Axonics Inc

NASDAQ:AXNX

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Axonics Q3 2019 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Matt Clawson from W2O Group. Thank you. Please go ahead, sir.

[Matt Clawson]

Thank you, Justin, and thanks everyone for joining the Axonics' quarterly results and update call. Joining me on the call from Axonics this afternoon are Ray Cohen, Chief Executive Officer; Dan Dearen, President and Chief Financial Officer. Ray and Dan will provide prepared remarks and commentary on the first quarter financial -- third quarter financial results, FDA status, U.S. commercial preparedness and a general business update followed by a Q&A session.

Before we begin, I would like to remind listeners that statements made in this conference call that relate to future plans, events, prospects or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management's current expectations and beliefs, 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 only to place undue reliance on these forward-looking statements, which speak only as of today's date, November 14, 2019. 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 would like to now turn the call over to Ray Cohen for his remarks. Ray, good afternoon.

[Raymond Cohen, Chief Executive Officer]

Thank you, Matt and thank you to everyone who's dialing in for today's call or for those of you who may listen to the webcast. Since our last call in August 5, Axonics has continued to make excellent progress. Most importantly, based on our initial FDA approval announced on September 9 for bowel dysfunction and the approved claims of full-body MRI compatibility and a minimum 15-year life in the body.

Our 146-person commercial team has been able to market our product in the United States, albeit on a limited basis and without the ability to discuss the exceptional efficacy results associated with the ARTISAN-SNM pivotal study for urinary incontinence.

Despite an anticipated slowdown at a number of our high volume centers in Europe, we’ve seen continued momentum with respect to our international business securing six new hospital accounts in Germany and Switzerland, bringing the total of our OUS customers to 33. In addition, we did see a number of -- we did see cases bounce back as centers got back online after the summer break.

So while it's too early to fully predict the seasonality of this business, we assume it will play some role just as it does with other elective procedures. On October 29, we implanted our first U.S commercial patient. The honor of the first implant went to one of the PIs in our clinical study Dr. Felicia Lane at the University of California Irvine Medical Center. And just last night as I'm sure you've seen in the news, we received approval from the United States FDA for the clinical indication of overactive bladder, which includes urinary urge incontinence, urinary urge frequency as well as underactive bladder or urinary retention.

So I will provide a more detailed update on these key milestones and related initiatives on today's call. But first similar to our past quarterly calls, Dan Dearen our president and CFO will start by reviewing our Q3 financial results. Dan?

[Dan Dearen, President & Chief Financial Officer]

Thank you, Ray. For the third quarter of 2019, we reported net revenue from international markets of approximately $1.3 million. This compares to $200,000 in the third quarter of 2018. Net revenue for the third quarter of 2019 was derived primarily from the sale of our r-SNM System to customers in England, the Netherlands, Germany, Switzerland and to one hospital account in Canada. Although received FDA approval in the United States for the FI indication in September, we did not ship any product in the United States during the quarter.

The gross profit for the third quarter of 2019 was $677,000, representing a gross margin of 51.7%. That figure will likely move around as processes to ramp manufacturing are implemented. Of course, we anticipate margin improvement with volume and scale, but we are pleased with the range we’ve seen out of the gate at this modest level of sales.

Total operating expenses for the third quarter of 2019 were $25.7 million, which is an increase of $18.1 million compared to the same period in the prior year. Operating losses for the third quarter of 2019 were $25 million as compared to operating losses of $7.5 million in the third quarter of 2018, driven by the same factors discussed above.

Cash, cash equivalents and short-term investments on the balance sheet were approximately $101.5 million as of September 30, 2019. The increase in operating expense was driven primarily by increases in personnel costs, particularly the build out of commercial infrastructure in North America and the EU, marketing expenses from regions where Axonics is now commercially active or in preparation for launch, infrastructure expenses associated with the expansion of manufacturing facilities, and finally the cost associated with operating as a public company.

As we mentioned last quarter and in today's release, the company accelerated a number of programs to achieve readiness for FDA approval and commercial rollout by the earliest likely dates. These programs included hiring and training, the U.S commercial team including 146 sales professionals and additional hiring in support of manufacturing, quality systems and regulatory activity.

With one clinical indication cleared in September and the other one just arriving, we were and are committed to being ready for any combination of launch activities. The benefits of having the U.S commercial team hired and trained along with the build out of the necessary product inventory for an unencumbered launch can now come into focus as we are able to hit the ground running with both approvals in hand.

Having implemented this plan, we were able to also work through some of the typical operational growing plans and solve logistical and other challenges prior to shipping our first system, allowing the focus to be on delivering the highest level of support to customers. As discussed on the last two quarterly calls, sales and marketing expenses combined with the operational costs mentioned earlier, have had our OpEx line continuing to ramp quarter-over-quarter.

However, this pattern is expected to stabilize now that we have hired most of the employees we envision needing to support manufacturing, sales and marketing. Consequently, we anticipate OpEx to remain at the current levels at least through midyear 2020, at which point we will have assessed multiple ROI metrics, gained and understanding of which marketing programs are delivering and ultimately focus the SG&A spend where it is driving optimal returns. Our primary focus will remain on securing accounts in the United States, growing the market on an account by account basis.

And now, I will turn the call back over to Ray.

[Raymond Cohen, Chief Executive Officer]

Thanks, Dan. Commercial feedback from physicians and patients continue to confirm our thesis that based on the unique features of our system and the quality of our field personnel, we have delivered a device system that is preferred by both physicians and patients. We expect to not only compete, but over time to become a dominant player in the markets we enter.

