Silk Road Medical - Earnings Call - Q4 2020

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by and welcome to the Silk Road Medical 2020 fourth quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Caroline Paul of Investor Relations. Thank you. Please go ahead, Madam.

Caroline Paul (Head of Investor Relations)

Thank you. Thank you all for participating in today's call. Joining me are Erica Rogers, Chief Executive Officer, and Lucas Buchanan, Chief Financial Officer and Chief Operating Officer. Earlier today, Silk Road Medical released financial results for the full year ended December 31st, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements.

All forward-looking statements, including without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, physician training and adoption, growth in our organization and reimbursement, market opportunity, commercial and international expansion, label expansion, and product and pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our quarterly report on Form 10Q filed with the Securities and Exchange Commission on November 16th, 2020.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 1st, 2021. Silk Road Medical disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. I will turn the call over to Erica.

Erica Rogers (CEO)

Thanks, Caroline. Good afternoon, and thank you for joining our Fourth Quarter Year End 2020 Earnings Call. Joining me is Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer. While 2020 was marked by unprecedented challenges, we would prefer to reflect on the strength and tenacity of our team here at Silk Road Medical and the accomplishments that have paved the way for growth in 2021 and beyond. Throughout the year, we continued our momentum in the United States, expanding our sales team, training new physicians in innovative ways, and meaningfully moving physicians up their adoption curve. These efforts were reinforced by tremendous strides in published clinical evidence, with over 7,000 TCAR procedures' worth of data in peer-reviewed publications. Exiting 2020, physicians performed more than 26,500 TCAR procedures worldwide, with over 10,000 in 2020 alone. We also made meaningful progress on multiple long-term growth and market-expanding initiatives.

As part of these endeavors, we recently submitted our PMA supplement for the ENROUTE Transcarotid Stent System, intended to expand indications for use to include the treatment of patients at standard risk for adverse events from carotid endarterectomy. In other words, standard surgical risk. Coming into this year, we are well-positioned with a solid commercial, clinical, and financial foundation to focus on the opportunities within our $5 billion addressable market. Turning now to our Q4 results. As we indicated in January, we entered the fourth quarter of 2020 aware of the potential for a resurgence in the pandemic, and that came to bear in the latter part of the quarter. With hospital resources pressured, specifically staff, labor, and ICU beds, we started to see constraints on elective procedures. That said, for patients with severe carotid artery disease, stroke prevention can only be delayed so long.

All in, this translated into solid fourth quarter results in spite of the worsening environment. 2020 revenues were $75 million, up 19% year-over-year, with fourth quarter results of $21 million and year-over-year growth of 13%. Through the year, we expanded our active sales territories from 33 to 40 by year-end and began the first quarter of 2021 with 43 territories. Despite the significant dip in physician training efforts in the second quarter, we were able to train over 350 new physicians in 2020 to reach approximately 1,800 total physicians trained. We also expanded our hospital account base from roughly 640 in the beginning of the year to just over 800 by year-end. As a result of our commercial efforts, our growing physician base performed just shy of 2,900 procedures in the fourth quarter and over 10,000 TCAR procedures for the full year.

Over the course of 2021, we expect to see continued momentum as the healthcare operating environment normalizes. The key factors governing a return to normal growth are, of course, hospital resources and patient behavior. These are, in turn, impacted by the pace of virus transmission, the impact of variants, and vaccination efforts. We're cautiously optimistic that normalization will begin in the second quarter, although there are clearly several unknowns. With these caveats in mind, our expectation is for 2021 revenues to be in the range of $102 million-$108 million. As we usher in the transcarotid era, we continue to be focused on U.S. commercial execution with an increasing bias towards driving deeper adoption within our trained physician base. As always, this entails a relentless focus on patient outcomes as we seek to push TCAR towards the standard of care.

