Good afternoon. Welcome to Establishment Labs' Fourth Quarter 2020 Earnings Call. At this time, all participants will be in listen-only mode. At the end of this call, we will open the line for a question and answer session and instructions will follow at that time. As a reminder, this call is being recorded.

I would now turn the call over to Raj Denhoy, Head of Strategy and Investor Relations. Please go ahead..

Thank you, operator, and thank you, everyone, for joining us. With me today are Juan José Chacón Quirós, our Chief Executive Officer; and Renee Gaeta, our Chief Financial Officer. Following their prepared remarks, we will take your questions..

Thank you, Raj, and good morning, everyone. I hope everyone is healthy and continues to remain safe. Our fourth quarter revenue of $27 million represents a new record for our company. Fourth quarter revenue increased 11% from the fourth quarter of 2019 and was up sequentially 18% from the third quarter.

Our strong results and recovery we saw over the course of 2020 are the latest evidence that we are moving beyond the pandemic and that the foundations of our growth story are very much intact. Our singular focus on women’s health and the superior aesthetic and safety profile of our implants continues to resonate in the marketplace.

We continue to grow our total global market share. In October of last year, we shared the ten year post-market surveillance data of our Motiva Implants with now over 1.4 million implants worldwide, we continue to report a less than 1% complication rate in the key safety measures of capsular contracture and implant rupture.

These results are at least an order of magnitude better than anything seen from the legacy competitor products in the international markets. As impressive as this data is, it speaks to something beyond just competitive advantage. It should change how women perceive the safety of breast augmentation procedures.

At Establishment Labs, we believe that this is not just possible put lightly we believe that our data and aesthetic outcomes are quite literally game-changing and as perceptions change and as new possibilities become available, the total addressable market could grow substantially. .

Thank you, Juan José. Establishment Labs closed 2020 with significant momentum, not only did we see strong sequential growth in sales this quarter to a new record bubble, we controlled operating expenses and managed our cash position effectively. I’d like to thank the team for helping keep Establishment Labs in a very solid financial position.

You can find additional details about our fourth quarter financials in our earnings press release and our Form 10-K, which we’ve planned to file tomorrow. Total revenue for the quarter was $27 million.

Direct sales were approximately 49% of this total, while distributor sales, which can fluctuate based on changes in inventory levels and the timing of reorders made up the balance. .

Thank you, Renee. We are off to a very good start this year. The record revenue we generated in the fourth quarter and our progress over 2020 showed again that ESTA is on the right path and that it is within our grasp to be the leading company in breast aesthetics and reconstruction.

There is no other company in our industry innovating like we are or with our commitment to women’s health, the field is wide open for us. But we are not satisfied with just taking share within the current breast implant market by transforming the patient journey breast aesthetics and reconstruction, we can expand the markets for our products.

Mia has a real potential to change the perception and accessibility of breast aesthetics, which could make our addressable markets much larger. The launch of Flora this year will begin a concerted push by us into the breast reconstruction market.

Then we see on opportunities to significantly improved outcomes for the millions of women diagnosed with breast cancer around the world. The next 18 months will be exciting, but so the next ten years. We recently appointed Raj Denhoy as Head of Strategy and Investor Relations.

Many of you know him from his twenty years as a medical device analyst, most recently as the covering analyst at Jefferies. We are excited to have him join the team. I also want to thank the entire Establishment Labs team for their dedication to our mission of improving women’s health.

The last year has not been an easy one, but the team continues to perform at a very high level and I could not be more proud. With that, we will turn the call now over to questions. .

Our first question comes from Anthony Petrone with Jefferies. Your line is open. .

Thank you and good morning, everyone. Congratulations to Raj on your new role and congratulations to the team on a very strong year. I hope everyone is doing well and staying healthy.

I would begin Juan José a couple on, you mentioned physician training virtually in 2020, certainly a lot of companies shifted from physical meetings to virtual training, but it sounds like the number of surgeons onboarded last year notably increased.

So, maybe just a little bit of detail on how many surgeons were trained virtually last year and what is the historical conversion rate from training to active Motiva users that you’ve seen, maybe pre-pandemic and how that’s trended during the pandemic? And I’ll have a couple of follow-ups. .

Yes, of course, Anthony and thank you. What’s very important for to prove that we could shift our medical education platform Motiva Edge from just in person to online that quickly.

So that resulted in I think the latest number was over 18,000 attendees for the year in our medical education platform online, of which thousands of those were new contacts for us.

Of course, it’s difficult during the pandemic to follow-up in person with many of them, but we are looking forward to the situation improving, so that we can begin doing business with many of them. As the year evolves, I think you are going to see us doing more in person than now.

