Axonics Inc

NASDAQ:AXNX

Earnings Call Transcript 2020-Q4

[Operator]

Welcome to the Axonics Q4 2020 Results Call. My name is Richard, and I'll be your operator for today's call. [Operator Instructions]

I will now turn the call over to Neil Bhalodkar. You may begin.

[Neil Bhalodkar, executive]

Thank you, Richard. Good afternoon and thank you for joining Axonics' quarterly results and update call. Presenting on today's call are Raymond Cohen, Chief Executive Officer; and Dan Dearen, President and Chief Financial Officer. Ray will provide remarks on the Contura acquisition, followed by Dan's remarks on fourth quarter financial results. Ray will conclude with additional business updates, after which time, we will open the call up for Q&A.

Before we begin, I'd 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 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 on this conference call.

These risks and uncertainties are disclosed in more detail 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, February 25, 2021. Except as required by law, Axonics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise.

I would now like to turn the call over to Ray for his remarks.

[Raymond Cohen, executive]

Thanks, Neil. I'd like to welcome everyone joining the conference call this afternoon and for those of you who will listen to the playback at a later time.

Today is a truly exciting day for Axonics. In addition to reporting results for our first full year of commercial operations in the United States, we're also pleased to announce the acquisition of Contura Ltd., featuring Bulkamid, a best-in-class bulking agent for the treatment of stress urinary incontinence, commonly referred to as SUI.

Before talking about the acquisition, I think it's important to state that we will remain keenly focused on our core business of sacral neuromodulation, and we see the addition of this product line is making us even more valuable to our customers.

Dan will take you through the details shortly, but we had an exceptional year in 2020 and generated over $111 million in revenue during our first year in sales in only 10 months of selling time and during a global pandemic. The 2020 results speak to the quality of our product, the quality of our people and the market opportunity that's estimated to be several billion dollars. The future of sacral neuromodulation modulation and that business is bright, and we expect to continue delivering strong growth this year and in the years ahead as the market for sacral neuromodulation expands.

During the past 2 years, when asked if we would ever consider acquiring a new technology, we have always stated that we would if it fit our commercial strategy of treating incontinence and if the product was synergistic, sold through the same sales channel and to the same physicians. In general, we see women's health and incontinence as an underpenetrated market opportunity. And as it turns out, we were opportunistic and able to leverage our strong balance sheet and stock price to acquire a very hot product line sooner than we might have expected.

As you may know, stress urinary incontinence is a very common condition that afflicts women of all ages, with childbirth as one of the main contributing factors. In the U.S. alone, this impacts about 20 million patients with only -- or women, in fact, with only a small fraction of those having been treated.

SUI is caused by a weakness in the pelvic floor, preventing the urethra from closing fully when pressure -- when sudden pressure is put on the bladder. This can allow urine to leak out during normal daily activities, such as coughing, laughing, exercising or lifting an object.

SUI is different from overactive bladder. And when I talk about overactive bladder, I'm specifically referring to urinary urge incontinence or urinary frequency. These conditions are not related to pelvic floor weakness and is treated with either drugs or BOTOX or the more permanent solution, sacral neuromodulation.

Now many patients present with both stress urinary incontinence and urge urinary incontinence, and this is referred to as a patient with mixed incontinence. Physicians will differentially diagnose between those 2 forms of incontinence to understand which is predominant in order to properly treat the patient.

Now I cannot overstate how perfect a strategic fit Bulkamid is for Axonics. The acquisition leverages our expansive commercial footprint, which we believe will greatly accelerate Bulkamid's adoption, in particular, in the United States. The new product line further increases Axonics' value to physicians as we can now offer customers best-in-class solutions for patients with various types of OAB and stress urinary incontinence. It allows us to target a large and highly underpenetrated stress urinary incontinence market that is in need of innovation and increased patient awareness. And finally, the transaction is financially compelling. It's accretive to Axonics on day 1.

For those not familiar with Bulkamid treatment for SUI, I'll provide some background on the product and the market opportunity. Bulkamid is a best-in-class urethral bulking agent for women with SUI. It is unique. It's patented. And it is a nonparticulate hydrogel that is injected into the urethral wall to restore the national -- the natural closing pressure of the urethra. It is a simple, fast, easy-to-learn and perform procedure that is minimally invasive and can be performed literally in minutes in either a physician's office or an outpatient facility.

While bulking agents have been on the market for over a decade, the bulking effect of the legacy gels has limited effectiveness. This is primarily due to difficulty in administration and the variability in the size of each injection, resulting in middling satisfaction and relief for patients.

Legacy bulking agents contain microparticles, which sometimes induce a chronic inflammatory response. The combination of these factors has led to a modest use of legacy bulking agents and a less-than-stellar reputation and a physician preference for an invasive sling procedure to treat women with SUI.

As a next-generation bulking agent, Bulkamid addresses the shortcomings of existing particulate-based bulking agents. This is not that dissimilar to Axonics bringing a state-of-the-art sacral neuromodulation system to bear.

Now Bulkamid is a homogeneous hydrogel that is biocompatible, and it does not induce a chronic inflammatory response. Bulkamid's bulking effect is aided due to the fact that the size or volume of each injection is predictable, controllable and precise. Bulkamid retains its bulking characteristics for many years, thereby maintaining efficacy and providing women with long-lasting relief of their SUI symptoms. Bulkamid has also generated extensive clinical validation and a strong safety profile with over 70,000 women treated to date.

As stated earlier, we believe the United States is a large and highly underpenetrated market for SUI, with a prevalence of approximately 20 million women. Similar to urinary incontinence or urinary urge incontinence, the vast majority of women with SUI are suffering in silence. It is estimated that only 9 million women have sought medical treatment, most of whom were offered conservative therapy or opted no treatment at all due to the lack of noninvasive treatment options that were efficacious. In the United States, there are around 125,000 to 150,000 sling procedures annually and around 25,000 bulking procedures each year to date.

