florida, Tennessee, Arkansas, man, they're ready to go. We've got cases scheduled. We've got reps in the facilities doing procedures. We got new orders coming in, but it is spotty in terms of geography. And it's not complicated because all of us have been listening to the news and looking at this data, and you can basically look at a map and sure tell where there are less cases for COVID-19, there's more activity from a commercial standpoint. So -- and then as things start to open up, we'll start to see it there. I think there's one consistent point here, and I trust that I'm not the first person from anybody's management team that's said this. The reality is physicians -- they're not making any money right now. I mean, unless they're an employee of a hospital, right now, they are in trouble as much as anybody else. So they need revenue. They need to make profit. They need to feed their families. The hospitals have been hard hit by this as well. So they're highly motivated to get elective procedures back on. And we take solace in the fact that for urology and urogynecology, we have one of the most profitable procedures that there is. So we're bullish about it. It's just going to take some time. And I think everybody's kind of anxious to have a perfect formula or a perfect answer, but it's difficult to say exactly how quickly it's going to happen. But I think the fact that we are levered towards ASCs is certainly an advantage for us. I'd hate to be in the capital equipment business about right now.

[Operator]

Your next question comes from Kristen Stewart with Barclays.

[Kristen Stewart, analyst]

Congratulations on a good quarter. I promise I won't ask too many questions this time around. Just wondering, you had mentioned early on in the call that 2/3 of the physicians that went to all these physician seminars that you hosted before -- or mostly before the launches had already started to order and about 1/3 were really waiting. I was just kind of curious if you had dived into the reasons why they hadn't yet ordered. If it was just simply a matter of the fact that they were just so tied to Medtronic, and you're just not going to ever get them, which is fine. Maybe eventually you will. Or whether it was just product availability or just hospital contracts at the point. I'm just trying to understand the 1/3 and maybe how meaningful, if it is still really a meaningful value at all, this nonrechargeable aspect is, people have kind of gotten over it already?

[Raymond Cohen, executive]

So Kristen, so first thing is that I think one has to start with saying, wow, you guys got 65% of these people who attended a seminar to buy your product, that's unbelievable, right? So...

[Kristen Stewart, analyst]

It's just great.

[Raymond Cohen, executive]

So I should just stop there, okay. But with respect to your question, I'll give you more color. So it's an incredible result. We didn't anticipate that would be the case, right? There was no special requirement for somebody to come to the seminar. They were just interested and they came, and they listened, and I know you attended, so you know what was said. The point is that there are many of them that just are not able to implant our product or haven't been able to because their institutions weren't quick enough to be able to get an agreement in place that allowed us to have a green card, so to speak, to go into that center. And I think it's more about that. Now is there a percentage of people that may have come without any anticipation of switching, but they were curious? Sure. I'm sure there's a few. But it's not as if we've forgotten about all the people who've attended. We continue to communicate with them. We mail to them. We keep them updated. They received a personal message from me a couple of days ago, letting them know that we're ready to go, things of that nature. So I don't see it.

And I would say this. If you were not intending to do business with Axonics, you didn't take time out from your practice to fly to a city and sit with us for a day. So I don't think that there's many of those individuals. There are many other physicians who maybe Medtronic loyalists, as an example, and they're not coming our way. They're never going to come our way. We could stand on our head and give it away -- give the product for free, and they probably wouldn't do it. So -- but good news is that's a small percentage of the market. The game is going to be -- look, in the end, of all the implanting physicians is a simple way to think about it. 25% of the market is 100% all in with Axonics. They're never going anywhere. They love us. They love the product. Their patients love our product. 25%, maybe it's 25%, maybe it's 20%, maybe it's 30%, I don't know. They may never come to us. We win or lose the game by the 50% of the folks in the middle. And that's what we're focused on. And if we can get more than half of the implanting physicians in America or implanting centers in America to come our way, we're going to be a very successful company.

[Kristen Stewart, analyst]

I'm just curious if the reason -- because at one point, the reason seemed to be, at least hypothesized maybe a little bit by Medtronic, this perception of the need of the nonrechargeable one. I'm just curious if that is still out there and maybe if that was why maybe 1/3. And to the extent that you do launch that product, if you can sway that other 1/3, just not sure if that was one of the factors.

[Raymond Cohen, executive]

Look, I actually appreciate you bringing this up because I get to say the following.

[Kristen Stewart, analyst]

Or that has just died and people realize that, hey, we don't need that anymore because this product is so great.