But I guess, what we have been able to prove is that the online medical education can also be a very powerful tool for training and for attracting surgeons that don’t know yet about our story of innovation and improved safety and aesthetic outcomes.

So, very glad to see the development with, I would guess this hybrid type of medical education and I think it’s going to help very much when we move into new things like Mia and breast reconstruction. .

One follow-up to JJ and a quick one for Renee on guidance. One would be, just a quick update on U.S. studies, obviously a lot of studies in 2020 were delayed due to COVID.

So maybe you just can update on timing there and how should we think about a Motiva and Mia launch in the U.S.? Would those come simultaneously just considering the unveiling in February? And the quick one for Renee on guidance would be, how much is baked in for Flora? And is there any way to estimate what you’ve baked in for backlog recapture? Thanks.

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So, perhaps, we can begin with the FDA. So, we were very happy that we finished the enrollment in the aesthetic cohorts back in August of 2019. So, you know the cock is sticking with that group, which represents 80% of the U.S. market.

We’ve been progressing with the follow-up, most of that happening through virtual consultation that was preapproved with the FDA. So, we are looking forward to the two year mark for all of those patients. We believe we are well on track with the aesthetic indication.

As we have mentioned before, with breast reconstruction, there were a lot of challenges during the pandemic. So that cohort is delayed. But we continue to make progress and we hope to be able to give you some news in the near future. .

Yes. Thanks, Anthony, and then also on 2021 guidance, this is our initial view.

We are certainly balancing the strength that we’ve been seeing from the continued uncertainty within the pandemic where we are balancing those sort of timing of those product launches that we’ve talked about coming this summer, but also some of the deferral we capture because patients – not all patients can get in there still restrictions in certain countries.

So, we are seeing continued momentum and the outlook on our business remains very good and we are definitely continuing to capture global market share. .

Thank you. Congratulations, Renee. .

Our next question comes from Josh Jennings with Cowen. Your line is open. .

Hi. Good morning. Thanks for taking the questions. And I echo Anthony’s congratulations on a strong end of 2020 and it sounds like momentum has continued in the first quarter here. Two quick ones sort of – two quick ones – two questions, sorry.

This year report, I think there was a SCHEER Committee meeting in the Europe earlier this month or in the beginning of the month, any takeaways that you’ve heard from that preliminary session and on the safety of textured implants? And are there any other regulatory decisions on textured implants that could hit in 2021 in other geographies outside of Europe?.

Yes. Thanks, Josh. So, just to remind everyone the SCHEER Committee is basically a committee from the European Commission that focuses on safety across European Union. They began looking at the safety of breast implants last year. They issued a report during Q4 that was clearly associating textured breast implants with breast implant associated ALCL.

So, definitely this is something that we have been talking for many years at Establishment Labs. One of the reasons for our success is our proprietary Smoothsilk Surface that allows for less inflammation and less capsular contracture. To-date, we have had no cases reported of ALCL.

And when we think about what can happen in the future, definitely across the globe, regulators are looking at the safety of texture devices and we do expect to see a report from SCHEER later this year. It’s hard to know with the pandemic exactly when that we will be able finalize that.

But definitely, our expectations is that it will happen this year that they will give their final recommendations of their report. We are seeing other regulatory agencies acting across the world at different speeds. But one thing is for clear.

Texture breast implants are not the future of this industry and we are happy to be part of the future with our proprietary technologies. .

Great. Great. Thanks for that. And my follow-up is, just speaking about the future launch of Motiva in the United States, what can Establishment do today and in the coming months and quarters? Are you in front of the U.S.

launch in terms of creating Motiva awareness within the plastic surgeon community? I mean, clearly, the FDA dataset will be a big deal for the – in terms of sentiment towards Motiva.

But other channels or other strategies that Establishment is considering in terms of creating a buzz and just awareness of Motiva in front of the approval and the launch? Thanks for taking the questions. .

Yes, of course. We have to be very mindful of not doing pre-marketing activities. The FDA does frown on those.

But at the same time, our job is to continue to put out empiric view journals, the evidence on the science behind our technologies, but also, there has been more and more independent and sponsored peer reviewed studies that have been coming out. And I think we will do so. We will see more in the future.

I think also, there is some awareness globally that there are new technologies out there by Establishment Labs and those have – can impact positively patient outcomes. So, I think the plastic surgery community in the U.S.

is well aware that something is going on and as we get our clearance from the FDA, we will be very happy to engage with them and get them to use our products quickly. .

Thank you. Just a follow-up. Any incremental thoughts on a potential Flora launch in front of Motiva approval in the United States? Thanks. Thanks again. .