Now as is the case in certain European markets, in particular, the United Kingdom, where we believe Bulkamid -- well, let me say it this way, in certain of these markets such as the U.K., Bulkamid is already looked at as a first-line therapy. And we believe Bulkamid will quickly become the gold standard therapy and take share from the invasive sling procedures.

However, the much larger opportunity is to engage with physicians and to increase awareness for the millions of women suffering in silence, where now they'll have a SUI treatment that's clinically proven, that's safe, that aligns with patients' desire for minimally or noninvasive solutions. Similar to sacral neuromodulation, we see the highly underpenetrated SUI market as poised for significant and durable growth in the years ahead, driven by the introduction of a next-generation solution that provides outstanding clinical results and high rates of patient satisfaction.

A little more background. So Bulkamid received the CE Mark in 2003. It's a covered service from a reimbursement standpoint in most European countries. Now the FDA approved Bulkamid under PMA in early 2020, and it is reimbursed by Medicare and commercial payers in the United States. Bulkamid is currently sold through a direct sales force in the United States, in the U.K., Germany, France, and certain Nordic countries and also through distributors in over 30 international markets around the world. Now in the United States, there are currently only 5 sales professionals.

A little context on the magnitude of the revenue. So in 2019, prepandemic year, as we all may recall, Bulkamid generated international sales of approximately $12 million. That was just international sales. Since Bulkamid was introduced in the United States in the middle of last year in a limited rollout, there were dozens of accounts that were signed up and approximately $2 million of revenue generated in this limited rollout.

In total, 2020 sales, which were impacted by lockdowns in Europe for most of the year, were approximately $11 million. However, the good news is that sales in January of this year put the product line on a trajectory of approximately $15 million in annualized sales.

Now the U.S. launch of Bulkamid has generated significant excitement among urologists and urogynecologists that treat stress urinary incontinence. Now we're confident in our ability to significantly accelerate Bulkamid's adoption.

As you know, Axonics has an expansive commercial footprint of over 220 sales and clinical specialists in the United States and Europe that call on the same exact customer base. Our team has developed strong and trusted relationships with hundreds of physicians, and we will leverage these relationships to grow awareness of Bulkamid, capture physician mindshare, drive adoption and increase utilization of Bulkamid.

This transaction increases Axonics' value to physicians. And with our team now offering customers best-in-class solutions for both overactive bladder and SUI. As a differentiated technology, we expect Bulkamid to be a door opener and provide an opportunity for us to start a dialogue about our sacral neuromodulation device in accounts that Axonics has not yet penetrated.

The acquisition of Bulkamid is also financially compelling. It's expected to be accretive to revenue growth, gross margins and operating margins in 2021 and beyond. We expect the contribution margin of this business to increase meaningful under our ownership, given the inherent sales force leverage. To give you a sense of the revenue growth potential we see for Bulkamid, we're confident that Axonics can scale this business and generate approximately $50 million of revenue in 2024.

Axonics also has an opportunity to further increase our gross margins in the years ahead. Now to start with, we have entered into an agreement between Axonics and Contura, where the Bulkamid hydrogel will be supplied at a transfer price that yields a gross margin to Axonics of approximately 70%. Now we have the right to a technology transfer after summer of next year that would enable Axonics to in-source the manufacturing of Bulkamid, providing us with the potential to expand gross margins in 2023 and beyond.

Now we have a detailed day 1 integration plan. We're confident that the last few months of diligence and planning will result in a smooth integration. And in conclusion, I would say that we believe this is a smart and synergistic acquisition, and Axonics has now created a global incontinence franchise focused on treating an underserved population of women that is differentiated from our key competitor and poised to deliver significant value to physicians, patients and shareholders for years to come.

So with that, I'll turn the call over to Dan, who will review our fourth quarter 2020 and full year financial results. Dan?

[Danny Dearen, executive]

Thank you, Ray. For the fourth quarter of 2020, Axonics generated net revenue of $34.8 million. This compares to $9.9 million in the fourth quarter of 2019. Net revenue from the United States accounted for $33.7 million, with certain European markets in Canada accounting for the balance of fourth quarter revenue.

As we have discussed previously, a resurgence of COVID cases in November and December impacted Axonics. This is not unique to Axonics and has impacted other medtech companies that are primarily weighted towards elective procedures.

We conducted a detailed territory-by-territory analysis to size the revenue impact COVID had on fourth quarter results. We estimate that approximately 320 scheduled permanent implants were canceled due to COVID-19. These cancellations represented approximately $5 million of revenue that was not recognized in fourth quarter 2020.

Gross profit for the fourth quarter of 2020 was $22.1 million, representing a gross margin of 63.6%. We are pleased with the gross margin we have seen at this level of sales and continue to expect gross margins to expand to the low to mid-70s over the next few years.

Total operating expenses for the fourth quarter of 2020 were $33 million, which compares to $21.8 million in the year ago period. The increase in operating expenses was primarily due to increased personnel costs across the organization.

Net loss for the fourth quarter of 2020 was $11.3 million as compared to a net loss of $22.8 million in the fourth quarter of 2019. Cash and cash equivalents were $241.2 million as of December 31, 2020.

In January of this year, Axonics retired the $20 million term loan that was on the balance sheet at year-end 2020. As noted in today's press release, Axonics is acquiring Contura for total upfront consideration of $200 million, consisting of $141 million of cash and approximately 1.1 million shares of Axonics common stock. The upfront cash consideration has been funded with a new $75 million term loan and existing cash on the balance sheet. Adjusting for the January term loan repayment and the Contura acquisition, Axonics' cash balance at year-end 2020 would be approximately $150 million on a pro forma basis.

I will now turn the call back over to Ray.