Year-to-date, we generated $3.9 million in revenue from our international customers and the expectation is that we will see continued growth overseas albeit the fact that these markets are characterized by lower unit volumes and lower average selling prices than what we see in the United States.

With respect to our penetration outside the United States, I mentioned that we now have 33 international hospitals implanting the Axonics SNM System. Of those, 23 hospitals are in England, 3 are in the Netherlands, the new ones 3 in Germany and 3hree in Switzerland as well as the one account that Dan mentioned earlier. Now we have at this time more than a handful of these hospitals that are exclusively implanting Axonics product for all de novo patients.

As I previously mentioned, these international markets are small in size and they're all capitated in terms of the money that is available. Case in point. In our hospital customer in Canada after implanting over 40 systems during 2019, they literally ran out of budget money during the third quarter.

So moving to the United States, as everyone listening into today's call knows gaining FDA approval for the urinary indication was a critical milestone for Axonics. From when our PMA was accepted by the FDA in December 2018 and take into account the various amendments we filed for MRI compatibility and the clinical results of our full cohort of pivotal study patients of six months, it took approximately 9 months to get the first FDA approval and an extra two months to get the second FDA approval.

We now have the approvals we need to execute a full launch without limitations or any post approval delays. All post approval regulatory requirements were satisfied in the weeks following the first approval in September. Our commercial team now has the ability to detail our clinical results from the pivotal clinical study, facts that we have been unable to share with physicians until today.

Clinical data is of the -- of critical importance to the customers that -- or customer base, which is made up of urologists, urogynecologists and a small number of GYNs and colorectal surgeon that actually do implants for sacral neuromodulation. In fact, in our surveys that we conducted during our seminar series, efficacy of the product was listed as the primary reason for selecting one product over the other. Now that was followed by features and benefits of the system full body MRI compatibility and procedural and patient programming support.

Interestingly, the price of the system was listed as the least important aspect. The reason for this high level of interest among the sacral neuromodulation implant in community in the United States and abroad are abundantly clear. We have a smaller long-lived, fuss free product that is more comfortable and easier-to-use for patients with a 90% efficacy in our U.S pivotal study. In addition, our clinical studies and more importantly commercial practice have demonstrated successful patient outcomes and very high satisfaction scores from both patients and physicians.

So into some detail now. In early October, we held a very successful launch event and an exhibition at AUGS. That was the American Urogynecologic Society meeting along with the international Urogynecologic Association or IUGA. That Congress was held in Nashville, Tennessee where we collected interest from over 500 physicians.

In addition, we sponsored a one our symposium attended by approximately 300 physicians, at which experienced implanters from our ARTISAN-SNM pivotal study discussed their first-hand impressions of our product and the post implant patient feedback. On October 12, we held the first of four fully booked one day physician education seminars, the first one being in Atlanta for experienced sacral neuromodulation implanters. Since then, we've executed three additional programs that were held in Dallas, Irvine and then last Saturday in Boston.

These one day Saturday seminars were attended by 273 U.S-based sacral neuromodulation implanters. Now fifth program has been added in early December in Atlanta to accommodate overflow demand and we have now approximately 50 additional physicians who are currently registered for that event. So in total, approximately 325 experienced sacral neuromodulation implanters out of about 1,000 or so that we invited will attend one of these events. We believe this is an impressive turnout and that it underscores the interest in our innovative long-lived MRI compatible system.

Now as Dan mentioned earlier, our commercial team now numbers 146 individuals. This includes sales professionals, regional sales managers and clinical specialists, which have been strategically located around the United States and nearly two-thirds of these individuals have had prior either spinal cord stimulation or sacral neuromodulation experience, with the balance of the folks having urology or relevant OR experience. While we do not have plans to hire additional sales people in 2020, we will add clinical specialists, as needed, to support the growth in the number of procedures.

Now today we launched our new website that has both physician and patient portals and we will begin our public relations and social media campaigns. The point of this effort is to bring attention to the millions of women who have been suffering in silence with these conditions that we're treating. As I stated many times, to date sacral neuromodulation has been a secret therapy and the vast majority of Americans have no idea that there's such a thing as it implant that can dramatically improve the quality of their lives.

Our goal is to bring attention to this problem and grow the market view that expansion of this market will accrue to the benefit of patients, providers, and of course Axonics. Now outside of the sales organization as Dan covered in his remarks, we are also ramping up inventory and have enhanced manufacturing and product assurance capabilities to support our goal of gaining market leadership in sacral neuromodulation.

Now turning to making a few remarks or I should say about the IP lawsuit that was filed by the incumbent. Our views on this were laid out in plain English in our news release on November 5. We believe the claims are without merit and an attempt to suppress competition by confusing physician implanters with scare tactics. This highly scripted event is having the opposite effect in the market and physicians have openly expressed dismay that they -- that instead of investing money to bring attention to the benefits of sacral neuromodulation therapy, the incumbent would rather spend its money harassing a new and innovative entrant.

Now since inception in October of 2003, Axonics have invested substantial time and substantial resources in understanding the competitive landscape and we have been very careful to respect the intellectual property rights of all others in the design of our products. We have developed our own considerable IP state, and it should be obvious to even the most casual observer that the claims asserted against us are frivolous.

