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VIVE: Q4 Results: 108% Sales Growth in Q4. 2018 Catalysts Include Doubling+ Sales Force, SUI-Related Adoption, VIVEVE II

03/29/2018
By Brian Marckx, CFA

NASDAQ:VIVE

Viveve (NASDAQ:VIVE) reported Q4 2017 results and provided a business update. Management also reiterated their previously issued 2018 revenue guidance in the range of $22M and $24M (inline with our prior and current expectations). The business update encompassed several near-term goals including further significant growth of the direct sales force, regulatory approval and entry into additional territories, progress towards label expansion, introduction of complementary products and continued strong revenue and margin growth.

Just days after the Q4 earnings announcement, VIVE received notice that FDA approved their IDE to conduct ‘VIVEVE II’, the clinical trial which is expected to serve as primary support for an eventual U.S. regulatory filing seeking clearance for a ‘sexual-function’ related indication. While very long-in-the-tooth, the IDE approval was welcome news as it means that Geneveve could relatively soon be the only energy-based technology cleared by FDA for such an indication.

Q4 total revenue was $5.1M, up 108% yoy, up 25% from Q3 and largely inline with our $5.2M pre-Q4 preannouncement estimate. VIVE has now grown revenue on a sequential basis for 13 consecutive quarters. Unit sales included 80 consoles (vs 81 E), including 57 in the U.S. and approximately 2,600 treatment tips (vs 3,500 E). As we noted in our January 4th Note, the ~$100k difference to our total revenue number reflects one less console placement and 25% fewer treatment tips, partially offset by seven more consoles sold in the U.S. (which are priced at premium to those sold internationally via third-party distribution). The “miss” on treatment tips is of little concern given that order books can be somewhat variable and we had and continue to expect some short-term volatility in consumables sales.

Noteworthy, as it relates to console sales is that 57 U.S. and 80 total placements are respective records and ahead of the prior bests by 21% (vs 47 U.S. placements in Q3 2017) and 33% (vs 60 total placements, also in Q3 2017). Also encouraging is that the 23 international units booked in Q4 were the greatest number of OUS console sales of any other quarter during 2017. We attribute the rapid growth in console sales to a combination of recent expansion of both the U.S. direct sales force as well as the international distribution footprint – additional resources and strategies have been (or will soon be) employed as VIVE looks to further steepen the revenue curve.

Rapid growth of the domestic sales force, from 10 in May 2017 to 23 at the end of 2017, has been a catalyst in driving U.S. sales – the sales force is expected to not only massively expand in numbers through 2018, but also (for the first time) include ‘practice development managers’ – which will focus on driving utilization (i.e. consumables sales). We interpret the latter as a signal that the installed base is now sufficient to drive enough consumable-volume and margin to support a dedicated utilization-focused sales team (albeit small) – this could be a key milestone for VIVE as it may prove to represent the front-end of a much steeper ramp in consumables sales as well as margin enhancement.

The rapid revenue growth to-date has also been a product of the breadth of clinical data supporting the use of Geneveve, which management indicated has facilitated initial adoption as well as played an instrumental role in taking share from competing products. Building on the database of clinical evidence will continue to be a leading strategy for the company – in addition to the recently published VIVEVE I study data (re: vaginal laxity/sexual function), clinical support now also includes positive results from a small pilot study in SUI. It could soon also include data from already-planned pivotal studies in both sexual function and SUI indications.

Meanwhile, the 23 OUS console placements was the strongest since it became clear that DMT, the company’s China distributor, would not meet their pre-agreed 75-unit quota for 2017. As a reminder, VIVE noted on their Q3 2017 earnings call in November that there was some hesitancy among healthcare providers to purchase the Viveve system due to the (presumed) possibility that China FDA (CFDA) would require regulatory approval of RF medical devices – also noting that they expected to pursue CFDA approval and split the cost with DMT. Another hindrance to uptake in China that was cited was slowing sales from DMT’s sub-distributors. These issues appeared to be major headwinds as OUS console placements totaled just 44 through the first nine months of 2017.

