Good afternoon and welcome to Nevro's Fourth Quarter and Full Year 2019 Conference Call. [Operator Instructions]. And now I would like to introduce Julia Cunningham, Nevro's Vice President of Investor Relations. Please go ahead, Ms. Cunningham..

Thank you so much. Good afternoon and thanks for joining us. Our speakers today are Keith Grossman, Chairman, CEO and President; and Andrew Galligan, Chief Financial Officer. Keith will review the company's progress during the fourth quarter and full year 2019, and Andrew will provide detailed financial results and 2020 guidance.

Earlier today, Nevro released its financial results for the fourth quarter -- excuse me, which ended December 31, 2019. A copy of our earnings press release is available on the company's Investor Relations website. This call is being broadcast live over the internet to all interested parties.

And an archived copy of this webcast will be available on our Investor Relations website. Also, we have included an earnings slide presentation on our IR web page to summarize our results and 2020 guidance.

Before we begin, I'd like to remind you that management will make forward-looking statements on this call within the meaning of federal securities laws.

All forward-looking statements, including our discussion of operating trends and expectations of future financial performance as well as 2020 guidance are based upon our current estimates and various assumptions. The statements involve risks and uncertainties that could cause actual results or events to differ materially.

Accordingly, you should not place undue reliance on these statements. In addition, we'll refer to adjusted EBITDA, which is a non-GAAP measure. Please refer to the GAAP to non-GAAP reconciliation table included with our earnings release.

Please review our filings with the Securities and Exchange Commission, including our Form 10-K, which we expect to file today, for a full description of risks and uncertainties.

Nevro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements because of new information, future events or otherwise. This conference call contains time-sensitive information and is only accurate as of today, February 25, 2020.

And now I'd like to turn the call over to Keith..

Thanks, Juliet. Good afternoon, and thank you, everyone, for joining us on the call and the webcast today. I'll begin today with our fourth quarter 2019 results. Consistent with our pre-announcement last month.

Today, we reported fourth quarter 2019 worldwide revenue of $114.4 million, which reflects year-over-year growth of 6% and sequential growth of 14%. U.S. revenue was $97.9 million, which was a 7% year-over-year increase. Now if we net out the prior year stocking impact, actual U.S. sales growth would have been approximately 19%.

The 2018 stocking issue anniversaried at the end of the fourth quarter of 2019 shows this should be the last year-over-year comparable that will include stocking as a factor. As a reminder, during 2020, we'll be comparing to 2019 numbers that had destocking in much of the years we unwound the 2018 stocking. U.S.

patient trials grew 17% and permanent implant procedures grew 20% in the fourth quarter of 2019 compared to prior year. Notably, this was the third consecutive quarter of growth for both U.S. trials and permanent implants, and this reflects our focus on improving our commercial execution.

Remember that a patient must undergo a trial to find out if they are responder before seeking payer approval to get a permanent implant which, as you know, we've said before, is a relatively payer-friendly therapeutic pathway.

While we provide a trial and permanent implant, unit growth metrics during this 2019 transition year in order to provide some visibility to real demand given the stocking and destocking issues, we may not provide these metrics in the future.

As Andrew will discuss later, we're introducing additional financial guidance metrics in 2020, including a bottom line profitability metric that we believe are appropriate and useful measures for investors to assess the progress of our business going forward.

International revenue in the fourth quarter of 2019 was $16.5 million, which was a 3% increase on constant currency basis compared to prior year. Turning to the full year 2019, worldwide reported revenue was $390.3 million, a 1% increase over the prior year period, and Andrew will go over the financials in detail later on this call.

But for now, I'll focus on our priorities for 2020 and our strategy to achieve durable growth. We continue to believe that the SCS market slowed in 2019 likely due to industry stocking issues, including our own, which we've discussed at length in previous calls as well as the lack of new product innovations market-wide.

We also believe 2020 should demonstrate U.S. SCS market growth spurred in part by our Omnia commercial launch as well as the promotion of a couple of product upgrades from our competitors.

We met with hundreds of customers at NANS last month and the predominant theme was that they all want maximum versatility when using SCS therapy to treat chronic pain. Of course, Omnia provides that and the customer enthusiasm regarding Omnia was really evident.

Omnia is the only platform capable of offering HF10 and lower frequencies in addition to pairing frequencies.

And while we appreciate that the message of versatility is one that we're hearing a lot from our competitors, we believe you can't really offer the clinician or the patient true versatility if you can't offer the 1 therapeutic option that has been the most widely studied and demonstrated to show better patient outcomes, and that's HF10.

That's a message and a clinical advantage that seems to be resonating with our customers. So our 2020 priorities are actually very clear. Absolute sales growth, growth in our share of the market, continued expansion of our product and clinical data differentiation and earnings productivity.