Over the past five years, we have meticulously built the market's only dedicated carotid commercial infrastructure, amassed an enviable clinical evidence base, and trained a large cohort of physicians. We look forward to leveraging this collective infrastructure as we exit 2020 with just 6% penetration into the estimated U.S. treated patient population and only 2% of the annual diagnosed population. As such, our top two strategic priorities for 2021 are: number one, continued focus on U.S. commercial execution and driving the adoption curve; and number two, preparation for a potential standard surgical risk label expansion for the ENROUTE Stent. At the same time, we are also investing in our long-term growth drivers, which encompass new indications, new products, new therapies, including acute ischemic stroke and international expansion. With respect to our first priority, 2021 marks the third year in a row with U.S.

Commercial execution as our number one priority, and this is unlikely to change for years to come. We have proven that we can compete and win where so many others have failed in the past against what is now an almost 70-year-old standard of care in carotid endarterectomy. In fact, in a study just published in JAMA Network Open, the authors found the availability of TCAR in a hospital is associated with a significant decrease in the likelihood of major adverse cardiovascular events at 30 days after carotid revascularization, whether TCAR or carotid endarterectomy. In other words, having a less invasive option like TCAR allows for better patient care. Regarding our opportunity to continue moving physicians up the adoption curve, over half of the physicians we've trained through 2020 were trained within the prior eight quarters.

As of the fourth quarter of 2020, when we normalize time from training and we look at our top quartile, we are moving physicians from about 1.4 procedures per quarter up to 5.2. We are encouraged by the meaningful progress we have made over a short period of time, and the future is very bright as we look to leverage the foundation we have built. We remain the only TCAR company in the market as we execute towards this blue ocean multi-billion dollar opportunity. With respect to our second priority, we've been focused on architecting a regulatory strategy around the standard surgical risk patient population and ensuring we meet the needs of key stakeholders. While there is still plenty of opportunity within the high surgical risk market, we have previously discussed our desire to unlock the remaining one-third of the currently treated U.S. patient population.

After careful consideration with key constituents, we are pleased to have recently submitted our PMA supplement for the ENROUTE Stent intended to expand our indications for use to the standard surgical risk patient population. This is an important first step on our journey to address the full patient population with severe carotid artery disease. From physician training to commercialization efforts to a likely post-market study if the PMA supplement is approved, we will be prepared to enter an era where TCAR is on an even playing field with carotid endarterectomy in terms of an addressable patient population. With our two top priorities in mind, we enter 2021 with a desire to further accelerate investment in our commercial organization. Going forward, we expect to shift more of our hiring emphasis towards new sales professionals or area managers who will continue to leverage our strong base of therapy development specialists.

In a few moments, Lucas will share more details on our commercial strategies designed to best serve the ongoing interest in TCAR. Turning now to our other long-term growth drivers. With respect to markets outside the U.S., we recently highlighted a conservative international market opportunity of $2.3 billion, which together with the $2.8 billion U.S. market derives a global opportunity of over $5 billion. To put that in perspective, the U.S. is only 10% of the global stroke burden. International expansion remains on the horizon as we make regulatory progress in geographies such as China and Japan and as we evaluate go-to-market strategies. We are excited about the opportunity to bring TCAR to other corners of the globe where there is both awareness and demand in the physician community.

Regarding further development of our pipeline, we remain committed to expanding our proprietary transcarotid technologies, most notably to address the neurovascular market segment where we see opportunity for improved clinical outcomes. We are pleased with the progress we are making in acute ischemic stroke and other areas, and we look forward to sharing more details in the future. Finally, we would like to provide a brief update on our voluntary recall of certain lots of our ENROUTE Transcarotid Stent Systems, which are manufactured by our partner, Cordis. As we discussed previously, our team reacted swiftly to mitigate risk by recalling the impacted units and launching a comprehensive investigation and testing effort to identify the root cause. At this point, there have been no reported strokes, deaths, or long-term patient sequelae associated with these units, and we have not received any new complaints related to this issue.

Cordis is ramping up its production to replenish our inventories. In summary, we remain focused and excited about our potential to drive the U.S. TCAR market forward as the sole player while we continue to progress our other long-term growth initiatives. With that, I will now turn the call over to Lucas Buchanan, our Chief Financial Officer and Chief Operating Officer.