[Raymond Cohen, executive]

Thanks, Dan. Excellent. Look, we're proud of this quarter's revenue results, considering the sharp acceleration of COVID-19 cases and hospitalization increases in November and December and, of course, the lower number of patients that met their insurance deductibles in late 2020. While the surge in COVID-19 activity in late 2020 as well as bleeding into January and February of 2021 has slowed the uptake of elective procedures in the United States and Europe, we do expect the majority of canceled cases to be rescheduled and completed in the second half of 2021, if not earlier, as more individuals are vaccinated and the impact of the pandemic recedes.

Now looking back on 2020. In the first year of Axonics commercial launch in the United States, the company generated over $111 million in sales. This exceeded our ambitious goals, which did not account for only having 10 months of selling time due to the pandemic. Now we're grateful for the overwhelmingly positive response from physicians and patients to the introduction of our rechargeable sacral neuromodulation system.

In 2021 and the years ahead, Axonics will take full advantage of the growth outlook for sacral neuromodulation. Physician customers are enthusiastically recommending Axonics therapy to their patients, and more of these patients are saying yes to sacral neuromodulation than ever before.

It is clear that sacral neuromodulation is experiencing renaissance based on new and more effective technology coming to market. We continue to believe the sacral neuromodulation category is poised to expand meaningful -- meaningfully, sorry, over the next few years.

We continue to pilot various DTC advertising strategies, and we are testing and determining the most effective messages, channels and content to reach patients suffering from urinary dysfunction and fecal dysfunction. We are placing targeted ads across highly trafficked digital platforms, and we are now in 35 markets around the United States.

Given COVID disruption and the limited scale in which we've been testing these strategies, we do not expect these efforts to have meaningful impact on procedural volumes in this year's first quarter. We look forward, however, to sharing more of our learnings in our go-forward DTC strategy with you on future earnings calls.

Now on the product development front, we continue to make strong progress. The FDA recently approved Axonics PMA supplement for our third-generation implantable neurostimulator. This marks the sixth FDA approval Axonics has received for a significant product innovation since the company's U.S. commercial launch in November 2019.

The third-generation INS upgrades the embedded software in the INS and the functionality of our patient remote control. These modifications give patients the ability to make broader stimulation parameter adjustments at home, including selecting a second therapy program that was set postoperatively based on interoperative findings. While we are as close to set-it-and-forget-it as a product, this is a feature that will benefit practices where patients must travel long distances for in-office therapy adjustments. We expect to begin shipping the third-generation device next week.

Now we continue to make progress on our nonrechargeable or primary cell device. The new offering leverages our existing technology, promises to be long-lived and the first truly recharge-free system available, given that none of the system accessories, including the patient remote, require recharging or charging.

We've built a few hundred devices that are undergoing validation and verification testing. We're working diligently to file with the FDA as soon as possible, and we are optimistic that we can have this product in the market having -- and making contributions to our revenue in early 2022.

So in closing, we are incredibly bullish about the future outlook of Axonics, and we're thrilled to now have Bulkamid in our portfolio of incontinence solutions. As always, we are grateful for the trust physicians, patients and shareholders have placed in Axonics. We continue to work diligently every day to fulfill our mission of changing the lives of patients suffering from bladder and bowel dysfunction.

So that concludes our prepared remarks. So operator, at this time, we're open for questions.

[Operator]

[Operator Instructions] Our first question on the line comes from Mr. Bob Hopkins from Bank of America.

[Robert Hopkins, analyst]

So very interesting announcement here. We definitely have a few questions on it. I guess 2 things coming to mind quickly, and one is the product has been approved in Europe for a while and is -- relative to the number of years it has been approved, it's generating relatively limited sales.

And so I was just curious if you could give us the history of what's going on in Europe with it. And then also, I'd love to hear your view on how protected do you think this particular hydrogel is from an IP perspective.

[Raymond Cohen, executive]

Thanks, Bob. Look, we're comfortable with the IP protection. There are a number of patents that we have acquired along with the product. And there are some other players in this particular market, but I think this is very much a highly differentiated product. So we don't have much in the way of concerns.

In terms of the history of Bulkamid under Contura, I think it's fair to say that this is a very small organization with a modest commercial footprint and very limited resources. So that's what they were able to accomplish with the product in their hands. And I think it's a completely different day, right, to put this in the hands of Axonics and our -- not only our U.S. team, but also one of the key benefits here, Bob, is that now this gives us access to distributors and additional direct salespeople in Europe and around the world.

So we pick up around 2 dozen salespeople as part of this arrangement. The vast majority of those, I mentioned, would be located outside the United States. Currently, there are 5 -- only 5 sellers of Bulkamid in the United States. And obviously, we've got a lot more firepower than that. So that's kind of the story.

[Robert Hopkins, analyst]

One other thing. I'd love to -- if you can just give us a little bit more in terms of the history of the transaction and how long you've known these guys. Because obviously, this does seem like a very large market opportunity and there are other large companies in this space, and yet Axonics, a relatively small company, is able to end up being the owner of the asset. And so just curious if you could give us a little more backdrop on how it came together and your history with these guys.

[Raymond Cohen, executive]

Well, I think that it's pretty straightforward. I was really keenly interested in this property, if you may, a year ago at the -- I'm going to use the acronym SUFU meeting, which is happening also this weekend, that's the society for urinary of female medicine...

[Danny Dearen, executive]

[indiscernible]

[Raymond Cohen, executive]

Yes. I'm going to screw that up.

[Danny Dearen, executive]

[indiscernible]

[Raymond Cohen, executive]

Yes, yes, yes. Anyway, so that's kind of when we started the dialogue, if you may. But the product had not yet received FDA approval at that time. It had not been launched in the United States. So it was a little bit early, right, from our perspective. And then just in terms of, as you'll read in the public documents about the transaction, we approached the company and have been working with them now for 90 days to conduct diligence and complete the transaction.