[Raymond Cohen, executive]

Right. I mean, you just answered it. I mean the fact of the matter is this whole concept that people are going to be -- don't want to recharge or we're afraid our patients are not going to be able or want to recharge, it is just propaganda that was said by reps who were afraid to lose business. And so it's propaganda. The facts do not support it at all, and it has gone away completely. The fact of the matter is that people find -- first of all, the spinal cord stimulation business is dominated by rechargeable products, rechargeable neurostimulators. I mean, it's, by far, the majority of sales in that market. Nobody who implants a spinal cord stimulator would say, "Oh, I'm worried my patients are not going to want to recharge." So I think it's just -- it's not relevant. And what's happened in 5 months, this whole conversation about rechargeability has gone out the window. And it's not something we're getting as an objection. If somebody has been not listening, not open to understanding or talking to any other physicians who've used our product, and they still have this perception that's been put in their mind, well, maybe we haven't dissuaded them of that yet. But this is not a reason. Just like the other 15 reasons that some of the competitive reps have put forth turned out not to be the case as well.

So -- and then when the competition is running around saying, "Hey, we're going to have a rechargeable product too. Just wait and see. It's going to be great." How does that play against nobody wants to recharge? And I would say this, if you can't recharge our device with a simple pop that put in this cool lemon type belt, and you walk around now once a month for an hour, I mean, that's a lot easier than taking their patient remote, which has 2 elements associated with it, both which need to be recharged. I mean, the fact of the matter is recharging is either plugging something in the wall or attaching it to your body. Recharging is recharging. So there is no such thing as a non-rechargeable system that doesn't require a human to do something to keep their system operating.

[Kristen Stewart, analyst]

Just on the inventory that you're building. Are you going to be building the inventory for the new product launch, I assume? And will there be some sort of write-off for the existing generation device at some point potentially for the IP?

[Raymond Cohen, executive]

No. I think one of the good things about us having the robust quarter that we had is we sold everything we made. So it wasn't a problem. And as I mentioned, we're building the other product. So we don't anticipate any issues there. And so that's not going to be a concern for us.

[Operator]

Your next question comes from Mike Matson with Needham.

[David Saxon, analyst]

Congrats on an impressive quarter. This is David on for Mike. Just wanted to clarify one of the comments you made of the 350 accounts that you have. You mentioned that they're not dabbling. So does this mean that they're 100% Axonics? I mean as best you can tell.

[Raymond Cohen, executive]

I can't answer that question. I mean, I'm sure there's a procedure here or there that slips through the cracks. But it's -- the way we said it all along is that what we're seeing is substantially all of the business from these accounts are coming our way.

[David Saxon, analyst]

Okay. Great. And then, I mean, I get that the docs want to come back to work, and this is a really profitable procedure. But given that 50% of the patients are Medicare age, what have you been hearing from the doctors about the patient's willingness to come back and get the procedure done?

[Raymond Cohen, executive]

Once again, it's -- we only have certain -- let's just -- I'll make a political comment, certain precincts that are reporting in, right? So I mean, that's the reality. So in the early returns that we're seeing from these states are that people are rescheduling and they're coming back in. I mean, we had one account and this is anecdotal story. I know you guys love these stories. But we have one account. They did 10 external trials -- implants for external trials on 10 patients in 1 day in Central Florida. I mean, unbelievable. That's a great day. That's a phenomenal pre-COVID-19 day for any company. So I think it's really spotty. It just depends on where they're located. I mean, let's face it, in some parts of the country, as everybody has been reading and viewing on television, the fact is that some people are not fussed about this at all. Others are scared to death, right? So it's all over the board, and I think we really -- it's hard for us to generalize. And our experience is really not that different than some of the other reports I've been reading. Patients are coming back, and I think smart facilities are doing everything they can to provide information to patients to provide them comfort. So they know they're coming into a safe environment, and people are wearing PPE and things of that nature. So there's ways to mitigate this. I think, just like anything else, the smart docs, the smart centers, you're going to see them come back and they're going to come back fast. And the others who don't have a clue about marketing, they aren't very good at dealing with their patients in this way that maybe have fallen into that category of I show up and people walk in the door, and that's just the way medicine is, they're going to do worse in this recovery than the others who are proactive.

[David Saxon, analyst]

Okay. That's helpful. And then you mentioned 35% of the cases that were rescheduled from, I guess, it was the back half of March have been rescheduled. What's the size of that backlog?