Lucas Buchanan (CFO and COO)

Thank you, Erica. Revenue for the three months ended December 31st, 2020 was $21.1 million, a 13% increase from $18.6 million in the same period of the prior year. Growth was again driven by increased adoption of TCAR across an expanding base of hospital accounts, trained physicians, and active sales territories, partially offset by regional headwinds related to COVID-19.

Gross margin for the fourth quarter of 2020 was 75%, roughly flat compared to the fourth quarter of the prior year as improvements in productivity were slightly offset by the timing of investments in manufacturing, engineering, and infrastructure projects. Total operating expenses for the fourth quarter of 2020 were $30.9 million, a 44% increase from $21.4 million in the fourth quarter of 2019. R&D expenses for the fourth quarter of 2020 were $10.0 million compared to $3.3 million in the fourth quarter of 2019. The increase was primarily driven by the timing of research and development initiatives. Sales, general, and administrative expenses for the fourth quarter of 2020 were $20.9 million compared to $18.2 million in the fourth quarter of 2019. The increase was primarily attributable to expenses related to growth in our commercial team as well as personnel-related expenses.

Expense growth was partially offset by the continued reduction in travel, trade show, and other expenses due to COVID-19. We expect continued growth in operating expenses in 2021 as we expand our commercial team and invest in a number of continued and new R&D initiatives. Net loss for the fourth quarter was $16.8 million for a loss of $0.49 per share as compared to a net loss of $8.3 million for a loss of $0.27 per share for the same period of the prior year. We ended 2020 with $147.5 million of cash, cash equivalents, and short-term investments. Regarding the balance sheet impact of the voluntary recall of certain lots of our ENROUTE Transcarotid Stent Systems in the first quarter of 2021, the obligation to customers was recorded as an accrued liability, whereas the replacement product from Cordis is considered a receivable.

Turning to our commercial strategy that Erica mentioned earlier and our outlook for 2021, we are focused on accelerating the adoption curve in our now significant trained physician base as well as being prepared for a potential standard surgical risk indication. With this in mind, over roughly the next two years, we expect to adjust our historical one-to-two ratio of area managers to therapy development specialists to almost a one-to-one coverage ratio without significant change to our overall goals for commercial team size. In other words, we will be investing in more sales expertise with more focused territories to complement our excellent clinical support. We expect to end 2021 with over 50 active sales territories, and we are committed to growing our footprint with further territory expansion in 2022.

While driving adoption in our trained physician base is our primary focus, we also expect to train approximately 200 new physicians in 2021. We expect our physician base to perform in excess of 14,500 procedures for the year. As a result of our commercial efforts, we expect full-year revenue to be in the range of $102 million-$108 million, representing growth of 36%-44% over 2020 revenue of $75.2 million. We are cautiously optimistic with our expectations, recognizing that trends with COVID-19, which are persisting in the first quarter, can alter the timeline to a normalized healthcare operating environment. One final update that I wanted to provide is on our rebranded website that also includes our environmental, social, and governance policies.

Our inaugural corporate sustainability report, which we published in the fourth quarter, highlights our dedication to patient safety as well as our commitment to diversity and equal opportunity. Fundamentally, we are in this business to transform and improve lives. We are looking forward to further progress on our status as a socially responsible organization. At this point, I would like to turn the call back to Erica for closing comments.

Erica Rogers (CEO)

Thank you, Lucas. As we reflect on 2020 and the current environment, we are reminded about how far we have come as a company over a relatively short period of time. Just a few years ago, there was no such thing as TCAR, and now we stand well in excess of 25,000 procedures performed to date. We have developed an entirely new market, and in so doing, we have ushered in an entirely new era of transcarotid therapies.