Yes. So, for our tissue expander Flora, which is the only MRI compatible tissue expander with a integrated valve, we expect to submit a revised 510(k) in the first half of this year and we will update you on the progress when we do receive approval.

And of course, that gives us the optionality of launching that tissue expander ahead of the breast implant approval. But it’s too early to tell you about what will happen. But we will definitely update you on the different milestones leading to that. .

Understood. Thank you. .

Our next question comes from Chris Cooley with Stephens. Your line is open. .

Thank you. Good morning and appreciate Juan for taking the questions and I also utter everyone else’s prior sentiment to the phenomenal performance in a extremely challenging year. If I could look just go back and just revisit for my first question, your commentary around the reconstruction marketplace, clearly, better clinical outcomes.

But I am curious how do you achieve a more augmentation or aesthetic outcome for those patients? And I guess, I am just trying to go further afield here.

Do you ultimately envision Motiva Mia being used in these cases? Or do you also envision some type of a BDM being brought onboard at some point in time – and then more of not unfortunately have extremely radiated tissues there. So, a traditional implant just doesn’t really work as well.

So, just I will appreciate any additional color you could provide on the complete suite that you think you’ll have to bring to bear here in that segment and how you would achieve a more aesthetic outcome? And then a quick follow-up. .

Yes. Thank you, Chris. The rates of access for women in breast reconstruction globally are quite low. In some markets, they can be single-digits and part of it is awareness, good options and good outcomes in breast reconstruction.

Our plan is to transform breast reconstruction over the next decade by using technology and advanced techniques to bring about what we call an aesthetic breast reconstruction, which is to bring outcomes that are closer to those of aesthetic patients.

There was a publication – independent publication last year in PRS Open Journal regarding the use of Motiva Ergonomix implants in a hybrid breast reconstruction. If you go to that article and you look at the outcomes, it is hard to think that those are not aesthetic looking outcomes. And that’s exactly what we are looking for.

We are looking to take some of these initial results with our product and make them into a standard so that they can be used by surgeons worldwide. The marketizing this level of outcomes we believe more women will be willing to have a reconstruction procedure. But we are not only looking at that.

We are looking at early detection, so we can help these women ahead of time before it’s too complicated to get a good outcome. And of course, Flora is our first technology that is uniquely suited for breast reconstruction.

As we expand our technologies, you’ll see us bringing other products to market and as I said, our plan is to transform breast reconstruction just like we plan with breast aesthetics before. .

Thank you. I appreciate all the additional color there. And then, maybe just for my follow-up, Renee, if I may.

When we think about the year and I appreciate it’s early on and a number of moving parts here, but it does seem like there will be some fairly significant needs for investment this year not only from a working capital perspective, but also just in terms of just traditional sales and marketing expense.

Could you maybe just help us think a little bit about maybe first half versus second half? Just any kind of granularity that you could provide there about how we should think about this ramp up in the spend from a company’s perspective in anticipation of these really exciting new launches here this come summer time? Thank you so much. .

Yes. It’s a great question and we are obviously factoring in all of the different exciting programs that we have going on here. How does that look with regards to the thought process and rolling out the new advanced that were in technology that we are going to bring to the space.

But also, balancing where we are at with our not only internal things and what we are still seeing with the pandemic. So, I wouldn’t necessarily say first half and second half. I am not going to give sort of quarter-by-quarter breakdown.

We will spend increase and we’ve probably expected as we roll out some of those additional programs over the summer the spend would align with that. So, we are super excited about how we’ve come out of the pandemic. The strengths that we are seeing and how our products are resonating with patients and plastic surgeons.

And I think as look forward through the rest of the year, we really want to make sure that we are investing strategically to execute on those new milestones. .

Thank you. .

Our next question comes from Matt Taylor with UBS. Your line is open. .

Hi. Thank you for taking the question. So, I wanted to start and ask one about this continued momentum that you called out in Q1. I was hoping you might be able to be a little bit more specific. You mentioned that there is some countries where you are still having trouble with access.

I know you are in 80 countries, I don’t know, don’t expect you to go through all of them, but could you give us some flavor on where things are going better versus still slow and how you view the balance of the initial guidance here?.

Yes. Certainly. You are right. We are in over 80 countries that obviously the top set of those drives a big chunk of our revenue and we have to be mindful of sort of what’s happening in Europe. We’ve seen some great response there and hopefully the vaccine rollout continues and actually increases in momentum.

I think if you also look towards countries like Brazil, which for us is often times the leading country. They are seeing an increase in case volumes right now after some coming out of their summer and they are kind of season where some regional governments have recommended deferrals of non-essential surgical procedures.