[Robert Hopkins, analyst]

Okay. All right. That's great. And then just lastly, a quick comment on closing on just -- are you starting to see things improve a little bit in the U.S. with the decrease in cases? Or is that -- are we still waiting for that? Just on your core business.

[Raymond Cohen, executive]

Yes. No, I appreciate that. I think that the worm is turning in a positive direction. November, December, January were tough months. I think everybody who's reported has said basically the same thing. And I think that you get different levels of feedback about how February has gone, right? I mean it started out sluggish, and I think it's starting to pick up some speed here as we speak.

So -- look, it's directly -- what's happening is directly correlated to how many patients are getting vaccinated and how the public feels because the issue for us has just been nervous patients. And we had more cancellations than we care to have at the end of Q4 and then even into the January period.

But as a number of my sales managers have indicated to me in the recent days, we're adding more cases that are coming than are coming off the calendar. So we're pretty optimistic, and we're hopeful that March may actually be a kind of early inflection point and things start to move in the right direction. But really, it's undeterminable at some fundamental basic level, Bob, right? We're optimistic. We're hoping that March turns into a really positive month and that we can see the benefit of what's happening in the United States in Q2 as opposed to having to wait until the summertime and the second half of the year.

I think everyone would agree that we're really -- whether it's Axonics or other people in our space, I think things are set up quite nicely for the second half of the year. The only question is how quickly do things start to turn around? Is it a March event? Is it a second quarter event?

But we're starting to feel a lot better about things. Europe is still a mess. I mean most of the countries are still completely shutdown. But here in the U.S., I have a sense that optimism is starting to return to people in America.

[Operator]

Our next question on the line comes from Chris Pasquale from Guggenheim.

[Christopher Pasquale, analyst]

Congrats. Ray, I wanted to just follow up on that last point about potentially things starting to turn, making up some of the lost ground. Curious how much excess capacity you think your customers have to make up lost cases. Assuming the macro environment does get to a better place, do they have a lot of flexibility to make up those cases quickly? Or are these practices busy doing other things and those patients are going to have to get in the back of the line?

[Raymond Cohen, executive]

So thanks, Chris, and good to chat with you, and that's a good question. And I think that what happens many times is that you all in the analyst community are speaking to so many different players in medical devices. And we're all in a different -- we have different products and different issues that we're dealing with.

So we don't believe there's any constraints at all in terms of the ability to do procedures in ASCs, which is at least half of our business gets done there, and then in outpatient sectors of the hospital.

And just to remind everyone, sacral neuromodulation is arguably the most profitable procedure that urologists or urogynecologists do. So they're highly motivated to get these implants done. They like to do external trials, too, because they make money there, and obviously, that's necessary to get insurance reimbursement.

So we do not hear about constraints in terms of capacity. And our sense that we get from our customers is they're highly motivated to get those patients treated. So that is not a concern.

I think this is really 100% boils down to the attitudes of individuals and the nervousness that they've had about going into health care environments to get an elective procedure done when people weren't vaccinated and they were concerned about catching COVID. I think it's just -- it's really as simple as that. And that's why we're really optimistic about a return to something that looks closer to normalcy.

[Christopher Pasquale, analyst]

And then just one on Contura. They were pursuing a number of other indications for this hydrogel in orthopedic and aesthetic applications. Do you intend to just shut those projects down? Or do you see the potential for maybe some licensing or partnership opportunities?

[Raymond Cohen, executive]

We are 100% focused on Bulkamid for stress urinary incontinence. We will not be pursuing any indications outside of that field.

[Operator]

Our next question on the line comes from Adam Maeder from Piper Sandler.

[Adam Maeder, analyst]

Congrats on a nice year. So I wanted to ask just a big picture question on '21 in revenue, and I realize you don't have guidance in place here, but the Street's modeling $157 million for full year '21 sales for the sacro business, lots of moving pieces. But just wondering if -- any reaction to that figure and how Street models are calibrated for '21? And then I had a follow-up.

[Raymond Cohen, executive]

Yes. Sure, Adam. So pretty straightforward answers. One, we have said previously, and I'll say again today, that the $157 million number for our base business or core business is not something we're concerned about at all. This is even after certain adjustments have been being made to Q1 numbers and, we would expect, would be made after this call.

So even bringing down consensus for Q1 is not a concern for us to be able to catch up. We've got a nice backlog, as you know, of cases from last year and January. We think they'll all come back on the schedule, and we'll be able to pick up that revenue in the second half of the year without trouble.

So we are not in the least bit intimidated by that number. I'm not encouraging everybody to raise their numbers, but it's not a problem for us. So we would confirm the consensus guidance -- or we would confirm the consensus view that something around $157 million, $160 million, that number is a good number for us.

[Adam Maeder, analyst]

That's great to hear. And then just on the follow-up side of things, wanted to ask about OpEx in '21. Just would be helpful to hear how you're thinking about things this year as you continue to scale the business and then how the Contura deal factors in from an OpEx standpoint.

[Raymond Cohen, executive]

You bet. Thanks, Adam. Go ahead, Dan.

[Danny Dearen, executive]

Thanks, Adam. No, I mean, I think consistent with past practices, we've obviously continued to invest in the sales organization as well as support operations and quality. And so we continue to expect to see, I would call it, slight increases in OpEx quarter-over-quarter as the revenue grows.

And so I think if you were to look across the consensus estimates for OpEx in 2021, we're good with those numbers. So we're really going to be looking at high 30s to low 40s per quarter in OpEx, and I think that's probably all I probably need to say.

[Operator]

Our next question on the line comes from Larry Biegelsen from Wells Fargo.

[Larry Biegelsen, analyst]

Just a couple for me here, Ray. And congrats on the deal.

[Raymond Cohen, executive]

Thank you.