We feel we're in a very good position between the continued unique and differentiated strength of the HF10 therapy of the underrepresentation or under-indexing of our market share and what we believe is still a very underpenetrated market for SCS therapy.

We believe there's no reason why Nevro can't grow at or above-market growth rates and increase our market share as the only focused and pure-play market participant. The Omnia platform provides us with a compelling reason to once again engage with virtually every doctor practicing in this space.

And we, again, view most pain doctors and neurosurgeons in the SCS field as potential customers. In the future with expanded indications, we expect to begin to meet the needs of other referring clinicians as well. As you know, we didn't include Omnia in our 2019 guidance because it was launched in the U.S. so late in the fourth quarter.

The first quarter of 2020 will, therefore, be the first full quarter of commercial activity for Omnia in the U.S. So obviously, it's still really early. We'll have a full year of Omnia contribution in U.S. this year. And based on initial customer feedback, we believe we're gaining good early traction.

We still hope to have approval to launch in Europe in the first half of this year and in Australia in the second half. We're also working very hard on new product capabilities, which I won't detail here for competitive reasons.

But you can expect to see some really interesting things from us over the next few years and maybe even as or more important, our new clinical data sets, that we think open new markets and expand existing ones. Notably among them, the painful diabetic neuropathy and nonsurgical refractory back pain studies.

Now let me begin with PDN, or painful diabetic neuropathy. We presented our 3-month primary endpoint data and safety data at NANS last month with 216 randomized patients, all of whom were refractory to conventional medical management. This is the largest-ever SCS study of its kind. Dr.

Erika Petersen, the trial's principal investigator, reported a responder rate of 86% in the treatment arm.

Also the average pain scores in the HF10 arm went down from 7.6 to 1.7 at 3 months for an average pain relief of 77%, which is a really meaningful reduction for these patients who, keep in mind, were already unresponsive to medical management and suffered from PDN for 7 years, on average, coming into the trial.

In contrast, the CMM control group's pain scores remain stable at around 6.5 to 7 over the course of 3 months, with an average pain relief of just 5%.

This lack of response in the control group was really an expected outcome since the patients were already refractory to medications, representing a real-world cohort of exactly the type of patients we would hope to be able to treat. Based on our research, we believe this category of PDN patients' number approximately 2 million in U.S. alone.

The next steps for us with PDN are to publish a study result, complete the study to HF12 and 24-month follow-up points, submit our data to the FDA for new indication labeling and begin work with payers on reimbursement. We'll be in discussions with the FDA this year regarding the most appropriate pathway and its timing.

We'll be doing some market development work concurrently to better understand the market and determine the most appropriate market development approaches. Accordingly, we'd expect to begin to see revenue contribution from PDN in the late '21 to early '22 time frame.

Now let me provide some background on our nonsurgical refractory back pain study, or NSRBP study. We haven't talked a lot about the details of study in the past. So some context is in order.

First, this is a large-scale multi-center, randomized controlled study that seeks to compare the safety, clinical effectiveness and cost-effectiveness of HF10 therapy plus conventional medical management or CMM, to CMM alone in subjects with chronic refractory back pain.

Secondly, these patients are not considered candidates for spine surgery and have not had previous major lumbar spine surgery, often due to the nature of their pain etiology and unwillingness to have surgery or other comorbidities. We began enrollment in this study in September of 2018 with the goal of randomizing 216 patients by the end of 2020.

The primary endpoint of this study is responder rate, which is the proportion of subjects in each group who experienced at least 50% reduction in back pain intensity as assessed by VAS scores, and that compares to baseline. Secondary endpoints, such as disability, quality of life and opioid use will also be assessed at 3, 6 and 12 months.

The subjects will have in this study the option to cross over to HF10 therapy at 6 months and all enrolled subjects will be followed for 12 months. As part of the original protocol, we included an interim analysis after a minimum of 40% of the study subjects completed their 3-month primary endpoint assessment.

At the time of the interim analysis, we had 88 active subjects in the study who had completed their 3-month visit and were included in this analysis.

That interim analysis has just been completed by an independent third-party statistician -- excuse me, and I'm able to report that the analysis determined that the study was adequately powered with the current enrollees and will not require additional enrollment. Now this is important.

Please note that we have not seen any of the actual NSRBP data since the study is itself blinded. What we do know is that an independent statistician has measured the interim data and made the recommendation to stop enrollment at this time, which, of course, we're doing. From our perspective, any enrollment is, of course, a positive development.

There are still patients who have been enrolled, but not yet randomized. Others who have been randomized to the treatment arm and not yet treated. And even others who have been treated but not yet hit their 3-month endpoint.

So we will continue to focus on advancing the remaining portion of the approximately 138 study subjects who have now been enrolled. After that process is complete, we expect to submit follow-up data for publication and presentation, possibly as early as the NANS conference of 2021.