My over arching message today or point of view is what I believe all parties involved in treating these patients that suffer from this very serious chronic condition or conditions should direct their resources toward innovation and marketing to create awareness of this highly effective therapy instead of on litigation. With all that said, Axonics is highly motivated. We are fully prepared to convert accounts in support our new customers.

We are not resting on our laurels and have new sacral neuromodulation products under development, including a second-generation IPG that extends the time between recharging intervals to once a month and a non-rechargeable primary cell device. We anticipate having these products available in the United States during 2020 and 2021, respectively. So, in closing, we're making excellent progress with our U.S launch and our other strategic initiatives. We are fully confident about the future prospects for Axonics and are working diligently every day to fulfill our vision.

So at this point, we are happy to take time out to answer any questions that folks may have. So I will turn it to the operator.

Thank you. [Operator Instructions] And our first question comes from Larry Biegelsen from Wells Fargo. Your line is now open.

[Larry Biegelsen, Wells Fargo Securities]

Good afternoon. Thanks for taking the question and congratulations, gentlemen.

[Raymond Cohen, Chief Executive Officer]

Thank you, Larry.

[Larry Biegelsen, Wells Fargo Securities]

You hear me okay?

[Raymond Cohen, Chief Executive Officer]

Yes, perfectly. Thanks.

[Larry Biegelsen, Wells Fargo Securities]

Sure. So, one qualitative question here and then I wanted to ask a little bit on expectations from a revenue standpoint. First, Ray is there anything you need to do before launching the OAB indication? And second, how are physicians planning to integrate Axonics into their practices? Do you expect them to offer both the Axonics and Medtronic devices to de novo patients, or just one device for de novo patients? Then I had a follow-up.

[Raymond Cohen, Chief Executive Officer]

Okay. Thanks, Larry. I appreciate the question. So there's nothing that we need to do at this point. We are completely compliant with all regulatory post-approval regulatory requirements. We knock those out in September and into early October. So we're good to go. We’ve been shipping since October 28 and there's nothing more for us to do. Clearly, there's a big difference in terms of what our people can do in the field. I’m sure you can appreciate that we’ve been very careful not to do any off-label marketing, and so it's kind of been the equivalent of tying one arm behind our sales forces back in the United States. Nevertheless, we are moving forward. Now the bigger question that you ask is really quite interesting, because the answer is, well, it's all over the board. I mean we have some customers and I will just speak to the U.S now. We have some customers who already have decided that they have no interest in working with the incumbent and are going to be working with us exclusively for all of their de novo patients. In fact, we have already seen a number of cases where when patients were up for a -- as they call it a battery replacement or an IPG replacement, that these physicians have literally pulled the existing lead, pulled the old IPG out and put our brand-new Axonics system in for those patients. Now that may have been for a number of reasons, maybe the patient decided they wanted a long-lived device, or maybe the patient needed or perceive the necessary -- the necessity of having an MRI or whatever the case might be. So there's a number of factors that go into these decisions. So I think it's really all over the board. Our view is that if physicians who are working with us would like to give patients a choice, then we're perfectly happy with that. But it's going to depend on each of these physicians and institutions on a kind of a practice-by-practice or hospital-by- hospital basis. So in a way it's kind of unanswerable, but as time goes on and we start to accrue numbers on the board, we will provide more insight into what's happening.

[Larry Biegelsen, Wells Fargo Securities]

Perfect. That’s very helpful. So, Ray, on the numbers, I mean you see The Street at about $81 million in 2020, which I think implies about 12% share in the U.S. How do you want investors to think about your business in 2020? Do you believe the bar is set appropriately? And if you could also just comment on the Q4 consensus, I think the U.S is probably about $3 million or about 200 implants by my math. That would be helpful. Thanks for taking the questions guys and congratulations again.

[Raymond Cohen, Chief Executive Officer]

Thank you, Larry. I appreciate the question. So working backwards, or --no, working based on why you asked the question, I think it's fair to say that we're comfortable with the projections of the analyst community has for us in 2020. You know I want to point out and I think everybody on the call realizes that to go from basically zero in the United States and to put a number like that on the board, it is nothing easy about this. This is not a layout. Having said that, we're obviously confident. We got a great product. We have exceptionally talented people and we know we're doing. So, we fully intend to make those numbers. In the short run, this is -- maybe a little more difficult to answer just because this is a really sloppy quarter for us. We have gotten a start. We’ve been out there doing procedures, shipping product, taking orders and doing procedures for a few weeks now. So those things are going well. I think our sales forces is very enthusiastic about the response they're getting from physicians. But honestly we’ve had more than not of these customers waiting for the urinary approval. And the vast majority of the cases that we have booked to date have been for fecal incontinence cases, or dual incontinence cases or somebody who needed an MRI and they just went ahead and did it. So I think the physician community has been in a way pretty disciplined about how they viewed it. I don't think they were nervous per se, but I think they're just being cautious as you could appreciate physicians need to get paid, hospitals need to get paid for the procedures they do, so they’re always concerned about what’s happening in the background. So hopefully that is a fulsome answer to your question.

[Larry Biegelsen, Wells Fargo Securities]

Very helpful. Thanks for taking the questions.

[Raymond Cohen, Chief Executive Officer]

Thanks, Larry.

[Operator]

Thank you. Our next question comes from Danielle Antalffy from SVB Leerink. Your line is now open.