[Larry Biegelsen, analyst]

I guess one question I imagine we're going to get that I'd love to hear your thoughts on is kind of why now -- two parts on this deal. Does this suggest that you're less bullish on your sacral neuromodulation opportunity? And how do you avoid this from distracting you from this sacral neuromodulation opportunity, integrating this new company? I had one follow-up.

[Raymond Cohen, executive]

Sure. Sure. So Larry, I think it's really important, I think, for folks to recognize that companies like Axonics have a choice, right? We can either be bold and be brave and look to position ourselves to be the most valuable supplier we can possibly be to our customers to provide differentiated solutions or we can sit around and take questions about what Medtronic has to say about their sacral neuromodulation franchise.

So this is going to differentiate us in a significant way, and I think it's important. And I think that anybody who kind of has been following us and knows us and knows our personality, I mean, we're not going to sit around, right? We're going to be aggressive. We're going to take initiative, and we saw this as a great opportunity.

And I will tell you, right now, Bulkamid is the hottest product there is in urology and urogynecology. I mean this thing is on fire, and any research that you do or any diligence you do is going to confirm that. And we've been watching this thing take off, particularly here in the United States in -- just in a few months. So we're excited about it.

And I got to tell you, coming into a practice that we're not doing business with and being able to offer solutions for what is, in effect, many times the same exact patient or another way to look at it is if it's a coin in your hands, I mean, now we're talking about being able to cover patients on both ends of that coin, right, particularly with the mixed incontinence patients and all the rest of it. So this is highly synergistic. And I just think that this is the point we're trying to get across, and we hope that the analyst community understands.

The physician community, I can tell you, is standing up and applauding this deal right now. And there's just no question that this is going to create an enormous amount of excitement amongst our existing customers, and it's going to give us an opportunity to call on people and to turn their heads where they may not have allowed us to come in to talk to them yet about sacral neuromodulation.

So I don't see this as a distraction. I see this as a significant enhancement for our team and kind of an A+ calling card now to go and call on people that we haven't done business with, right? And as you can imagine, right, we get them excited, and they're either using Bulkamid now or want to use Bulkamid now, plenty of opportunity to chitchat about sacral neuromodulation, while we're doing some injections or training on Bulkamid.

So -- but any thought that somehow we're doing this deal as a defensive play is way off pace, and I can't understate that enough. This is an offensive maneuver by our company. It's a very aggressive approach, and it's the perfect time for us to have done this deal.

And also, it's not like we're going to -- we don't want to wait around for somebody else to come snap up the property, right? This is one of the advantages we have, right? You guys know us. We can move fast. We can make decisions. And I think that's in the DNA of our organization. And this is -- this deal hopefully underscores that.

[Larry Biegelsen, analyst]

That's helpful. And just lastly for me, Ray. Who is the competition? And how differentiated is the product? I didn't really hear you talk about that? I mean is there head-to-head clinical data?

[Raymond Cohen, executive]

Yes. Yes. Thanks, Larry. I appreciate it. Look, I think that we're going to provide -- we'll provide more information in terms of background. It's hard to get into a feature-by-feature comparison on a call like this.

But this is a nonparticulate hydrogel, which is highly differentiated from the competition. And any physician who's used it will tell you that, that -- the ease of administration, the reproducibility of the injections, the clinical response is all significantly better than anything they may have ever used before. So this really opens things up.

Now in the U.K., which has been the biggest traditional market for this product, where slings and meshes are no longer being done for the most part, and that's almost an absolute statement, this is the go-to product. If you're a patient in the U.K. and you've got stress urinary incontinence, you get Bulkamid. And they have really obliterated the competition in that market.

So we're really bullish. We've done enormous amount of diligence on this deal to make sure that -- we're jumping in the deep end of the pool here, we want to make sure that we got a winning product.

So I really appreciate the questions, and we're happy to provide more information as a background or as we move forward.

[Operator]

Our next question on the line comes from Kaila Krum from Truist Securities.

[David Rescott, analyst]

This is David Rescott on for Kaila. First from me, so I appreciate kind of some of the fourth quarter commentary that you provided and how things have trended so far for the -- through the first 2 months of the year. You indicated kind of the cancellations in the fourth quarter of around $5 million would be deferred to the second half of the year. So really, how should we be thinking kind of about the cadence of revenue throughout this year?

And if cases were canceled in Q4 coming in the second half of 2021, I guess, kind of what proportion of normalized cases are expected to come in the first half of the year? So is there an assumption that there's sort of a portion of patients who are pretty ambivalent to getting an implant prior to the vaccine? So if we use kind of a cancellation impact in Q4, is there a 10% to 15% of the normalized implant base in the first half of the year who are waiting for them -- for the vaccine before kind of rescheduling?

[Raymond Cohen, executive]

Your question has a fair amount to try to unpack. So I'm -- Dan, do you feel like you can address this directly?

[Danny Dearen, executive]

No. I can. I think yes, there's an interesting reality in our business, which is the market is so underserved and the prevalence and incidence is so high in this particular category of sacral neuromodulation that as an operating company, we're not chasing patients and looking at referral patterns and trying to manage every single patient that was on the calendar to get back into the practice. And in fact, as a manufacturing company, these patients belong to the physicians, not to our company.

And so the way that we view the business is we just go out and we talk to the reps and we look at each territory and we roll it up, and then we look at what do we think we're going to achieve in 2021. And when you look at the ramp, how we have it internally, from Q1 to 2 to 3 to 4, we expect to see exactly what you'd predict, which is, look, first quarter, we've pretty much provided guidance on. As we go into 2, 3 and 4, we're going to see a steady uptick, with obviously Q4 being the highest. And this is all based on the premise that people are vaccinated, the COVID case rates continue to drop, and we just continue staying focused on blocking and tackling.