As most of you know, having prior back surgery is often a requirement for payers to provide SCS reimbursement. Today, approximately 30% of our current patient population are nonsurgical back pain patients, and they're getting their procedures reimbursed on a case-by-case basis, though, often with additional pre-authorization support.

We expect that our NSRBP data will allow us to work with payers to broaden access to SCS therapy for this dramatically under-treated and under-penetrated market segment with a patient population that we think is up to approximately $300,000 per year. So as you can see, we have a lot going on in the product in clinical studies' areas of the company.

On the legal side of things, we're awaiting the Northern District of California court ruling in the case with Boston Scientific in that appeal, and we continue to expect a decision in the first half of 2020. However, we can't predict the exact timing of the announcement of that decision as it is, of course, at the court's discretion.

And finally, from an operational perspective, we're at a stage as a company where we'll begin to see some financial leverage in our business model as our 2020 guidance suggests.

We're managing this business in a more disciplined manner, and we begin -- and we're beginning to grow into our expense structure with the objective of delivering bottom line performance on an adjusted EBITDA basis in 2020 and increasingly beyond, while still driving the significant growth opportunities we believe are ahead of us.

So now I'll turn the call over to Andrew to go through the financials and our forward-looking guidance..

Thanks, Keith. I'll begin with our worldwide revenue for the 3 months ended December 31, 2019. Fourth quarter worldwide revenue was $114.4 million compared to $107.9 million in the prior year period. This was a 6% increase year-over-year and a 14% sequential improvement. U.S.

revenue in the fourth quarter was $97.9 million, a 7% increase from $91.6 million during the prior year period. The year-over-year increase in U.S. revenue was primarily driven by SCS procedure growth, which was partially offset by the impact of prior year high-volume product orders.

As Keith said, if we net out the prior year stocking impact, actual U.S. sales growth would have been approximately 19%, which includes a slight year-over-year ASP decline. International revenue was $16.5 million, a 1% increase over the same period last year, though on a constant currency basis, international revenue grew by 3%.

Consistent with what we've seen in the past few quarters, European growth in the high single digits on a constant currency basis was partially offset by continued weakness in Australia. Gross profit for the fourth quarter of 2019 was $81.3 million, a 7% increase compared to $76.2 million in the prior year period.

As a percentage of revenue, gross margin was 71% in the fourth quarter of 2019 compared to 70.5% in the year-ago period. Total operating expenses for the fourth quarter of 2019 were $92.9 million, an increase of 10% year-over-year compared to $84.8 million in the prior year period.

The year-over-year increase in operating expenses was primarily driven by U.S. sales and marketing personnel costs, which includes approximately $2 million in costs associated with structural changes to the commercial organization and approximately $3 million increase related to our 2 large-scale clinical RCTs currently underway.

Legal expenses associated with patent litigation were $1.7 million for the fourth quarter of 2019, roughly equivalent to the prior year period. Net loss from operations for the fourth quarter of 2019 was $11.7 million compared to a loss of $8.6 million in the prior year period.

Adjusted EBITDA for the fourth quarter of 2019 was a positive $1.5 million compared to a positive $3.5 million in the prior year period. Adjusted EBITDA excludes interest, taxes, depreciation and amortization as well as certain litigation expenses and noncash stock-based compensation charges.

For GAAP to non-GAAP adjustments, please reference the reconciliation table in our earnings press release. Cash, cash equivalents and short-term investments totaled $237.8 million as of December 31, 2019. Net cash increased during the fourth quarter of 2019 by $5 million and decreased by $26.7 million for the full year 2019.

I'll briefly touch on the full year 2019 and refer you to our financial statements for detailed results. Full year 2019 worldwide revenue was $390.3 million, a 1% increase compared to $387.3 million in the prior year. U.S. revenue for 2019 was $326 million, a 1% increase from $321.8 million in the prior year.

International revenue was $64.3 million, a 2% decrease over the same period last year. Although on a constant currency basis, international revenue grew by 4% for the full year 2019. Turning now to our full year 2020 guidance. We reiterate our January guidance for worldwide revenue to be in the range of $435 million to $440 million.

Since we do not have revenue in Asia, we don't expect to be impacted by slowdowns related to the coronavirus. We do have a small number of components that are sourced from Chinese suppliers. However, we believe we have taken appropriate measures to mitigate any potential supply risks.

Obviously, we continue to monitor the situation closely throughout the world. Back to 2020 guidance, we expect gross margin to be in the range of 69% to 70% for the year.

We expect to reduce operating expenses for the full year 2020 to approximately $355 million, which includes approximately $11 million of litigation expenses and compares to $365 million in 2019. We are also introducing a bottom line guidance metric for 2020, which is adjusted EBITDA.