[Danielle Antalffy, SVB Leerink LLC]

Good afternoon, guys. Thanks for taking the question. Congrats on the approval that was great to see this morning. So just a quick question and you sort of maybe already answer it a little bit as we talk about Q4 and your thoughts on consensus for 2020. But it feels like is that your physician seminar on Saturday? Thank you by the way for allowing me to join. And it feels like maybe there's been, I don’t know, a backlog is the way you will characterize it, but patients building up at these practices. How do we think about that? Will there be -- are you expecting some sort of near-term bolus at some of these higher volume centers now that you do have the approval on hand, or help us sort of frame what could happen as the ramp -- as the product rolls out?

[Raymond Cohen, Chief Executive Officer]

So, look, I think that if you just think about the amount of time that we have, I mean here we’re it's 14 of November, we got a few more days in the month of November to actually do procedures, then we have Thanksgiving holiday. As you know, patients don't sign up for elective procedures during the holidays and then people will come back and then there's just a short weeks and then once again, we're back into the holiday season. So you are correct in the sense that there was a lot of enthusiasm amongst the physician community and a lot of them have patients that are kind of lined up, if you may on the runway. The ability to actually execute on these procedures and get them in the book, so to speak, in this particular period of time from today through the end of the year is challenging. And we are going to do as much as we can within the confines of people schedules and we'll go from there. And I think that we are clear of what the consensus is for Q4. We have a $3 million number in the United States and a $1.3 million number overseas. And our intention is to beat those numbers, right, simply said. So I'm not sure I could give you more color. I mean, you heard a lot of this for yourself directly from them, but I do think there's logistics involved here in terms of not only trialing these patients, but then getting them scheduled for the permanent implant.

[Danielle Antalffy, SVB Leerink LLC]

Got it. That makes a lot of sense. Thanks for that color. And then as we -- you touched on the legation as well, as we think about that actually thinking from a cost perspective and time, time to potential resolution, my sense is these things take forever to play out. But, Dan, just wondering if you can give us any color on how you guys are thinking of this from a cost perspective, and that the expense required to defend your litigation -- or your patents, I’m sorry. Thank you.

[Dan Dearen, President & Chief Financial Officer]

Sure. Thanks, Danielle. I mean, since this is all relatively new as you might expect, we’re moving forward, we’re building our plans, you’re correct. So when you talk to the attorneys, what you find out at this process can extend for months and months and longer than a rational business person would expect. We have money in our internal budget to cover litigation costs, but we're not breaking that out and communicating to The Street what we think that is. I will tell you that the costs that we’re planning for this litigation are not of a substantial nature where it's something that at this time we feel like breaking it out.

[Danielle Antalffy, SVB Leerink LLC]

Okay. Thank you so much.

[Raymond Cohen, Chief Executive Officer]

Thanks, Danielle.

[Operator]

Thank you. And our next question comes from Adam Maeder from Piper Jaffray. Your line is now open.

[Adam Maeder, Piper Jaffray]

Hi, guys. Congrats on the progress and thanks for taking the questions. My first question is just on the competitive front. I think the commentary on the Q2 call regarding competition was -- there really wasn't a whole lot of pushback from Medtronic. So just wondering if that changed over the course of Q3 and thus far into Q4 and there's obviously the litigation. But just anything else that’s been different in the field changes to pricing etcetera? And then I had a follow-up.

[Raymond Cohen, Chief Executive Officer]

We are very -- we are really pleased with the discipline in terms of pricing. As you know, our strategy has been to basically match the Medtronic prices in the marketplace and we're not put off or unhappy about that at all. I think that's going fine. What's changed? Well, what’s changed is that clearly we’ve gotten under the skin of the folks in Minneapolis, right, and they have decided that they’re going to put out a news release about a new product that they’re going to get approved in record time with the FDA and then they decided to file what we think is a frivolous lawsuit against us. So it's clear that from a corporate standpoint that we’ve got their attention and they don't want to, let's say, give up this monopoly easily. Now having said that, we see certain activities in the field, where basically they’re taking these corporate talk tracks and trying to persuade their customers that everything from Medtronic -- Axonics is not going to be able to ship your product as we’re going to get an injunction against them to any one of a number of other stories that they make up. In the end of the day, I think this kind of stuff will backfire on them. I think it is backfiring on them and I think physicians may be naïve about certain things, but they're not easily fooled. So my comment is simply that, look, Medtronic had this market to themselves for 22 years, okay, and competition is part of the reality of business. And so, we are happy to compete on a share basis in the field with honesty and integrity and we would invite the people from Medtronic to do the same.

[Adam Maeder, Piper Jaffray]

Okay. I appreciate that color. And then for my follow-up, just maybe switching over the pipeline, you expect to launch next-gen IPG at some point in 2020, which will be compatible with the Medtronic leads. I think given you better access to replacement market. First can you just put a finer point on expected timing, is that first half or second half? And then just any thoughts on potential regulatory pathway for this product. Will the submission be supported with clinical data? Thanks for taking the questions guys.