The sales and marketing team is in place. It's an exceptional team of hardworking folks. We're covering cases. We're providing exemplary customer service, and everything is going really well. And so we're not really internally taking a look at the, call it, 320 cases or $5 million of, I'll call it, deferred revenue from Q4 and then looking at where we picked that up on the back end because as we've messaged, we expect to come in -- we're phrasing it by saying, we're fine and comfortable with consensus estimate for 2021, which means we, of course, expect to at least meet that number. But it's going to mostly be back-weighted with, look, Q2 being better than Q1 and 3 and 4 being very solid.

[Raymond Cohen, executive]

I'm going to add further. So since this is a question coming from Truist, right?

[David Rescott, analyst]

Yes.

[Raymond Cohen, executive]

I mean we see your estimates. We have your estimates in your model. And it looks perfectly fine, honestly, to us exactly where you have it. So I don't think there's a lot of mystery there.

I want to be super clear that when we said we're confirming the guidance, we were talking about the core business, right? This consensus of $157 million, that's for sacral neuromodulation. What we generate in effect 3 quarters of having Bulkamid is in addition to that, right?

So we're not saying, "Oh, we're going to shoot ourselves in the foot here and somehow this bulking business is going to save our bacon." That's not what we're saying. The Bulkamid acquisition is completely additive on top of the core business, where we've been saying, and Dan just reiterated that, the $157 million or rounded up to $160 million, we're perfectly fine with that. And the only thing we've been trying to say is that it's just going to be a little more backloaded, which is not -- should not come as a surprise to anybody since every company reporting this past week or last week has been saying the same thing. So hopefully, that helps.

[David Rescott, analyst]

Yes. Yes. That's helpful. And that actually kind of leads into my second question, just kind of on the guide or kind of on the comfortability with the $157 million. So thinking about the U.S., kind of if you could kind of compare and contrast, I guess, the launch of the acquired product kind of against the launch of the initial neuromod device in the U.S. And so if you think about that device only being on the market for about 6 months or so really without a major U.S. sales presence and we think about 2021 as being additive to that $157 million number, if we assume that OUS sales of $12 million are kind of flat with what they were in 2019 and then you kind of conservatively annualize the 2020 U.S. sales to $4 million or so, that puts you around $16 million kind of in a potential conservative case. So does the $157 million-plus, plus maybe the $16 million to $20 million from the acquired business in 2021, kind of make sense to you guys?

[Raymond Cohen, executive]

Yes. I mean you're in the ballpark, right? You're in the ballpark. And look, we're optimistic, and we would hope that the base business from 2019 that was 100% international would come back. We do want to caution, of course, that once again, we've got countries like Germany, which are still completely under lockdown. And things are not much better in the U.K., which has been the biggest market.

So we were, I think, happy to see the revenue that came in, in January from this business, which gives us some confidence that the base business continues along despite the pandemic, but you're not off in terms of how you've kind of riddled out what could be expected from us in 2021.

[Operator]

Our next question on the line comes from Danielle Antalffy from SVB Leerink.

[Raymond Cohen, executive]

Danielle, before you begin, gee, sorry about the bad timing of your conference yesterday.

[Danielle Antalffy, analyst]

So -- no, don't be silly, Ray. I appreciate that. Don't -- do not worry about it. I actually wanted -- I have 2 questions. One is on the acquisition. But before we get there, I wanted to ask you about the D2C campaign. So if you could give us sort of a case study or an example of a market where a company of about your size was kind of trying to drive market development and what happened with volumes. I think you've used the Inspire example in the past. And I guess what I'm getting at is how quickly you can start to see returns and sort of what those returns could look like.

[Raymond Cohen, executive]

Sure. Look, I think that what we're going to be doing is analogous to what you saw with UroLift, what you saw with Inspire. Now -- I mean, they all got started not by spending $7 million or $10 million in a quarter, right? They got to -- had to get their sea legs under them also.

Now -- but it's very analogous. And if you see, people typically started in the digital world and then they kind of bleed into local television, radio and then ultimately national TV spots. And I've been really impressed with some of the high-quality TV advertising done by Inspire as an example, by Masimo with their at-home pulse oximeter. I'm not even talking about Dexcom and all the CGMs, right?

So it's clear that the time has come now in 2021 for medical device companies to be marketing directly to consumers. I mean this is something that if we go back 5 years ago, it didn't happen other than maybe at 2:00 in the morning with some funky product, right? But this is what we're doing.

So here's where we're at. Right now, we started with online digital marketing with Facebook, right? Our target audience, right, of women between, say, 45 and 75 years old, they're all on Facebook, I'm sure you'd agree with that.

So we can target demographically. We can target geographically, which is an important piece of the puzzle for us, and we're sending these messages, these ads, if you may, getting people to respond. Then they go to like a questionnaire. They qualify themselves. And in fact, if they're -- have been qualified, then they're going to receive a phone call from somebody on our staff. We've got nurses that have been trained to reach out to these people who raised their hands. We're going to further qualify the person, provide an empathetic conversation. And then we're going to ask them if they would like a referral to one of our -- one of the physicians that we're working with in their area.

And if they say yes, then we call that practice. They've already been trained. They're prepared to accept what we call warm handoffs and that we will go ahead and get that patient right into the doctor's schedule immediately.

Now because we're doing it that way, under the premise that every single lead is worth a lot, that we are not going willy-nilly across the entire United States. We're in 35 markets right now, and we started at 0. And then in Q4, we continued to add. We'll be at 50 markets by the end of March. And we anticipate that we'll continue to roll these out.

So we've got great coverage all across the United States. So there's no area of the United States that we can't market. And right now, our current spend is about $1 million per quarter, right? So we spent some money in Q4 to get things up and running. We now know what gets good responses and what draws better in terms of the ads and all that other stuff. And we're doing this thing in -- I think, in a highly sophisticated, disciplined manner to make sure that we can track stuff because this is -- the question you're asking me, and I'm sorry for the long preamble, but the question you're asking is how do you measure the response.