Adjusted EBITDA, again, excludes interest, taxes, depreciation and amortization as well as certain litigation expenses and noncash stock-based compensation charges.

For the full year 2020, we expect adjusted EBITDA to be positive $3 million to $10 million compared to a loss of approximately $40 million for the full year 2019, and that includes spending discipline and cost-saving measures that we have already started to implement.

I'd also remind everyone that we expect to see similar quarterly seasonal patterns as we've seen historically in both revenue and adjusted EBITDA. That concludes our prepared remarks, and now we'd like to open the line for questions..

[Operator Instructions]. And your first question comes from Larry Biegelsen with Wells Fargo. .

Keith, just a couple for me on the update on the nonsurgical refractory back pain study.

First, will all 138 patients be randomized and followed for 3 months before you submit the data for presentation?.

Yes. Larry, the answer to that is, yes. We're going to take the full cohort that's been enrolled and run them all the way through randomization and treatment if they're randomized to the treatment arm, and follow-up at the appropriate follow-up points before reading out the data..

And I mean, Keith, it seems, based on your comments, that to stop the study that it would stop for positive reasons.

Based on your comments, is that a fair interpretation?.

Yes, I think it was -- it's fair to assume -- well, not assume, it was, in fact, stopped for statistical significance. It was not stopped for futility, of course, we would have been notified and would have told you that. So that's why we said we view this as a positive event.

But it's hard to quantify just how positive and tell you what that means from a clinical data standpoint until we actually see the clinical data, which we haven't yet and won't for a bit of time..

But depending on the data, just lastly for me and I'll drop, the physicians we've spoken with believe nonsurgical refractive back pain data could be more impactful than peripheral diabetic neuropathy because the patients are already being seen by a pain physician.

Depending on how the data reads out, would you agree with that?.

I think they're different. Look, I think they're both -- and again, assuming they are as positive as, say, we saw out of the PDN trial or even close. I think they're both very positive in different ways.

I think one will be very helpful in expanding the existing market and helping us to begin to address reimbursement issues more forcefully and more successfully to help us maybe change the treatment algorithm for some of these patients, vis-à-vis surgical options. So I think it's very helpful.

The PDN data set, on the other hand, helps us enter an entirely new market where we think we can defend or ultimately, should be able to defend our position very successfully. So I think they're different. They're both very large markets, and I think they're both very positive..

Your next question comes from the line of David Lewis with Morgan Stanley..

Sorry for the quick follow-up on Larry's line of questioning. But our sense was that the thought was, post the interim analysis, you would top line the results and then publish the full results in a publication or a major meeting.

Do you still intend to top line the results here in coming weeks?.

Well, no, not any time soon, David, because it's going to take us a little bit of time to work the untreated patients or the treated patients that haven't hit their follow-up point all the way to the first follow-up point. So let us work on the publication and presentation strategies, as we get a little further into this.

We don't have any clinical data to top line at this point. We will, at some point, the question is whether or not we're able to do that and still preserve presentation and publication rights or whether or not we want to get this to publication as quickly as possible -- or presentation as quickly as possible, once we have them.

But it's going to be a little bit later in the year. So give us a little bit of time to sort that out..

Okay. Thanks for that clarification. So maybe, Keith, we'll move off of NSRBP for a second. So just taking a step back from NANS, Keith, there's a lot of talk around combination impaired waveforms at NANS from a couple of different competitors.

In light of that data and what you saw at NANS, how are you thinking about the ability of Omnia to capture share in 2020?.

Well, I think it's a good thing. As I said, there is a very, very important part of frequency real estate that we own and that we have done all of the work on. And so I think if frequency pairing and waveform pairing becomes something that our clinical community is more interested in over time, I think we're in a really good position.

And I think that was sort of exactly what we were thinking about when we decided to position Omnia the way we did.

I just think that we're -- if you're looking at frequency pairing and frequency versatility as being the important option clinically for these patients, then there really is only 1 way to bring that versatility to the clinical setting that includes high frequency, and that's Omnia. So I think it's a good trend, David. I also think it's really early.

And I think we need to give this some time to play out throughout 2020. But we're feeling pretty good about Omnia's position..

Okay. And just 1 more for me, and I'll drop. Just, Andrew, I appreciate the commentary on operating expenses, which are, I think, materially below the street for 2020.

Can you just walk us through gross margin trends in the fourth quarter? And the guidance for 2020 doesn't imply a lot of gross margin expansion in light of a better message on profitability? Just sort of walk us through how you're thinking about GMs 2020 and beyond?.

Yes. So if I look -- going to Q4 as the start, Q4 usually has a little better gross margin than other quarters because it's a large revenue and you have the effect of fixed costs being spread over more revenue.