However, the tone on the Q4 call was much more upbeat as it relates to the potential to grow OUS placements and accelerate utilization with VIVE noting that they are seeing stronger adoption in high-potential countries including S. Korea and Taiwan (where Viveve System received approval in October 2017). Additionally, DMT recently expanded their own sales force – which may mitigate the issues in that country. VIVE also mentioned that their distributors in S. Korea and China have also brought on practice development managers – which we interpret to mean that (similar to the U.S.), there is now large enough installed base in those territories where it is practical (for their distributors) to have a targeted (and parallel) utilization-driving sales effort.

The Viveve System received regulatory approval or expanded indications in an additional 10 countries (including Taiwan, Mexico and S. Korea) in 2017, bringing the total to 62 where the device is approved for sale. VIVE expects another seven approvals over the next 12 months. And while VIVE has previously relied solely on third-party partners for their international business, they are now taking a slightly more hands-on approach, at least in some areas. In Q4 they hired a direct (capital) sales rep in France and another in the U.K. as part of their new ‘hybrid’ distributor/direct sales model – initial results appear to be positive - depending on traction, that could expand to other territories.

Operational Update: IDE Approval, SUI Clinical Studies…

VIVEVE II IDE Approval…
On March 19th, just a few days after reporting Q4 earnings, VIVE announced that FDA approved their IDE, allowing the company to conduct VIVEVE II - which, if successful is expected to provide the backbone for an eventual U.S. regulatory filing seeking an indication for ‘treatment of sexual function’.

The IDE approval was a long-time coming and followed several back-and-forths with the agency since VIVE submitted their application in September 2016. Much of the additional information that FDA sought (and VIVE provided) appeared to be related to ensuring adequate safety of the procedure. As we noted in prior updates, based on the significant history of safe use of the device, we were fairly confident that the IDE would be eventually approved.

VIVE’s March 19 press release notes that the IDE requires VIVEVE II to incorporate a ‘staged roll-in’ enrollment approach which is further aimed at ensuring safety. While total enrollment is expected to be 250, this staged roll-in requirement limits initial enrollment to just 50 patients, at least of 25 of which will need to be treated and assessed for safety purposes (one-month following treatment) before enrollment can be increased. At that point VIVE will need to submit an IDE supplement (during which time the remaining 25 of the initial 50 can run through treatment) with the initial patient safety information, approval of which will be required in order to expand to the intended n=250. Importantly, the proposed study design (aside from this staged enrollment) appears to remain unchanged from earlier expectations. This includes the expected FSFI primary endpoint, targeted enrollment (n=250) and number of study sites (n=25). VIVE notes in the PR that they expect VIVEVE II to commence in Q2 2018, following requisite IRB approvals (presumably some of the VIVEVE I study sites will participate).

SUI Indication Could Be Next, Clinical Studies Planned…
In late January Viveve announced that, based on positive results from a small pilot study, that they expect to forge ahead with stress urinary incontinence (SUI) clinical programs – with U.S. and OUS registration studies planned.

According to the National Association for Incontinence, SUI affects approximately 15M American women and approximately 200M people across the globe suffer from some form of urinary incontinence. SUI, or urinary leakage associated with physical movements (such as coughing, sneezing or running), is a relatively common condition among women that have had children. Similar to vaginal laxity, SUI is also a result of a weakening of pelvic muscles, including those that support the bladder.

Viveve’s initial push into a SUI indication came in August 2017 when they penned an agreement with InControl Medical whereby VIVE serves as exclusive distributor of that company’s innovative incontinence therapy devices to U.S. healthcare providers. ICM’s product line, sold under the apexM, InTone, InToneMV and Intensity names, mainly focus on female incontinence and pelvic floor muscle stimulation. InTone and InToneMV are used to treat incontinence and require a doctor’s prescription. apexM is also an incontinence device but is available without a prescription.