Well, you can measure easily cost per lead, you can measure easily cost per appointments or cost per -- yes, appointment, we'll call it. But it's harder to measure the cost per sale. And that's where there's a gestation period that has to happen. So you've got to be able -- you have to have tracking mechanisms in place. You have to be working with practices that are -- that have agreed that they're going to report back information because we want to tie that ad and that response to a sale ultimately, to a implant ultimately, so that we can then provide some type of ROI feedback or at least gross revenue that we're generating from these activities. So this is not -- for us, it's just not about throwing a bunch of money against the wall, hoping something sticks and so forth.

So now I should also add just -- and I'll wrap it here, is that we're not just doing digital advertising. We've got ads that are showing up in the kind of these local magazines that women of this age group would read. We've got some of our docs on local television, doing these little 30-second spots, which have been proven to be very effective so far and so forth. So those are the kinds of things to do. We've got a whole Chinese menu of things that we are -- have available for the practices that are working with us to get involved in.

And just so everybody understands, that we're keenly focused on compliance as a company. Obviously, if there's something that promotes the doctor's practice, they have to pay half. If we're promoting sacral neuromodulation in general, then we can do it on our own dime.

So it's going to take us a while before -- I remember listening to the Q3 call from Inspire, and they indicated that they spent nearly $7 million on DTC. Now they didn't talk about what they spent in Q4. But the point is that some of these companies that are posting some pretty aggressive growth, they've been doing it on the back of some heavy spend from a marketing standpoint. Up until now, we haven't, but 2021 is kind of our coming-out party, if you may, for getting serious about this.

So right now, $1 million a quarter is the spend that we envision. And if things go well and we can measure the ROI, we'll pump the gas even further.

[Danielle Antalffy, analyst]

Got it. Okay. That was a very thorough response. So just on the acquisition. And I'm just curious, so you alluded to the sales synergy potential. And I'm just wondering, is there anything to this? And it might be -- sorry, I don't know the stress urinary incontinence market as well. Is there any sort of synergies as it relates to raising awareness for SNM, too? Do these patients eventually become overactive bladder patients? Or is that the wrong way to think about this?

[Raymond Cohen, executive]

So it's -- this is a -- it's a actually a pretty good question, right, when you think about it. And there's a lot of confusion, I think even on the part of women, as to what the issue is, what they've got, right?

Here's what I would say. It is very common, Danielle, and even if you -- I mean, you're obviously too young maybe. But if you talk to other women in your circle, this notion that, "I cough, I laugh, I sneeze, I pick up something and I leak a little bit of urine," I mean, this is very common. So the issue is not whether it happens once in a blue moon, but if this starts to happen on a regular basis every single day, then these folks are going to be motivated to go talk to a doctor. Hopefully, they go to the right doctor who actually cares and is willing to listen.

But many of these patients have some form of this stress urinary incontinence, and then they also have urge urinary incontinence where they have great urgency and they actually can't get to the bathroom in time and they leak. Now that's called mixed incontinence. And some patients have both. But a lot of times, it depends on what is predominant.

Now in our clinical study that we did for urinary urge incontinence, we made sure that anybody who was in our study was predominantly urge incontinent, right? They may had a little bit of stress incontinence, but we wanted to get as pure as we can of patients with urinary urge incontinence.

So it's -- the docs can differentiate. The simple urodynamic tests allow them to make a differential diagnosis between which problem it is that might be predominant and what the patient is seeking treatment for. So it's not as if weakness in your pelvic floor muscularization, right, and the inability to get good collapsion in the urethra is going to lead you down the path of urinary urge incontinence. One is a muscular issue with problem with collapsion. The other is communication problem between the bladder and the brain.

So the causation, if you may, is different, right? As we mentioned even earlier, stress urinary incontinence is mainly -- I mean, and more predominant amongst women who've had children than it is in the rest of that population whereas childbirth is not necessarily indicative of a person who's going to get urge urinary incontinence. So hopefully, that kind of clarifies the distinction.

And so I would say to you that if you want to do some research, it's not looking at the stress urinary incontinence market because the market is -- it's just not that great of a market per se, right? It's about the incidence and prevalence of the problem and then creating more awareness so that women actually talk about this as opposed to being embarrassed about it, right? Because now this is a super easy procedure. Imagine, if you've got this issue, you can go in and then 15 minutes later, your problem is solving, and you're probably good to go for 5 or 7 years. So that's a pretty exciting alternative, not expensive, covered by insurance, easy outpatient or office-based procedure. So that's why we're so excited about this.

And I would just want to stress, same docs, right? We're talking urologists and urogynecologists, these are the ones treating this problem with these women. And it's -- and a lot of times, it's even the same patients themselves. So this is so closely related -- I think, hopefully, people can appreciate why, as a company, we're so enthusiastic about getting involved with this product.

[Operator]

Our next question on the line comes from Michael Polark from Baird.

[Michael Polark, analyst]

Two quick ones. Ray, you just mentioned low cost for this procedure. Can you give us a flavor for ASP?

[Raymond Cohen, executive]

Yes. Between $1,000 and $1,300.

[Michael Polark, analyst]

Okay. Perfect. And then on the development of your primary cell device, working diligently, cautiously optimistic, it can be a contributor in early 2022. I think previously, maybe there was expectation to submit the PMA to the FDA by the end of this quarter. Is that still a reasonable framework? Can we get an update on that?

[Raymond Cohen, executive]

Let's just say that we're pedaling as fast as we can on the bicycle, okay? So we're doing everything we can to get this thing going and wrapped up. But just like there's disruptions from COVID-19 in terms of elective procedures and selling, we got a lot of folks that we're working with, testing labs and others, that also have patients that have contracted -- excuse me, employees have contracted COVID-19. And there's spanners in the works here. We're not operating in a business-as-usual environment. So some delays, I think, are just logistical and to be expected.