And then we expect them to drop away from that number when you go into Q1, which is traditionally a much lower revenue quarter, the typical industry seasonality and then for the margin to improve over the year. So we're really going for 69% to 70% as, say, a pretty firm number for gross margin in 2020, with potential upside from there, obviously..

Your next question comes from the line of Bob Hopkins with Bank of America..

Congrats on the announcement here on the back trial. That's really -- it seems like an interesting development. You walked through a really nice time line on painful diabetic neuropathy for us in terms of what needs to happen and then when we might start to see an impact.

I think one thing people are really curious about on the virgin back side is just maybe a rough -- like what's a potential window for when we could see a presentation of those data. Is that NANS next year? Is that more towards the back end of this year? Any -- I know it's early, but any rough sense as to when that data might see the light of day..

Yes. Well, I think the best rough sense we have right now is, we're kind of looking at that time line that would include NANS of '21. So early '21 first quarter, it's possible it could be a little bit earlier than that, it could also be a little bit later than that.

So we need to get through the enrollment and get through the randomization and follow-up period and then sort of see where we are. We obviously don't want to get a readout and sit on that readout for a long period of time. But we want to preserve the ability of our investigators to report to their peers on this as well.

So I think the absolute best case would be later in this year. And worst case would be sometime in the Q1, early Q2 time frame, and it's going to be somewhere in that window, but we'll try to refine that over the next quarter, Bob..

Okay. That's helpful, though. And then just roughly, given your comments on the first half legal decision that is upcoming.

Can you just give us your kind of broad thoughts on potential outcomes and then the ramifications of those potential outcomes? Just kind of help us work through that a little bit?.

Yes. I'd rather not do that at the time, we typically just don't comment hypothetically on outcomes for these kinds of legal proceedings. We have had, at least in my view, a very, very strong track record thus far, I mean, at times, misinterpreted.

But if I go back and review the fact pattern of everything that's happened up to this point, it's been extremely positive with this particular company and with others. So we remain very positive, very bullish and optimistic. We have a plan A, but we also have a plan B and so on.

So this is, regardless of what happens, likely not the end of the road in this case. But in terms of potential outcomes and what it would mean, I'd probably prefer to defer until we get there, Bob..

Your next question comes from the line of Robbie Marcus with JPMorgan..

This is actually Allen on for Robbie. So I just wanted to ask a question on the market. So obviously, you guys have been growing quite a few turns above the market over the last few quarters.

Some of that's you guys playing a little bit of catch up, but when we look at the underlying market dynamics, it does look as though growth has been flat to down over the course of 2019. So you and your competitors look to be expecting some level of growth in 2020.

So other than, I guess, new product launches or the big one, are there any other dynamics or trends that you see really reversing to lead to that, that give you more confidence in growth in 2020 and beyond?.

Yes. Well, listen, expecting is probably a strong word. We are -- as we look at the market, first of all, as we talk about our guidance, I think it's safe to say that our guidance doesn't presuppose or require anything in the way of dramatic market growth, maybe any market growth at all.

Our sense is, however, that there's likely to be a renewal of some market growth in 2020. And certainly beyond, if you look at, what we think, a normalized CAGR rate should be, for this market, over time. We spoke to that a little bit in our prepared remarks.

In terms of looking at new product introductions, or the lack thereof, over the last 12 to 24 months, the impact of stocking and destocking, which we think was not just a Nevro issue, but we suspect was an industry issue and hoping that for the industry that it is beginning to straighten itself out this year as it is for us.

So we're making some assumptions, and these are some estimates. And it is certainly our hope that we see a renewal of some growth this year. Our competitors have said the same thing. That's a positive. And we certainly hope they're right..

Your next question comes from the line of Danielle Antalffy with Leerink..

Just wanted to touch on OpEx guidance? And it's better leverage than what we were looking for. So I was wondering if you could give a little bit more clarity. And obviously, there's probably some mismodeling on our part.

But just where you're seeing -- is this coming from better rep productivity because gross margins look about in line with where we were? So just curious about where the incremental leverage is coming from..

Yes. Well, it's coming from a number of areas. And if you look back over our reported financials in the latter half, particularly, the last quarter of in 2018 and the first quarter of 2019, our operating expenses took a pretty large spike up.

A lot of that was in the form of kind of the full blossoming of 2 large RCTs, and a lot of it was in the hiring of quite a number of new people in the field.

So what we've done over the course of this year is really put in place a lot of changes to our policies, our practices, our culture, our team, an attempt to rejuvenate the top line, particularly in the U.S. market with an eye towards trying to figure out what kind of efficiency we can see in 2020 and beyond.

So in the last half of 2020, we began to make some changes really more with an eye of growing into our operating expense levels and not increasing them. And I think that's what you'll see in -- throughout the rest of 2020 and in 2021, is basically trying to grow within the footprint that we've created.