InControl is a leader in home-use incontinence therapy devices and if and when the Viveve System gains regulatory approval for an SUI indication, it could position VIVE as the top U.S. provider of women’s incontinence therapy – in both the home and clinical settings. But, perhaps more importantly, an SUI indication would allow for an even broader formal marketing message. That message could resonate with both doctors and patients given that SUI is a condition that not only effects a sizable population but is also one in which currently available treatment options can be lacking. Unlike other devices and non-invasive options (such as pelvic muscle strengthening exercises), Viveve therapy may offer much longer duration of efficacy (~12 months) with only a single treatment. Other options include surgery (i.e. vaginal slings) – which suffers from the usual related drawbacks including higher cost, more invasive, longer recovery and more risks.

While we think it is likely that many of the current providers of Viveve therapy are already promoting its benefits for SUI (i.e. off-label), supporting clinical evidence from randomized, sham-controlled studies and FDA marketing approval would significantly increase robustness of the marketing message and overall awareness-building potential. It could also substantially aid initial adoption of the Viveve System given that it would provide clinicians with an incremental revenue opportunity either as a stand-alone procedure or as an upsell to treatment for vaginal laxity/sexual function.

Management indicated on the Q4 2017 earnings call in March that they are already seeing SUI-related utilization, which would presumably further benefit if and when the proposed registration studies get underway. VIVE also noted that they expect to introduce a new treatment tip in the near future which is designed with SUI-treatment in mind.

SUI Pilot Study
N=10, single-arm. Conducted in Calgary, Alberta by Dr. Bruce Allan (Dr. Allan was also one of the principal investigators of the VIVEVE I study). Safety and clinical measures were reported at months 4, 6, 9 and 12 months post-treatment. Press release mentions the study used a “proprietary treatment protocol” (specifics were not disclosed). Clinical measures included composite scores of the ICIQ-UI-SF (International Consultation on Incontinence Questionnaire-Urinary Incontinence-Short Form) and UDI-6 (Urogenital Distress Inventory-Short Form) outcome questionnaires. Both questionnaires are industry-accepted as measures of urinary incontinence-related quality of life and symptom distress.

While the PR discloses only limited details of the results it does note that at 12 months (9 patients were evaluable), 89% - 100% of patients were “responders” and mean improvement was 40% - 51% at 12 months based on the ICIQ-UI-SF and UDI-6 measures, respectively. Additional details, such as response and mean improvement at the earlier timepoints was not disclosed. It is also unclear whether other efficacy measures were included as part of the study. In terms of safety, the PR notes that no device-related safety issues were reported in any of the patients.

Relative to the results of the study, Dr. Allan said, “In the pilot study, we found that SUI symptoms were significantly improved, providing strong support for the planned clinical registration studies and the potential to represent a major advance in the non-invasive treatment of SUI".

Pivotal Registration Trials Planned, To Kick-Off Following Go-Ahead From Regulators
VIVE hopes to go straight to pivotal registration trials in both the U.S. and Canada – success of which would be used to support FDA and Health Canada filings seeking an indication for the temporary improvement of mild-to-moderate SUI symptoms. The Canadian study is also expected to accompany a CE Mark application (for European markets).

Design of the U.S. and Canadian studies are similar, although not identical. Importantly, both are multi-site RCTs. Both also use change from baseline in the one-hour pad weight test as the primary endpoint. With the pad weight test, the subject wears a pre-weighed pad, drinks a specified amount of liquid and then performs certain activities (such as walking, climbing stairs, coughing etc). After one-hour, the pad is again weighed to determine the amount of urinary leakage.

The pad weight test (which can also be performed over a 24-hour period) is widely accepted as a standard measure of SUI and is one of two measures that is recommended by FDA as a primary efficacy endpoint in clinical trials assessing the efficacy of urinary incontinence devices. Relative to the what is considered clinically meaningful (with the objective on dryness) with the one-hour pad weight test, FDA recommends a goal of an increase in pad weight of less than 1 gram or a 50% or more decrease in weight from baseline. Viveve also notes in their PR that the studies will include (undisclosed) secondary endpoints. FDA’s general guidance relative to urinary incontinence clinical trial secondary endpoints includes measures related to quality of life (via questionnaires), sexual function, leak point pressure and patient satisfaction, among others. (Note, that we provide this FDA-recommendation information only as background for outcome measures that may be incorporated into VIVE’s pivotal studies, the ultimate design and protocol of which will be part of the anticipated upcoming IDE filing).