So, we are weighing in all of those factors and watching it daily or weekly to see what happens. I think as countries open vaccines roll out, that’s always a positive for us. But we are still in that interim period right now what we are just trying to provide patients with our implants and procedures where we can.

But in some cases, those are still restricted in our larger countries as well. .

Okay. Great. And one of the reasons developments that could be really positive for you is Allergan’s exit from the number of the OUS markets.

And I was hoping you could provide some commentary there in terms of how quickly you might be able to capitalize on some of that or just framing that opportunity for us?.

Yes. Thanks, Matt. I think, this action is in some ways a logical response to the innovation gap that has opened up in the market. But we have to be mindful that it really began over three years ago when there was the global recall of Allergan’s textures products.

And the international market at that time was majority textured and of that, Allergan had a good portion of it with their textured devices. So, the shift away from Allergan really began over three years ago. Many of those users shifted to other texture devices naturally.

So, that’s why are so adamant about our medical education about evolution from texture devices to smooth devices and if it’s going to be a smooth device, an advanced bio-engineered smooth device like ours. In saying that, you have to be mindful that we are taking market share from the rest of the competitors including Allergan.

And also, that in many markets, we are moving into a leadership position. So I think in market where you don’t have Allergan or leadership position could be even stronger. So that’s probably one of the most important takeaways from us strategically.

And I think, we are confident that we can continue taking market share organically and on top of that, add the new geographies like China and U.S. where we still have Allergan as the competitor. .

Okay. Great. That’s a good way to think about it. And that dovetails into my kind of last follow-up here. You talked about your leadership position. You have intermittently given some color on market shares in certain geographies, relatively high numbers.

Could you update us on a few of those and where your shares are today? Help us think about how your shares could gravitate higher over time based on your differentiation?.

Yes. I think that we plan to give a good update on international markets and the market share position that we have in them. But I can tell you, just to give you some ideas of how good we’ve been doing in countries where we launched last like, Thailand and Taiwan, we went literally from zero to being on par with the market leaders in those markets.

And that shows you how quickly we can grab market share. I think we have a good blueprint these days about going into a market and using medical education and patient education to quickly gravitate the market towards us.

I do believe though that in the international market, you can think of Establishment Labs is well underway to a market leadership position. .

Okay. Great. Thanks, JJ. .

Thank you. .

Our next question comes from Amit Hazan with Goldman Sachs. Your line is open. .

Hi all. This is Phil on for Amit. Thanks for taking the questions as always. I wanted to circle back on the Mia event that happened earlier this year and ask if you all can sort of detail the steps and the timeline that are ahead to performing commercial procedures in Europe.

Obviously, just one of the three elements approved today and the clinical stuffs that are still ahead. .

Yes, of course. So, just a reminder, our minimal invasive augmentation, the concept includes no general anesthesia, fast procedure, quick discharge of the patient and quick recovery times. In the series that we performed in Costa Rica, we were also able to prove a quick learning curve for surgeons and that is fundamental to that timeline.

We were very happy to see the CE Mark for the Ergonomix2 Diamond Breast Implant that is part of the Motiva Mia system.

We are now expecting an approval of the tools that go with the Motiva Mia system and we are talking about the balloon that is used to create the space to a very small incision and also the Motiva injector, so that we can safely deliver that Diamond Implant through that very small incision.

For us, the approval of another group of patients in the Costa Rica series is very important. So we are taking that group to a 100 patients and procedures are happening week-to-week and we are progressing towards that end.

Once we get the approval from the European Notified Body in the second half of this year, we will begin pre-market activities, which will give us the optionality of launching early in 2022. So, of course, we are super excited about these possibilities and our market research, a significant amount of the opportunities lies in Europe.

And we do believe that it proves that this concept that was born as more like a way to adapt our technology to Asian patients has now proven to be a very appealing option for women who are not thinking about traditional breast augmentation, but who are probably not as happy as they could be with our breast shape or size. .

Okay. Thanks so much. And my second one, there was a specific comment in Raj’s announcement of joining the team about helping to create value as that you expand into new areas of aesthetics. Maybe it’s for you, Juan José or maybe for Raj as well.

I am just interested in what the implication of that was and how you see Raj’s role for the company? Thanks so much. .

Yes, of course. We are very fortunate to have Raj join the team. As we think about the future of the company, I think that you have to understand what is it that we bring to aesthetics and I think what we bring that is different is that angle of women’s health and we will continue to work towards that end.