[Raymond Cohen, executive]

So we can't speak to a dollar amount associated with that. Just to explain, at any given time, as -- and now we're 5 months -- well, let me be careful. April -- it's hard for me to count April, but we were 5 months into the market. And each representative, which then rolls up into a region, we have 11 regions, keeps track very closely of their calendars of cases because that's how we deploy our human resources to support these cases. That's the reason why we added more clinical specialists, and we now have 68 clinical specialists on the team because we need the personnel to support the cases in there. So each of our salespeople, each of our sales managers, they keep an electronic count, if you may, of what's going on. So -- but those cases on the calendar, they include both new patients coming in for external trials. They include patients for full implants and so forth. So it's a mixed bag. And at this point, we haven't tried to like monetize it because the 35% will quickly become 45% and on and on. So I think that it's fair to say -- and what we're trying to signal here is that certainly, we would expect all things being equal, that by July, things are back in kind of a normal cadence. And we're really counting on June, right? We're just assuming May is going to be spotty. And -- but if things come back on June, then we think we'll come rip roaring back in the second half of the year.

[Operator]

Your last question comes from Rebecca Wang with SVB Leerink.

[Fan Wang, analyst]

This is Rebecca on for Danielle Antalffy. Congratulations on a very, very strong quarter, especially in the U.S. Sorry about another COVID question. I wanted to ask from patient perspective. So -- because all those patients are relatively old. And how should we think about the referral chain? How fast can referral tunnel be refueled post the COVID? Because sacral neuromodulation is now third-line therapy and those patients have to gone through all those other therapies before getting the sacral neuromodulation. So I'm wondering, can you guys provide any thinking on the referral network.

[Raymond Cohen, executive]

So Rebecca, it's an interesting question. I think one has to go back to understanding really where and how many patients are out there. This is not -- this is an underserved market. At best, it's been 1% to 2% penetrated. There are millions -- literally millions of Americans right now suffering -- I mean tens of millions of Americans suffering from urinary incontinence, from fecal incontinence, from dual incontinence, smaller numbers for urinary retention and so forth. So there are so many patients that are out there. And I would say to you that if not one fresh patient got referred to a urology or urogynecology office, there are more than enough patients for -- right now in each of those practices who have not gotten sacral neuromodulation, who are candidates who have been differentially diagnosed already with these conditions, who just have never been -- they've never even been presented to them. And the big part of what we've been trying to do with our customers is to remind them that they have so many patients already in their practices, and you should -- first thing before you do anything else is go back to those patients and say, look, we have a device now that's MRI compatible -- full-body MRI compatible that lasts 15 or maybe 20 or maybe 25 years in your body that you don't have to worry about getting it explanted, on and on and on. That if they just go back to their existing patients and share that with them, we believe there's a virtually unlimited supply of these candidates. So we're honestly not relying on a bunch of fresh referrals in order for us to be successful as a company and for our implanters to have plenty to do.

[Fan Wang, analyst]

All right. That's very helpful. And then I want to ask another non-COVID question. On the rep productivity, you guys started with, I think, 100 reps in the U.S. and presumably, those reps are not at their full productivity. So how should we think about the ramp of rep productivity? And ultimately, so for a very productive rep, what's the number from either at least dollar amount or number of implants can rep deliver?

[Raymond Cohen, executive]

Sure. So what we've said in the past is that if you look at the productivity of the incumbent, when we did the math, they were running at about $3.5 million of revenue per head, okay? So I mean, that is ultimately the number that we think is possible from a productivity per salesperson. Now that would imply, for us, a $300 million revenue -- the revenue line. Now we're not going to be there yet, obviously. But that's what's possible. And in any sales force, there is a bell shaped curve. And that's the way it works, right? And some people are unbelievably productive and who -- they're the ones that are out in front and setting the pace, so to speak, for the rest of the sales force. And then you have others who are laggards for maybe some good reasons. Maybe their territory was underpenetrated to begin with. And it's more of a development territory. We have to be patient as a company to support those individuals in those particular territories. So it is, as you could imagine, all over the board. The key metric for us is, number one, is we want the salespeople to be able to pay for themselves, right? That's the #1 metric for us, right? You take the revenue, take 60%, just round number, 6% margin. We look at what it costs to pay those individuals, and we look for productivity at least above that level. That's kind of what we're after. And we have shrunk our team just barely, right? So -- but yes, we believe that we have the appropriate staffing. And with -- between, say, 90 and 95 salespeople, we think that's great, and we will continue to add more clinical specialists as the case volume grows. So ultimately, we'll have a few hundred people, and they'll be pretty well split between clinical specialists and salespeople.

[Operator]

I am showing no further questions at this time. I will now turn the conference back to Raymond Cohen for closing remarks.

[Raymond Cohen, executive]

Thank you, operator. I appreciate your help this afternoon, and thank you, everyone, for listening. We appreciate your interest and support of Axonics as always and look forward to talking to you again soon.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.