[Raymond Cohen, Chief Executive Officer]

Thanks, Adam. So, look, I think it's -- if you’re coming up with the second generation device that’s substantially equivalent, there's no clinical study that is required to get approval from the FDA. So that’s an easy question to answer. And then in terms of availability, clearly this is something that would be in the second half of 2020. The reality is no matter what, you cannot compress the FDA timeline. There is -- as we’ve proven, there wasn't any controversy about our product or our testing or our clinical results, yet it has took a long time. And I just don't think there's a way to shortcut these processes. There is no such thing as a 30-day or 90-day approval cycle. I dare say, it's probably a 180 days is not realistic, because once they do a substantive review, inevitably they have questions. And when they have questions, you’re off the clock. You’ve got to answer the questions and then the clock restarts after you resubmit again. So I think you know it's nice to be able to think that, hey, we can get these things and we can get them up in the market, but the reality is one has to do verification and validation testing. These are things that must be done. You have to put a good file together. When you make a submission, its 20,000, 30,000 pages of data, this is going to be reviewed by a lot of people inside the agency and inevitably there's question. So it would be foolish for us to say that somehow we have some sort of inside track on how we can circumvent processes inside the FDA. The bottom line is it just takes a long time.

[Adam Maeder, Piper Jaffray]

That’s very clear. Thanks, Ray.

[Raymond Cohen, Chief Executive Officer]

Thank you.

[Operator]

Thank you. And our next question comes from David Lewis from Morgan Stanley. Your line is now open.

[David Lewis, Morgan Stanley]

Good afternoon. Just a few quick ones for me. Maybe, Dan, just starting with you. We saw the shelf registration a couple of days ago. We are sort of assuming that was more semantical kind of 1-year post the IPO. But could you just sort of help us understand how you’re thinking about cash access over the next several quarters and needs for cash? And a couple of follow-ups.

[Dan Dearen, President & Chief Financial Officer]

Certainly. Thank you, David. So you’re correct. You will not the S-3 was filed just after our 1-year anniversary of going public when we became S-3 eligible. We filed this part of good corporate housekeeping and it does provide us with optionality for future financing if we decided to go down that path. As I just reported the company as of September 30 has $101.5 million cash and cash equivalents on the balance sheet, which is sufficient capital to fund us through the launch and well into the market.

[David Lewis, Morgan Stanley]

Okay. Very clear. And then, Ray, look, I know your already commented on 2020 consensus. But just want to come back to that for a second. At the time of that consensus was formed, I think many analysts were not expecting another competitor in 2020. So you’re confidence in consensus numbers for 2020. Did that stem from just the commercial momentum you’ve seen to date? Does it stem from a view that you don’t think you will have next-generation competitor on the market next year, or just confidence in that number regardless of what happens with your -- with your competitor. Just one last one for me after that.

[Raymond Cohen, Chief Executive Officer]

I think it's the latter, David. I think irrespective or regardless of what happens or doesn’t happen with some new product launch. I think that we have the interest and the fact that the physicians -- I mean they want to use our product. I mean, that’s the bottom line. And this is about also expansion of the market and we're convinced that on an account by account basis, based upon having a product that more patients will say yes to, that in effect is going to expand the market and its going to expand the market on a customer by customer basis. So it's very logical when you just take a step back and just think about it, if you're patient and you're being told that you -- that the product that you’re being asked to make a decision about, can -- it's going to last in the body on average 3 to 5 years. And then if you have to have an MRI it's going to get explanted and thrown in the garbage, and you’re going to have to come in for yet another procedure if you want to continue to have symptom relief.

This is a significant deterrent to people saying, yes, and the physicians tell us that they expect more patients say, yes, to sacral neuromodulation. And if you add to that any kind of marketing rate, which creates awareness out there in the world and we all know this is primarily women's problem. We’ve done focus groups. I mean, people do not know that there's an implant that can increase their quality of life if they have urinary incontinence or dual incontinence or, God forbids, just fecal incontinence, right? I mean, so that’s the story. So we're confident about the expansion of the market. We are confident that if indeed there is another competitive product that has similar features, we don't know what in the end what they’re going to be or when that product is going to be approved. But if it is then that’s great. There's more choice more choice, more competition, more advertising, more awareness is going to arise float all boats and when we're perfectly okay with that. So you can tell we’re bullish. We are confident and the bottom line is that you don't get 325 physicians to take a Saturday out of their life to come in and learn about your product unless there is significant interest in that product.

[David Lewis, Morgan Stanley]

Okay, great. That’s very clear. Thanks for that response. And then the one thing that struck me about your comments about the symposiums was this -- the theme that is resonating with physicians is efficacy and you really weren't allowed to show OAB data at these symposiums. So I’m sort of wondering, what is it about efficacy that they’re looking at and they are getting excited about? Is it constant currency versus constant voltage? But I was sort of surprised by this efficacy comments because it's a little different than some of our diligence. So what specifically is resonating with them on efficacy? Thanks so much.

[Raymond Cohen, Chief Executive Officer]

Yes. So I think the point is, is that this is just so -- tell you where this is coming from. With every -- excuse me, every physician who attended the seminar was asked to fill out a survey and as you might imagine, we’ve lot of questions in the survey that we're curious about. So we didn't -- we just asked the question and we said look here is five items, please force rank what’s important to you. And overwhelmingly, they put efficacy as number one. I mean, virtually -- we will report on this -- on the survey data in the future as we -- once we finish tabulating it. But I can tell you anecdotally from reviewing every one of them, that it is overwhelming and at least 9 out of 10 have indicated that. Now what does that mean to them? When we talk about efficacy, this means how well are my patients doing with the therapy. Are they happy? Are they getting good symptom relief? And now when you -- then provide information to physicians about the differences in technology and how constant current stimulation, which by the way is used by virtually every single device sets out there, whether its cardiology or neuromodulation and what are the benefits associated with that. And I won't go into a whole didactic about what happens with scarring and bleeding, and all these of things. But the reality is that constant current has a significant advantage of being able to maintain patients in the therapeutic zone. And here's the bottom line. if my patients have less fuss and they don’t defeat their own therapy, my messing around with the patient remote that’s difficult to use or they’re not having to come back into my office to get reprogrammed, that means we’ve got patients that are doing better, patients who are happier and patients who provide referrals as opposed to what is happening today. If you go on the internet, these lay people have nothing good to say about sacral neuromodulation. They’ve nothing good to say about it. We have to change that dialogue in the market. We've got to change that dialogue with these patients so that they’re reporting that they’re thrilled with the therapy and the results that they're getting. So it's a -- it seems like a very simple question, Dave. And I know you're a thoughtful guy, and I don't mean to imply that you asked a simple question. I'm just saying. It's really multifaceted when you start to really get into the details of what's going on. Docs want the patients to do well. They want the patients to be happy. They want referrals, and they want to be able to do more procedures. Let's face it: this is something that is very helpful for patients, and the doctors -- and it's profitable for physicians as well.