We always say that we are doing this initially in breast aesthetics and reconstruction. But as the opportunities come to us, we would be very mindful of what fits that angle of women’s health. There are many things out there, many interesting technologies. We continue to work through our rich pipeline internally.

But at the end, we will do what is best for the company and the shareholders. .

Thanks, Juan José. .

Our next question comes from Marie Thibault with BTIG. Your line is open. .

Great. Thank you for taking the questions this morning and I will add my congrats to the list here, very strong quarter and congrats to Raj, as well. Wanted to start here with the new Ergo 2 implant, I am expecting that launch this summer here in Europe.

Could you give us a sense of the pricing premium you are hoping to attach to that product? And how we might expect adoption with existing Motiva users to sort of rollout? Is that’s something that you expect to pretty much replace their current Ergonomix use? Would they be using it in different cases, how do you see that being rolled out?.

Yes. Thanks, Marie. So, back in 2015, when we launched the first-generation of the Ergonomix device, that came at a premium of about 50% over a round smooth silk device. And most people thought that doctors would not pay for that premium.

The important thing for us is that we were able to educate patients on the benefits of the Ergonomix device ahead of them visiting a plastic surgeon. So, that made them less price sensitive, because they were able to see the value in the Ergonomix device.

The comfort, the softness, the tissue light qualities of that implant are very appealing to many women. So, they found themselves in a situation where they were willing to upgrade and pay for that premium. I think a similar thing may happen with Ergonomix2. But remember, this doesn’t happen overnight. Surgeons have to try the device.

Patients will come back with their views on the Ergonomix2 device. I can tell you from our early experience that patient feedback is extremely positive. So, we do expect to see a similar process of adoption in which patients push surgeons to upgrade their procedures to the Ergonomix2 device.

So, hopefully a year or two years from now, we will be able to tell you that that is our number one offering and we certainly expect that. .

Okay. Great to hear.

I think that you mentioned that on the Mia symposium of over 100 plastic surgeons tuned in, any surprising feedback from that group? Anything that kind of took you guys surprise?.

Yes. Following the amount of surgeons that called our sales reps saying, how fast can I have it? I think that was probably the most important take away from that part is that, yes, of course, plastic surgeons have been thinking about this for decades. It’s a logical outcome.

Can we do a minimally invasive augmentation safely quickly? Can we make it through a reproducible technique? And I think that’s what we’ve been able to create with Mia. We have now expanded the IOB Series to a 100 patients. We hope that we can continue to prove what we have seen with the initial 30 patients.

We are also looking at the longer term outcomes with the patients from Japan. So, all of that together creates a really good atmosphere for a potential product launch in early 2022. .

Outcome. Perfect. Last one from me then, you gave us some nice numbers around between direct and distributors. It sounds like it was almost about half-half this quarter.

Wondering if there is anything to look to in terms of lumpiness from distributors this year, a sort of cadence we should be thinking about and then, any change to your outlook and taking some of your market strats. I know in the past, that you’ve taken various countries direct.

So, whether we should continue to expect that here in 2021?.

Yes. The results from the year and even the last quarter, especially the back half of 2020 was pretty consistent with what we’ve seen and how we expect it to sort of go going forward. That 50-50 split on direct versus distributor is where we will likely see fluctuating quarter-to-quarter. But that’s what we are at.

And until we really see geographical expansion into China and U.S. that’s what we are predicting for the future. .

All right. Very helpful. Thank you again. .

And your next question is a follow-up from Anthony Petrone with Jefferies. Your line is open..

Thanks. Just a quick one on the Mia pathways, clinically, I am just wondering when you consider DID secured for in the original U.S. study. Is that the same sort of protocol we should be expecting? I think the original U.S. study is 750 patients. So I am just wondering is that’s sort of the size and sort of makeup between revisions in augmentation.

Should we assume a similar study approach or will it be a PMA supplement to that original data? Thanks. .

Yes. Thanks, Anthony. Just a reminder that Motiva Mia, at this point is for the aesthetic indication only. Regarding U.S. potential approval pathway, our initial thoughts regarding this are of a PMA supplement. So, that’s how we plan to approach it. It’s a little bit early to be having those conversations directly with the FDA.

But I think when the time comes, we would like to confirm with them that that’s the appropriate pathway for Mia. But there are many good reasons including what we have done in other high vigilance countries with Mia and that could be a good precedent for what we do with the FDA. .

Thank you. .

That is all the time we have for questions today. I will now turn the call back over to Juan José for closing remarks. .

Thank you for joining us on today's call. We look forward to providing our next quarterly update in May. We wish you a very good day and continued good health. Thank you. .

Ladies and gentlemen, this does conclude the program. You may now disconnect..