The U.S. and Canadian studies are expected to enroll 200 and 100 patients across 25 and 10 sites, respectively (~10 patients/site). Given the already sizeable installed base, we would expect enrollment may be accomplished fairly swiftly, assuming both the U.S. and Canadian studies can utilize certain of the current Viveve System practitioners’ locations as trial sites.

The following is information disclosed in VIVE’s Jan 31st PR relative to the two pivotal (LIBERATE) studies.

U.S. LIBERATE Study
- Design
- N=200 w/ mild-to-moderate SUI
- Randomized, double-blind, sham-controlled
- Sites = 25, in U.S.
- Outcomes
- Primary: 1-hour pad weight test, change from baseline to 12 months
- Secondary: (undisclosed) “other secondary endpoints”
- Safety: through 12 months
- Status: VIVE expects to submit IDE to FDA for “temporary improvement of mild-to-moderate SUI”

International LIBERATE Study
- Design
- N=100 w/ mild-to-moderate SUI
- Randomized, double-blind, sham-controlled
- Sites = 10, in Canada
- Outcomes
- Primary: 1-hour pad weight test, change from baseline to 6 months
- Secondary: (undisclosed) “other secondary endpoints”
- Safety: through 12 months
- Status: currently in the process of reviewing the protocol with Health Canada
- Purpose: if positive, will use study to support Health Canada registration filing and CE Mark application for “temporary improvement of mild-to-moderate SUI symptoms

Our Near-Term Outlook:

While China may have hit a speed bump in 2017, we are hopeful that DMT’s direct sales force and the addition of practice development managers means that a pick-up in capital and consumables demand will materialize from that country during 2018. We were encouraged by management’s tone on the Q4 call as it relates to the OUS growth opportunities including that they are seeing accelerating adoption in certain high-potential territories. S. Korea, Taiwan, Mexico and Brazil all hold out-sized growth prospects, in our opinion, and almost certainly remain largely untapped. With regulatory clearance in 62 countries and others that could come online soon, the geographic footprint continues to rapidly grow. Additionally, we expect to see substantial increase in consumable sales as a result of growth in the installed base (which more than doubled from the end of 2016 (217 units) to the end of 2017 (444 units) and the recent addition of practice development managers. VIVE’s ‘hybrid’ distributor/direct model in Europe just initiated – depending on its success, might be expanded to other countries.

Relative to the U.S., console placements continue to accelerate, with 65% (i.e. 104) of the 160 consoles sold in the U.S. in 2017 occurring in the second half. We expect the placement rate to steepen further on the backs of a growing sales force and leading clinical data. The sales force is expected to grow from 23 at 2017 year-end to 58 by the end of 2018. This is also the first year that the sales team will include practice development managers – which we think is a signal that the installed base is now sufficient to drive enough consumable-volume and margin to support a dedicated utilization-focused sales team (albeit small) – this could be a key milestone for VIVE as it may prove to represent the front-end of a much steeper ramp in consumables sales as well as margin enhancement.

A sexual function indication could be a significant catalyst in driving U.S. sales but until then the current formal marketing message in the U.S. is limited for “use in general surgical procedures for electrocoagulation and hemostasis”, the indication for which the Viveve System (recently rebranded as “Geneveve”) received FDA clearance in October 2016. However, clearly initial demand is driven by ‘off-label’ use – likely for the reduction of vaginal laxity and for the improvement of sexual function – both of which were endpoints in the U.S. VIVEVE I study (while reps are forbidden to market a sexual function indication, they are allowed to carry related literature, including the published data, and provide it as information if clinicians inquire). The informal sexual function-related marketing message was significantly enhanced with the published results of the VIVEVE study in the February 2017 issue of the Journal of Sexual Medicine. Early indications are that this is helping to buoy U.S. sales growth.

An SUI indication could also come in relatively short-order. In the meantime, VIVE already appears to be benefitting from related off-label use following positive results of the small pilot study. How uptake trends for SUI will be something to keep an eye on given that this is largely a market-expansion play and could provide potentially significant upside to current revenue estimates.

We cover VIVE with a $9/share price target. See below for free access to our most recent report on the company.

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