[David Lewis, Morgan Stanley]

Thanks, Ray.

[Raymond Cohen, Chief Executive Officer]

Thank you, David.

[Operator]

Thank you. And our next question comes from Kristen Stewart from Barclays. Your line is now open.

[Kristen Stewart, Barclays]

Hey, guys. Congratulations and congratulations to everyone on your team. Just wanted to ask -- I wanted to get just your thoughts on what your initial kind of orders kind of look like as people come in. I appreciate that some of the physicians are hesitant to kind of put in orders with OAB approval kind of pending. But from what you are seeing for those who haven't been, are you initially seeing any sort of stocking orders or anything like that we should be thinking of as physicians are starting to embrace the technology? I'm just trying to gauge how we should be thinking about kind of the fourth quarter number here or even as you're rolling out to a more broader audience as we are kind of looking here going into the first quarter as well. Thanks.

[Raymond Cohen, Chief Executive Officer]

Okay. So thanks, Kristen. That's a really good question. I appreciate the question. And I'm going to be extremely clear about our business philosophy, and you could ask any person on our U.S. commercial team or any person on our European commercial team. The tone from the top is very clear: do not put stock on the shelves of these customers. Do not. We are only taking orders, and we tell the customers please only order what you need to implant in -- for your patients in the next weeks, even. We’ve no interest in putting stock on the shelves of our customers, zero interest. We are easy to do business with. We will give you a good price, and you don't have to jump through 73,000 hoops to be able to maintain that price, right? Other people in the market have chosen to play the game of I will give you some special deal at the end of the quarter if you buy x. Okay. We are not doing that, we are not going to ever do that. That is not the philosophy of Axonics. And so, therefore, we may -- we are even told people no. They said, well, what if I buy 30? And we say, look, I'm going to give you the same price if you buy three. So why don't you just order three? Let's get the procedures done. Let's make sure everything is going well, let's make sure you're happy, let's make sure your patients are happy, and then you can order product in whatever quantity that you choose as you continue to work with Axonics. That is our philosophy. And I just want to be super clear about that, that we want natural demand based upon having folks buy product that's going to be placed inside of patients.

[Kristen Stewart, Barclays]

Okay, perfect. And then just in terms of any other takeaways from your physician surveys from these seminars, I know you're probably trying to gauge on usage of the physicians that were there, of what they expected in their practice and just kind of what they are also thinking just in terms of their priorities in terms of next-generation technologies that they would like you to bring. Any other sort of anecdotes that you could share with us from the seminars or even from some of the conferences that you've had as well?

[Raymond Cohen, Chief Executive Officer]

Sure, sure. Look, we've been talking to physicians for a long time now. And most recently, in a more intimate setting, right, I mean, it's a different -- when you’ve medical advisory board meetings, you may have 20 people or something, that's one thing. You go to a conference, you talk to hundreds of people, but it's in the open. When you do a seminar, it's a much more intimate setting, and we have breakouts and lunches and dinners and things that -- we can talk to people and actually get a sense about what they're thinking. And what I can share with you is that virtually all of the physicians that we've talked to, when we asked them how many are you doing today, it's almost without exception, that they say, well, I've been only doing x. I might be doing more BOTOX than I have been doing sacral neuromodulation for x, y and z reason, but I'm very optimistic now that you guys have this long-lived product that's MRI compatible. I believe that I'm going to be able to do more procedures in 2020. And I think your own survey, Kristen, as well as the survey done by the Wells Fargo folks have really underscored that. I can tell you that we have a self-selected group, right? Clearly, you can imagine when we report on our surveys, the numbers are going to even be higher. Because clearly, it was a third or so -- or 30% of the market that chose to come to our seminars. So they're more, let's just say, more motivated than the average implanter. So we're -- part of the reason we're confident about was going to happen in 2020 is because the physicians are confident that their procedure volume is going to grow. And I think that's, hopefully, some good color for you all.

[Kristen Stewart, Barclays]

Thank you and thanks again. Congratulations.

[Raymond Cohen, Chief Executive Officer]

Appreciate the comments. Thank you.

[Operator]

Thank you. And the next question comes from Bob Hopkins from Bank of America. Your line is now open.

[Robert Hopkins, Bank of America Merrill Lynch]

Well, thank you and thanks for taking the question and good afternoon.

[Raymond Cohen, Chief Executive Officer]

Thanks, Bob.