And I think largely, that's where the leverage will come from. And I think maybe largely in those two areas, but certainly, among others. We also had some onetime events in 2018 or rather early 2019 that don't repeat in 2020. And I think that's -- those are helpful facts as well..

Okay. Got it.

And then just a quick question for you on how you're thinking about how PDN and potential virgin back or nonsurgical back pain, how that will be received? Obviously, Nevro isn't the one collecting the clinical data, but do you think physicians and agencies will view this as a class effect? Or will this be specific to Nevro and put you guys in an even stronger share gain position?.

That's a great question. No, it's a really good question, Danielle. I think -- I mean, the real answer is time will tell, of course. But I think it will be probably some combination.

I think maybe with PDN, if I look at the pathway, particularly the regulatory part of that pathway, the importance of -- at least what we perceive the importance is of high-frequency to the results that we're beginning to see in that trial at the 3-month point, I feel like that's less of a class effect and more of a Nevro effect.

I think in the case of nonsurgical back pain, it's probably a little bit more of a mixture of both. Though keep in mind that whatever data comes out of the NSRBP trial is with high-frequency treatment, HF10 treatment. So it should be certainly more of a Nevro effect, but I think it's a rising tide data set for sure..

Your next question comes from the line of Dave Turkaly with JMP..

Congrats on the virgin back data. My question was related to the reimbursement pathway for both PDN and then the virgin backside.

I know that you're -- I think you mentioned 30% of the patients are virgin back today, but I was wondering if you could maybe just walk us through the steps that might be needed to get the payers onboard for either indication. And you mentioned some of the prior auths that are needed for nonsurgical back today.

But I guess, your thoughts on how long it might take for those to come along and what you'll actually need, I don't know if it'll be economic data or not, but what you'll need to get those established?.

Yes. I think that pathway is a little bit more clear right now for PDN. Keep in mind, we haven't actually seen the data for NSRBP. And a lot of the -- maybe I'll just focus on PDN, because I think a lot of the pathway around NSRBP will be shaped by the nature and quality of the data that actually come out of it.

We just -- as I said a few times now, we just haven't seen it. For PDN, I think it's more clear. We have begun to see the data there, at least at 3 months.

So if one assumes that they continue to be that good or better over time, our view is that we take the data to the FDA, it requires, and we want it, frankly, in this case, to require an indication expansion for this new patient population and for this new indication for use.

The timing on that is something that we'll begin sorting out with the FDA in the coming months and trying to figure out if they require 3 months', 6 months', 12 months' data, some combination in sequence, and we'll have our proposals ready for the agency and begin that conversation this year.

And I would say, probably sooner rather than later in the year. We will begin doing some work with payers before then, before an FDA approval, but certainly, we'll begin in earnest once we have an FDA indication approved. And that, frankly, is ongoing work, That'll happen over time.

But I think that with the PDM, it's much more of a traditional clear pathway. It's one where we'll take this tier 1 clinical data that will come out of this PDN trial, get an FDA approval for a new indication and seek reimbursement, which, I think, should be pretty forthcoming.

Keep in mind, we do treat a small number of these patients today, suffering from lower back and leg pain, and we're not treating patients who aren't being reimbursed. So I think with a label claim from the FDA with really powerful clinical data, that will be a much more compelling case for a broad swath of payers.

From a timing standpoint, Jason, as we've said, that's probably all combined to be of some meaningful revenue impact in later '21, early '22 at the latest. That's our best estimate right now..

Got it. And it's Dave, by the way, I'm sorry, I was -- I got dropped earlier in the call and then dialed back in. But anyhow, my follow-up -- my quick follow-up would just be you mentioned pricing being a little bit of a headwind.

In the quarter, I'm just curious if you can make any comments on Omnia, where that's priced? And if it is a premium device, maybe directionally, if you could give us any color on what kind of premium it might garner?.

Yes. I think ongoing steady, relatively small pricing erosion through the aging of a set of product life cycles is pretty typical. It's what we've seen in the space before and other medical device spaces as well.

So I don't think there's anything about the very, very small amount of ASP decline that we saw in fourth quarter that was either surprising or unusual. It didn't really have much of an Omnia impact to pricing in Q4. Obviously, 2020 from Q1 forward will have more of an Omnia impact.

In terms of what that impact will be, I think we've said that really with Omnia, our intent is to get a premium where we can.

I think there's certainly a premium that is justifiable for that product platform and one our sales organization is prepared to seek, but we're also -- we've been clear that our primary objective here is growth and market share and pricing being secondary. So I would anticipate whatever pricing uplift is given to us by Omnia to be relatively minor..

Your next question comes from the line of Jason Mills with Canaccord..

This is actually Cecilia on for Jason. And I just wanted to ask, again, after the PDN data, what you've heard from the field, just on the feedback.

But going back to Danielle's question, the unique applicability specifically of high-frequency in this patient population? And then just your plans for data publication and what that could have in reaching this field?.