With a tumultuous but rewarding 2020 behind us, I look forward to building upon Silk Road's incredible base of employees, engineering competencies, and deep intellectual property portfolio supporting transcarotid innovations. This solid foundation positions us well to continue transforming the way we treat patients in order to deliver more value to patients, the healthcare system, and, of course, our shareholders. With that, we will now open it up to questions. Operator.

Operator (participant)

Ladies and gentlemen, we will open it up for question and answer session. If you wish to ask a question, please press star one on your telephone. If you wish to cancel your request, you may press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Bob Hopkins from Bank of America. Your line is now open.

Bob Hopkins (Analyst)

Oh, great.

Thank you for taking the question, and good afternoon.

Erica Rogers (CEO)

Hi, Bob.

Bob Hopkins (Analyst)

Hey, Erica. How are you?

Erica Rogers (CEO)

Good.

Bob Hopkins (Analyst)

Excellent. I definitely wanted to ask you guys about the PMA that you mentioned in the press release. I'm just curious, could you give us a sense for what data might be included in that filing and whether or not the big uptick in R&D in the fourth quarter is related to that filing and data collection? Thank you.

Erica Rogers (CEO)

Yeah, sure, Bob. Thank you for the question. Yeah, we're really pleased to have announced the submission of the PMA supplement for standard risk. I think it's obvious that we did not do a prospective clinical trial specifically for this indication. With that, we're really not going to talk about the contents of the submission itself.

We feel it's not prudent to talk about it at this point in the review process by the FDA. Relative to the R&D expense, I'll let Lucas take that question.

Lucas Buchanan (CFO and COO)

Yeah. I mean, ultimately, Bob, we hope to shed some light on the front part of your question. In terms of the uptick in R&D in Q4, that's part of it. There are other puts and takes related to the timing of R&D broadly defined, including clinical, regulatory, and quality.

Bob Hopkins (Analyst)

Thanks for that. The two other things I just wanted to get a quick comment on are you mentioned OUS markets, and I know reimbursement in Europe is something that there's obviously a pathway associated with that. I'm just curious, on OUS, is there any kind of preliminary sense you can give for when you think you'll be commercial outside the United States?

It also, Erica, if you do not mind, just here we are to March 1st. Things sounded pretty weak in December and January. Have you seen things trough in terms of surgical procedure volumes and start to get better yet? Just a directional sense would be great.

Erica Rogers (CEO)

Sure. Let me take those in reverse order, Bob. Here is what is interesting: our mix of asymptomatic and symptomatic treatment, right, procedures is kind of an interesting barometer. It is an interesting lens to look through for kind of hospital-based procedures. It has turned out to be a relatively accurate barometer throughout the pandemic, interestingly, watching that mix of asymptomatic and symptomatic change.

While we saw in January, as you can expect, coming out of the fourth quarter, a mix where the symptomatic urgent patient population was being treated quite aggressively, we're pleased that as we've moved through the quarter, we're starting to see what we would consider our more normal mix of asymptomatic and symptomatic. I think that that's a reassuring sign in the healthcare infrastructure just in general to address that. On the first part of your question on international, for the first time, Bob, we've kind of put a number, albeit a conservative number, on international, which we've done a roll-up kind of bottoms up across the major markets in which we might consider launching TCAR. That roll-up is about $2.3 billion in the treated patient population alone. Of course, we look at Europe, Japan, and China.

The first step for us really is to knock down the regulatory barriers in China and Japan, which we continue to work on, and we're pleased with the progress. Meanwhile, we have hired a Vice President of International Market Development who is working closely with Andy Davis, Chief Commercial Officer, to develop the strategies to go forward in some of these markets.

Bob Hopkins (Analyst)

Okay. Any sense on timelines, though?

Erica Rogers (CEO)

We're not giving any timeline updates specifically yet, Bob.

Bob Hopkins (Analyst)

Okay. Okay. Great. Thank you.

Erica Rogers (CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Robbie Marcus from JPMorgan. Your line is now open.

Robbie Marcus (Senior Analyst)

Great. Thanks for taking the questions. Maybe to follow up on some of those, for the standard risk submission, was that at the behest of the FDA? Did you have discussions with them?