[Robert Hopkins, Bank of America Merrill Lynch]

Just a couple of quick questions. First, I appreciate your comments on being comfortable with where The Street is for next year. But I was wondering, at some point are you going to give kind of more formal guidance for 2020? And if so, will that happen on the Q4 call?

[Raymond Cohen, Chief Executive Officer]

Yes. Thanks, Bob. So, look, I think we've talked about this a number of times. As you might imagine, as we go around to talk to institutional investors, they like to ask us this question as well. So here is what we said, and I think we've been very consistent: please give us one full quarter to be able to go out there and get a sense about how things are going, and then we would be in a much better position to be able to indicate what we think might happen in the next few quarters to come. So honestly, from a pure logistical standpoint, we are not going to be in a position to reaffirm or guide in a different way in January. It will happen when we're after the first quarter and we're able to have -- put that under our belts. And we will not be shy about saying what we think and providing guidance with regards to numbers. I think that if one thing, hopefully, Bob, you know, and all the other analysts and others listening in to the call now, our business philosophy has been open book. We are transparent. I mean, this is the reason we invited analysts into these seminars, so you could hear and get a sense directly from these implanting physicians what they thought about our product, the incumbent's product, the future of this therapy, etcetera. So we are not going to all of a sudden now change our stripes.

[Robert Hopkins, Bank of America Merrill Lynch]

Yes. Okay. No, that's helpful. Just wanted to clarify there. And then two other quick things. On -- back on the balance sheet question, just to follow-up there, is it fair to say that you would wait and see how the launch is going before taking a look at potentially raising capital, or could you be more aggressive and raise earlier? I just want to try to set that expectation in light of the shelf.

[Dan Dearen, President & Chief Financial Officer]

Hi, Bob. This is Dan. I mean at the present time, we filed the S-3 so we’ve the optionality to do it if we decide to be opportunistic, but we’ve not announced any formal plans. We're in the process of marketing and offering.

[Robert Hopkins, Bank of America Merrill Lynch]

Right. No, I realize that. Just trying to see, but -- how your thought process is there. I realize you haven't started the process unless I missed a press release. So …

[Raymond Cohen, Chief Executive Officer]

I think that -- what you're hearing from us is that things are evolving for us. I mean the landscape for Axonics -- I mean, today on November 14, the landscape for Axonics is completely different than it was two days ago, literally and completely different than it was a week ago on Monday. So things are really evolving for us. So it's not like we've been in this kind of steady state, and everything has been normal or normalized, right? Things are very volatile. Things are happening. I think we are going to try to be optimistic, and that maybe is the best way to say it. And you could -- with all due respect, you could ask Dan this question 17 more times, and he's not going to answer the question. So …

[Robert Hopkins, Bank of America Merrill Lynch]

Well, that's a perfect segue to moving on. One of the things I wanted to ask about is, do you guys have a sense of the 325 doctors that you mentioned? Do you have any rough sense as to what percentage of the U.S. volume is represented by those 325?

[Raymond Cohen, Chief Executive Officer]

Yes. That's a really interesting question. I don't have those statistics of the top of my head. We will report on this, Bob. And it's considerable. It's a considerable percentage. But I just don't know the number. We haven't fully tabulated the results. I'm sure you can appreciate that the last meeting just occurred and just closed up on Saturday night, and we've been kind of focused on some of these other items this week. So we are going to pull together, but I can tell you the invitees were amongst the 1,000 physicians who account for 80% of the business. So simple math would suggest it's a pretty measurable percentage of the market.

[Robert Hopkins, Bank of America Merrill Lynch]

Okay. And then last quick question is just -- that the market, according to the numbers we get is sort of, obviously, without any new technology, is growing maybe mid single digits, somewhere in that range. It bobs around quarter-by-quarter. Based on your primary conversations with physicians, do you have any sort of rough estimate as to what you think the market growth rate could end up being -- I mean is 10% to 20% a reasonable assumption? Just wondering if you have any thoughts on that topic.

[Raymond Cohen, Chief Executive Officer]

So what we've said big picture is that we thought the market is going to double in the next 3 to 5 years. I mean we've been saying that for a long time, and we honestly we believe that's true. Now as we've gotten more granular and we've asked this question -- we have actually asked this question. Just like some of the analysts that have done some surveys with smaller numbers, we’ve a much bigger population that we've asked this question to. And I would tell you that according to those physicians, the number is better than 20%. Now we’d want to temper that, of course, but I think we're in that -- we're in the right neighborhood. It clearly says that the market is going to grow at a significantly faster rate than what it has historically based upon new technology and a longer-lived device and all these other features.

[Robert Hopkins, Bank of America Merrill Lynch]

Great. Okay. Well, thank you and good luck with the launch.

[Raymond Cohen, Chief Executive Officer]

Thank you, Bob. Really appreciate it.

[Operator]

Thank you. [Operator Instructions] And our next question comes from Mike Matson from Needham & Company. Your line is now open.

[Michael Matson, Needham & Company]

Hi. Thanks for taking my questions. Just a couple manufacturing related questions, I guess. So first, based on that $81 million consensus number next year, do you believe you have adequate or will have adequate production capacity to meet that level of demand?

[Dan Dearen, President & Chief Financial Officer]

Yes. Thank you, Mike. This is Dan Dearen. So as you will notice on the balance sheet, the company at September 30 has an inventory balance of $12.7 million, which an increase of $4.7 million from the prior quarter. And we've have been increasing our production volumes now for several months and have a build plan to have inventory on hand and finished goods inventory ahead of the coming quarters. So we obviously aren't going to report out specifically how many units is tied to that dollar amount of inventory, but we've been planning for the U.S. commercial launch and for having inventory on hand for several months now.