Well, I think generally, the -- and qualitatively, the feedback from the field has been really good.

I want to be cautious not to overstate it, but I think almost uniformly, the feedback we've gotten on both the quality of the design of the trial, the rigor of the trial and the -- just the strength of the outcomes, particularly in pain has been a consensus.

I think people recognize it's 3 months' data, and I think the field will value 6- and 12-month data even more. But I think most commonly, the feedback we got in the 3-month data is that it's likely to be predictive based on past studies, but nonetheless, people will want to see a little bit longer term data.

Aside from that, I think it's been uniformly positive. And I'm sorry, the balance of your question was....

Publication..

Publication. Yes. So I think we'll be submitting for our first round of publications, fairly soon. I think I would expect to see something published probably in the second half of 2020. There will be numerous opportunities, I think, for both publications coming out of this study and presentations. We've got 6-months follow-up coming ahead of us.

We've got 12-month follow-up. We've got both primary and secondary endpoints, so I think are all interesting. So I think we'll go through a little bit of a quiet period here over the next quarter or 2. But I think beyond that, you'll begin to see some things coming out in publication and additional presentations..

Great. And if I could just ask on the sales force front.

What your plans are for 2020, either in the form of ads, but more specifically, as you're looking with Omnia targeting either your current accounts or potentially expanding into accounts where you weren't previously? How you're going to balance that focus going forward with Omnia?.

Right. We've had a -- we've given our sales organization a very, very specific road map of Omnia, not only training, but also positioning and targeting.

And while I won't go into the details of that targeting, and I hope you understand just the competitive sensitivity of that, I will tell you that they have a very detailed road map, down to the specific customer name, and it differs by geography, of course. But we have very specific directions in the hands of our sales organization.

We have brought buy-in to this strategy from our sales and sales management team, and we've got very specific ways of measuring our progress over the coming weeks, months and quarters. We have not really said explicitly where we're sending them to what kind of customers and what that strategy is, because we'd like to play that out on our own..

Your next question comes from the line of Margaret Kaczor with William Blair..

First one for me, Keith. From a Wall Street perspective, you listen to a lot of these calls, and we keep looking at these new indications in PDN and nonsurgical back and the rest.

But maybe you can give us a sense of where you're spending most of your time at this point? Is it the same thing or otherwise?.

I'm sorry, Margaret.

Just so I understand, you mean between those 2 studies or just in general?.

Yes, in general, so your day-to-day, how much of it is operational in trying to maybe improve the sales and marketing force and kind of the existing chronic back market -- back and leg market relative to some of these future pipeline indications? And if you look at kind of the next couple of years, what's more important, I guess?.

Right. Well, I think it's a mix, of course. And it's a little bit hard to quantify. But I think if you look at really where I'm focused and where the team here is focused, it is largely on our core market opportunity. I think there's a belief here, and it's based on data that this continues to be the fundamental core market of lower back and leg pain.

Continues to be an under-penetrated market, there continues to be a lot of opportunity for not only market growth, but share expansion and we have a lot of growth ahead of us just fundamentally that was left undeveloped with our HF10 messaging.

And then the Omnia part of that message really expands the ability to penetrate this market, particularly if you're changing your day-to-day commercial tactics and strategies to make them more productive and more effective. So I would say we're still in the middle innings of doing a lot of those things.

We're still really excited about the kind of growth rates that we're seeing right now. And the ability to continue to grow the business in the existing market, and that takes up a lot of day-to-day horsepower of this organization. Clearly, with every passing month and quarter, we're spending more time looking at new markets and market expansion.

And I would say, right now, we view the most -- near term, the most definite -- definable and interesting one as being PDN, simply because we have those data in hand. We have a better understanding of the time line.

And I think we have kind of a clear consensus internally of our ability to develop that market, if not completely on our own, certainly with a reasonable amount of protection around us. So I would say what's next on the horizon from a mind share standpoint, there's an awful lot of focus internally right now on PDN.

That will likely change in the coming couple of quarters as we learn more about the nonsurgical back pain data..

Okay. And that's helpful. So there's two topics you can go at from there, which is the chronic market and the core market, as you described it relative to the new stuff. So maybe just as a follow-up, from the kind of core market perspective, you mentioned you were in the middle innings of implementing some of these changes operationally.

Can you give us a sense of what that is? And how we should, over time, see that leverage play out within the sales and marketing line over kind of a 1, 2, 3 year perspective?.

Yes. Well, I think a lot of the changes that we've -- I've gone on at length and maybe at NASS in the past about many of the changes that we're focused on in the sales and sales execution areas and in better supporting the organization that we have in the field. Those are really very recent changes.

And without going through the whole list, again, they're still just now being refined, and in some cases, implemented. We've made a number of changes to the field organization, the ratio of reps to technical consultants is different.