So we're working it. We're -- we feel good about the product, which is fully engineered, and we've been building, and we build a few hundred of these things already. So we just need now to complete the validation, verification testing and put a good filing in with the agency.

[Operator]

Our next question on the line comes from Mike Matson from Needham & Company.

[Michael Matson, analyst]

Just have a few on the deal. And I did join the call late, so I apologize if you addressed these earlier in the call. But I guess I'm a little confused by the deal because when I looked at the company's website, it looks like they do have some other products. So are you just acquiring the SUI product? Or are you acquiring the entire company? And then if so, if it is the entire company, what are you going to do with the other products?

[Raymond Cohen, executive]

So not to -- I don't want to make this confusing at all, okay? But let me try to explain it as best as we can.

Contura had -- has a couple of different entities. We've acquired Contura Ltd., which is where Bulkamid sits, okay? And the folks in Europe, and particularly in Denmark, we are going to continue to have them supply the hydrogel to us at least for a period of time, as we mentioned early in the call. We will consider and eventually look at the feasibility and possibilities of us making the hydrogel ourselves. But at the moment, it's a lot easier just to get the product supplied by them.

Through some -- one of their entities, we understand that they may pursue some other indication for the hydrogel or some version of a hydrogel that is outside the field that we're focused on. So hopefully, that kind of -- it's not that mysterious, but hopefully, that clears it up.

[Michael Matson, analyst]

Yes. Okay. That does. And then did Contura have any -- it looked like they had some sort of sales force that they're building, some sort of sales force in the U.S. So I mean, are you inheriting any of those folks? And will you need to -- whether or not that's the case, will you need to -- does this mean you'll need to add to your existing sales force at all?

[Raymond Cohen, executive]

Okay. So good question, Mike. So the answer is there are 26 employees coming with this deal. 21 of them are sales professionals, right? 5 in the United States, the balance are in Europe. So we inherit those people.

This is a very small team, as you could imagine, right? We're talking about a company that had limited resources and didn't make big investments in sales and marketing. We now have our own people there. So it will be a combination of our folks in Europe and the existing folks that we're inheriting.

And then in the United States, we fully expect to unleash our large commercial footprint on the physician community and so on and so forth. So exact details about who's selling what and all those things, we'll give you more details later when the dust settles.

But suffice it to say that we're buying a company that has very little infrastructure and has been operating basically as a virtual entity. So this is a unusual deal in the sense that normally, you're picking up facilities and all kinds of manufacturing and operations and all the rest of it, and in this case, it's just not the case here. We're basically buying, in effect, what is a product line, and we're buying a supply chain, if you may, and people that are engaged in sales.

[Operator]

Our next question on the line comes from Marissa from Morgan Stanley.

[Marissa Bych, analyst]

I just wanted to ask, I think one concern investors may have is that Bulkamid is a distraction, given you're still early, in just the second year of r-SNM launch. So why do you think that is not the case?

[Raymond Cohen, executive]

Well, I don't think it's a distraction because I think the fact is that the physician community, our existing customers are singing the praises of this product. And I got to tell you, half the docs I've talked to, without even being prompted, they would say to me, "Hey, Ray, have you looked into this Bulkamid product?" I mean people are really excited about this product. And I think if you do any kind of channel checks or whatever, you'll find that to be the case. So we don't see it as a distraction.

You've got to keep in mind now, we've got over 100 clinical specialists on our team, okay? These are people that are expert in helping physicians in instructing in terms of implants of sacral neuromodulation. These are our secret weapon folks.

I mean now you're talking about a simple injection, a little bit of training, and then we don't even need to be there. This is a very important distinction, Marissa. I'm glad for the question because this is not like a OR procedure or even a sacral neuromodulation procedure that might be done in an ASC, where we have to be there.

We're there on every case, and we're there to program those patients and so forth. In this case, you train the folks how to do the injections, and then they're on their own, like you don't -- we don't need to be there.

So this should not be a time stock, and it should not be a distraction. We've got highly skilled nurses in our clinical specialist team that certainly can support the training here. And this is one of those products that's super hot, and we also don't see this as a heavy lift by our sales force.

So this is one of the reasons why we don't believe it's going to be a distraction, it's because we don't need to be there for every case. You got to get -- you get people trained up, you get them in front of a pig bladder, they do some injections, maybe do a couple of cases that day, and then you pop in and you see how it's going from time to time. But that's -- lot of really cool leverage from that standpoint.

So -- and the volume, this is another point, I think, we'll make. Now granted, the question came up about selling price. So you're talking about good customers that are going to contribute about $100,000 a year. That's around 100 procedures.

But there's no reason why the average urologist or urogynecologist cannot do at least 100 of these patients per year. This is a much bigger -- or many more patients that they would be treating than they currently do, let's say, with sacral neuromodulation. So that's kind of how we see this. And bigger practices could have much bigger volumes. So this is not about messing around with a bunch of people that are going to dabble and do a injection here or there.

So that's kind of how we view this. And I want to emphasize the fact that we've been looking at this for well over a year. I didn't just wake up yesterday and decide that we should buy this product line. And we've done a lot of diligence, and we feel really comfortable. And there's no question that this is one of the most talked about products in urology and urogynecology today. So I think we got it at the right time, and this company -- this product line, we believe, will flourish greatly in our hands.

[Operator]

And we've no further questions at this time. I'd like to turn it over to Ray for closing comments.

[Raymond Cohen, executive]

Super. Thank you, operator, and thank you, everybody, for listening in. We appreciate your questions and your support and interest in Axonics, and we look forward to talking with you all again, and have a good evening.

[Operator]

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.