[Michael Matson, Needham & Company]

Okay. Thanks. And then just from a gross margin perspective, I think most other neuromodulation products are kind of in the 80% plus range. So over time, is there any reason to believe that you can't get to that level? And if you got to 81 -- I mean I would assume you probably kind of reached your peak gross margin if you were to get to the $81 million range.

[Dan Dearen, President & Chief Financial Officer]

Right. No, it's a good question. Well, we’ve consistently messaged to analysts and the shareholder community is that, at scale, we expect the gross margin on this product to be in the low to mid 70s. And at those numbers, this is a very leverageable business, I would like to point out. Because when you get into OpEx below the line, what you see in sacral neuromodulation is this is a relatively straightforward procedure. And once a patient has been implanted and programmed, there is not a tremendous amount of post-procedure follow-up. And so it's a much more leverageable business than what you might see in other areas of neuromodulation like spinal cord stimulation.

[Michael Matson, Needham & Company]

Okay. Thanks. And then, finally, Ray, good to hear that your -- you got the social media campaign planned. Just curious to what degree your competitors kind of executed a [indiscernible] campaign similar to what you're planning to do.

[Raymond Cohen, Chief Executive Officer]

Well, I mean, I would just say according to physicians, their view is there's been virtually nothing done to bring much awareness to this market. Now in fairness, there clearly are some accounts which have been getting a lot of support, and there have been some things that have been done to reach out to patients in their community or patients that are in their roles. So I think it would be unfair for me to characterize that, that has never happened at all. But the majority of physicians feel as if there has been no awareness brought to sacral neuromodulation and that money has not been spent in this particular area. So I would dare say that anything that Axonics does is going to be -- have more visibly and bring more eyes to this problem than has been done before. And we have not seen any presence on social media from the incumbent. And not that -- look, one of the dangers here is we're talking about what we plan to do, and we just writing the playbook. But on the other hand, this is what needs to happen today, right? Patients, they need to learn about this. They need to understand what's possible. They need to hear from other patients who have good experiences as opposed to the ones who are angry and upset, and those are the ones that are on the Internet. And we see this in many walks of life. Of course, it's not just sacral neuromodulation. It's seems the people blogging and people on the Internet are the ones that aren't happy about something. So we want the turn the tide on that. And I think you're going to see immediately from us. Whether it's on LinkedIn or Facebook or any of these other things, you're going to start to see Axonics if you Google the right words and all that kind of stuff, so we think it's important. We think this is important to provide support for the physicians that are working out there in this area. We think this is going to benefit and accrue -- it's going to accrue to the benefit of anyone in this market, all right? So we will leave it at that.

[Michael Matson, Needham & Company]

Great. That’s very helpful. Thank you.

[Operator]

Thank you. And we have a follow-up question from Kristen Stewart from Barclays.

[Kristen Stewart, Barclays]

Hi. Thanks for taking my follow-up. I was just wondering if you had any color on whether or not all of your sales reps have had the opportunity to go out to meet the 1,000 physicians that you've identified at this point in time, or have they basically made contact at this stage. And do you feel comfortable that they really are hitting the ground running and now they can go out and fully market, or is there still accounts that need to go out and be identified?

[Raymond Cohen, Chief Executive Officer]

The simple answer is, absolutely, they've been out. And I think if you really want to get the answer to that question, then I think you would have to ask our competitor whether or not have been in their customer accounts because by definition, every one of these accounts is not or hasn't been our customer, right? But no, we're out there. Now look, in fairness, there is a percentage, and I don't know the exact percentage today, but it may be 10%, it may be 15% of the folks, that for one reason or another are not ready to talk to Axonics. We didn't have the urinary approval. Maybe they wanted to wait for that. Maybe they -- the well has been poisoned by propaganda. There might be other reasons or they may just be getting such phenomenal support because they are one of the chosen few in the United States that maybe they're happy with what they've got, and it may take some time before their eyes move to Axonics or they start to see other implanters having -- offering this product as compared to what they're offering. So it's early, early days. I mean crazy early days for us, right, as you could appreciate, Kristen. And -- but what I can assure you is we did not hire children. We did not hire pharmaceutical reps. We hire experienced people, most of them with direct experience in neuromodulation. They're folks who understand how to compete. They understand how to position a really good product, and they're very enthusiastic about what's happening. So bottom line is, look, we are bullish, as you would expect that we would be. And so far, the early returns a very positive for Axonics. So what I can say is that we will continue to put our heads down. We are going to focus on what’s important, and what’s important is make sure procedures go well, that patients do well, patients are happy, and the doctors are happy with our product. I can tell you we are really focused on those metrics because in the end of the day, that's what matters.

[Kristen Stewart, Barclays]

Okay, perfect. Thank you.

[Raymond Cohen, Chief Executive Officer]

Thank you.

[Operator]

And thank you. I would now like to turn the call back over to Ray Cohen, CEO, for closing remarks.

[Raymond Cohen, Chief Executive Officer]

Thank you. I think we’ve said quite a bit on the call. The only thing I would like to say in closing is we really appreciate people's interest in Axonics and we look forward to continuing to communicate with shareholders, with analysts and with the physician community. And I wish you all a good evening. Thank you for joining.

[Operator]

Thank you. And ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.