Maybe you could help us understand what changed from, let's say, JPMorgan or the third quarter earnings call to today that prompted it. You mentioned it would likely require a post-approval study. What should we be expecting in terms of size and cost for something like that?

Erica Rogers (CEO)

Sure. Let me sort of take those in reverse order, which is that typically, a carotid stent PMA would have a kind of requisite post-approval study. What we saw in our first PMA approval of the ENROUTE Stent in high surgical risk, Robbie, was a requirement to do what looked like a more real-world study in the post-market environment. That was ROADSTER II, ROADSTER II with those incredible results in over 600 patients. It would not be unusual for the FDA to require a post-approval study for any carotid stent.

We are kind of preparing for that eventuality. We have not disclosed any of the specifics on what we might think would be the scope or the cost. Part of that is done in conversation with FDA, as you probably know, kind of mid-review. We are not ready to reveal the details yet. In terms of what changed between JPMorgan and now, really, it is the submission itself. While we are not getting specific on exactly when that PMA went in, suffice to say, it was after JPMorgan, which is why we continue to say we were working on it and in discussions with FDA and the other key constituents.

Our strategy all along, from the beginning, from the dawn of time, Robbie, was to be in conversations with FDA, with CMS, with the Society of Vascular Surgery, and to settle on not only the best approach from a regulatory standpoint, but also to drive adoption and to drive toward a reasonable coverage environment. I think without getting into the details, since we're in the review process now, suffice to say that we reached what we felt was a reasonable agreement among the parties.

Robbie Marcus (Senior Analyst)

Okay. I'm guessing we're not going to learn more about what the agreement is until approval?

Erica Rogers (CEO)

Yeah. I think that's a fair assumption, Robbie. I think it would be atypical for any company to kind of reveal the contents of a PMA in advance of approval. I think those details certainly will come into the public light on their own post-approval.

Robbie Marcus (Senior Analyst)

Got it. Just a few more. One on reimbursement upon hopeful approval. Do you think you would be able to get reimbursement for standard risk right away, or do you think it would be a process that required time after approval?

Erica Rogers (CEO)

Yeah. The first step in any coverage environment is approval, right? We certainly have to knock down the PMA approval first. I think it's safe to say we've been in discussions all along with the parties around the table. We will continue to work toward an optimized coverage environment as we seek to get FDA approval.

Robbie Marcus (Senior Analyst)

Yeah. Last for me, you trained around 350 or so docs during 2020. Guidance for 2021 is only for 200 doctors.

I imagine part of this is probably due to the soft environment in first quarter, but was hoping you could help us understand the 200 number and where that's coming from. And Lucas, if you want to put out a first quarter range for the street, I imagine that's probably a big part of the delta between guidance and where street numbers sit. Just thought it'd be a good opportunity. Thanks.

Erica Rogers (CEO)

Yeah. I can take the first one on training, Robbie. We have said all along that we have been working to kind of lay down the infrastructure of territories, hospitals open, physicians trained. At the end of the day, what we're trying to get at are procedures. To get at procedures, you need to train physicians. Coming out of 2020 with roughly 1,800 physicians trained, that's a lot of access to a lot of procedures.

As I said in my prepared remarks, our commercial focus is very much about moving those 1,800 up their adoption curve. This is reflected in the remarks that Lucas made around the sales infrastructure, really making sure that we guide and move each and every one of those physicians trained up their adoption curve. Of course, the physicians trained in the pandemic environment potentially need some additional focus, as you can imagine. While there are more physicians yet to be trained in terms of getting at kind of the 80% of the procedural volume in the United States, our bias is increasingly more toward moving the existing physicians up the adoption curve, which is part of why the number is around 200 for 2021 guidance.

Lucas Buchanan (CFO and COO)

Yeah.