We have new people in place, we have some new people in the management ranks and we have new processes in place as well. So I think those take time to really become as productive as you want.

I think from a macro standpoint, look, I think if you just look at our sales growth over our OpEx spend, which is dominated, frankly, by our sales and marketing spend, that's a pretty good growth indicator of the improvement that we think we'll continue to see..

Your next question comes from the line of Suraj Kalia with Oppenheimer..

Keith, can you hear me all right?.

I can, Suraj..

Forgive the background noise, I'm at an airport. So a bunch of questions on Omnia, Keith.

Let me start out, how is the lead placement for Omnia prescribed in the field currently? And the second part of that question would be, would you be -- guys be giving us contribution of Omnia per quarter, so that we can split out the impact of price versus units?.

So the second part of that question is easy because it's not something we're going to do. We haven't broken out revenue by product model, and we don't plan to start.

The first question about lead placement, the Omnia -- as I said, the Omnia launch is new, but the vast majority of our patients who are being implanted with the Omnia device are -- the clinicians are placing the lead in the exact same place that they've been placing them all along, in the T9, T10 area. And I don't expect to see that change.

There will be cases where low frequency programs are desirable upfront on the part of the clinician or where they want to move leads around and map paresthesia. I think those will be fairly few. And leads, obviously, can be moved downstream, if, in fact, they need to be, and that's always been true with our device and others.

But I would expect to see the vast majority of these patients placed anatomically the way they've been placed up to this point..

Got it. Keith, the 30% NSRBP, that number was somewhat new to me.

Can you give us an idea of what that would look like for other players in the space? And also a subpart of that question, obviously, the data from NSRBP is going to be coming out at a certain point, how would you reconcile the HF10 versus the ongoing launch of Omnia?.

Okay. Well, in terms of the percentage of nonsurgical back pain among our competitors, of course, I have absolutely no idea. It'd be a good question maybe for them on their next conference call. I suspect -- I would guess that our percentage of nonsurgical back patients might be higher.

Our percentage of back pain patients, in general, might be higher, just based on the original SENZA-RCT data, and I think how we were -- and how we became positioned in the market. But that's a guess, I really have no idea.

We don't hear anecdotally about the mix between one kind of patient and another for our competitors in the field, and they have not reported it. In terms of the intersection between nonsurgical back pain and HF10 and Omnia, I don't expect that to really be an issue.

I think the whole purpose of the Omnia platform is that doctors have flexibility and versatility when they feel they need it or if they feel they need it downstream that they no longer have to consider explaining a device to implant a different kind of device to get a different frequency.

In terms of the pro forma treatment plan at the time of placement, I don't expect that to change a lot for clinicians.

So if they're looking at high-frequency data, and that has persuaded them to treat a nonsurgical patient they might not have otherwise treated downstream and they want to use HF10, the fact that there are other frequencies on Omnia, I think, would have no impact on either their choice of the product or how they program the Omnia device.

I hope I've answered your question..

Your next question comes from the line of Kaila Krum with SunTrust Robinson..

So on the nonsurgical refractory back pain update, congrats on completing enrollment there. So just to be clear, is this just an interim analysis of the statistical assumptions within the study? So in which case, we know the study is powered appropriately but we don't know the actual results.

I just want to make sure I understand it, if we should be reading anything into this as it relates to the actual outcome of the study? Or again, if this is just an analysis to make sure there are enough patients in the study at this point?.

No, I think you've read it exactly right. This really is a statistical analysis to make sure that there is power and significance in the analysis. It doesn't read on how good one group did -- how much better one group did than the other.

What it does tell you is that it's not stopping for futility, that, I think, would be the only bad outcome in an interim stopping analysis. But it doesn't give us the actual clinical data between the control and test arms, so that we understand the degree of difference in efficacy. And that will come later..

Got it. Okay. That makes sense. And then -- so it sounds like follow-up data will still take a little bit of time.

So is this something you'll start talking to payers about next year? Or is there anything you can be doing more near term, so that there is some consideration perhaps in the NASS reimbursement guideline updates at midyear?.

Yes. We'll have to see what -- obviously, it will be based on the data -- on the actual data that come out of it. And so I don't know what will overlap from a NASS standpoint, from a guideline standpoint.

But as soon as we have data, that has been somewhere presented or published that we can begin putting in front of payers, that's obviously something that we will do. I can't speak to the intersection with the NASS guidelines -- time lines because I just don't know what we'll have when..

There are currently no other questions. I would now like to turn it back to the speakers for any closing comments..

Thanks, everyone, for joining us. We're -- we continue to be really excited about what's happening here. We know that it's a very tumultuous day in the markets at best. So we appreciate your spending an hour with us. And we look forward to updating you next quarter..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..