To zoom out a little bit on that, and then I'll get to your guidance question, Robbie. At a high level, when you're going against such an established standard of care and CEA, really, we've spent the last many years establishing TCAR, which requires not only opening accounts and training docs and taking them carefully through their learning curve, but really establishing a published clinical evidence base from which to market with. Our past has really been about establishing TCAR and establishing this market. Our future is really we know that therapy works. It delivers incredible outcomes. It is more of a commercial focus and driving that adoption curve in this infrastructure that built with outcomes always as the number one goal. With respect to your guidance question, yes, like the rest of the industry, Q1 is COVID-affected.

As a reminder, we're an inpatient procedure. There's an urgent part of the business, and there's an elective part of the business, and the symptomatic versus asymptomatic. Our assumptions are starting in Q2, we start to see a much more normalized operating environment. If there are further COVID trends that play out to the downside, that's not necessarily in our guidance. We're assuming a more normal operating environment starting in Q2 and getting incrementally better. Most of that has to do with just kind of the overall engine of medicine and getting patients back into the treatment funnel, back diagnosis funnel, getting hospitals coming out of the funk of COVID. That's a little bit unpredictable. I think we believe that vacations will be a big seasonality impact as everybody wants to go visit their families and get out of town.

Whether you're a patient or a provider, we've had some weather impacts in Q1, of course. Really, we continue to focus on the setup for long-term growth and feeling really bullish about the business of TCAR and our long-term growth drivers, especially on the heels of this most recent announcement of a PMA supplement submission, which is really amazing news.

Robbie Marcus (Senior Analyst)

Great. Thanks a lot.

Operator (participant)

Your next question comes from the line of Rick Wise from Stifel. Your line is now open.

Rick Wise (Managing Director)

Good afternoon to you both. Erica, you were kind enough to highlight the progress that you've made on the recall. It was great that the patient comments and that you had no new complaints. Is it basically resolved now in your mind? Just to amplify a couple of things, you indicated Cordis is ramping production to replenish your inventories.

Maybe you can give us some color about when you, how soon you think your inventories will be replenished. And last on that topic, was there an impact in the fourth quarter? Again, remind me, but has there been an impact on January, February volumes from a lack of inventory? I'm just not clear about some of those nuances. Thank you.

Erica Rogers (CEO)

Sure, Rick. I'm happy to address those questions. And thanks very much. As it relates to the recall, of course, nobody wants to have a recall. I'm proud of the fact that we responded very quickly. We were very proactive in that response and getting at the root cause. As a result, in many cases, our relationships have actually strengthened as a result of our conservatism around patient care.

To get at the question of whether or not the recall itself impacted procedural volumes or for that matter, kind of how the fourth quarter ended, I think we can emphatically say no. There was no impact on procedural volumes. Our field team and our customers were able to continue to execute the cases that were on the schedule. We have been very swiftly replacing the inventory at the hospital level as well as our own inventories. Luckily, as a company, we're pretty conservative about the on-hand inventory we carry, which put us in a pretty good spot. That is the inventory that we're working to replace swiftly with Cordis. They have been a terrific partner, not only in getting to resolution of the matter, but in really ramping production to bring us our kind of stock levels back up to where we want them.

In terms of whether or not the issue has been resolved, I think it's fair to say we have isolated the root cause. What that means, Rick, is now we're in the process of the corrective actions component here, which is a highly documented process of making sure the corrective actions are in place and that those corrective actions are effective. We're in the process of doing all of that, which I consider to be on track.

Lucas Buchanan (CFO and COO)

Rick, let me just quickly add on the financial aspects of your question. Per my prepared remarks, it's really a balance sheet effect in terms of liability to our customers to replace those products and a receivable on the Cordis side as we get them replaced from Cordis. There's no P&L impact either in Q4 or likely in Q1.

To Erica's point, the main focus is on servicing demand and not going on back order, and so far, so good. It is really more a question of building up our safety stock.

Rick Wise (Managing Director)

Yeah. Thanks.

Lucas Buchanan (CFO and COO)

I'll just add inventory.

Rick Wise (Managing Director)

Sure. Apologies for coming back to the standard risk filing. The good news is you will not have to say when you are going to do something. Now we are moving on to phase two of how long is it going to take. I know it is impossible to know, but I feel like I have to ask. Maybe blame it on your outside consultants. What are your outside consultants saying about the PMA supplements at the current time? Are we thinking it could average? Is this a six-month kind of process, a 12-month kind of process?

Can you give us any incremental color just so that we could roughly frame a reasonable expectation?

Erica Rogers (CEO)

Yeah, Rick. I think it's a fair question, which is the PMA supplement kind of falls under the PMA general category, which is typically a six-month review process. That said, we have not baked in any assumptions around standard surgical risk lift in our guidance for the year. So the $102 million-$108 million does not contemplate standard surgical risk commercial activities this calendar year.

Rick Wise (Managing Director)

Okay. And just last for me, you called out the JAMA study. I wanted to ask you about that. Gosh, it reads fantastically well for TCAR. And I realize it's, I mean, it's just part of a whole portfolio of studies and data that you have.

Is this that moment where is that the thing that flips adoption more aggressively, or is that over dreaming or hoping for something from a specific study? Thank you.

Erica Rogers (CEO)

Sure, Rick. I'm glad that you caught that paper in JAMA last week. We felt it was significant enough, obviously, to put a press release around it. It is very big news. In terms of the light switch phenomenon, we've said this before, that becoming the standard of care is a methodical and careful march with both our physicians and hospitals. We do see this as a unique tailwind because it's really about overall outcomes. It's about hospital efficiencies and better patient care. I think it'll have a unique impact.

It's probably too soon to measure or to tell you exactly what that impact is, although I assure you our marketing and sales teams are armed and are having those conversations right now. I think it's safe to say that this business is probably not going to be a light switch phenomenon. It's moving physicians, moving hospitals up the adoption curve methodically.

Rick Wise (Managing Director)

Thank you very much.

Lucas Buchanan (CFO and COO)

Hey, Rick, I just want to add some additional color to Erica's PMA comment. I think it's at minimum a six-month review cycle. As you know, these PMAs can take significantly longer than that. This is a novel strategy given that we did not do a prospective IDE trial. It's fair to say it's hard to predict.

I think, as Erica mentioned, the guidance is a function of a lot of different puts and takes focused more around the engine of medicine overall coming out of COVID, hopefully, than any particular nuance around standard surgical risk. There is a lot of preparation regardless of if and when it is approved. It is not a light switch type of thing. It is something that we will need to go to market with and talk to physicians about.

Rick Wise (Managing Director)

Thanks again.

Operator (participant)

Your next question comes from the line of Joanne Wuensch from Citibank. Your line is now open.

Joanne Wuensch (Managing Director)

Good afternoon, everybody. Thank you for taking my questions. I want to go to a previous question that sort of focuses on the first quarter because I think the way when I look at the model, you are sequentially improving throughout the year, second half stronger than the first half.

It all gets sort of based on that first quarter. Street consensus is around $24 million. Could you please give us sort of a range of thought on how we're starting the year?

Lucas Buchanan (CFO and COO)

Yeah. I think we've discussed some of the monthly trends in Q4 and alluded to Q1. I think that argues for more conservatism on Q1 overall in terms of sequential experience off of Q4. I think as we look towards the year, we're really looking at kind of a three-quarter with the second quarter being the path to the beginning of normalization. Third quarter typically has some seasonality. We think the vacation impact might be bigger this year just given what's behind us as a society. Growing from Q2 to Q4 with a fair amount of conservatism on Q1.

Obviously, we still have March to go to see how it fully plays out.

Joanne Wuensch (Managing Director)

Okay. Just to push a little bit further, it sounds like what you're saying, given the trends, first quarter below fourth quarter. I'm trying not to put words in your mouth, but I want to make sure we set this up right.

Lucas Buchanan (CFO and COO)

I think that's on the conservative side of conservative, Joanne.

Joanne Wuensch (Managing Director)

Okay. Conservative side of conservative. I got it. Can you help us think about how you prepare for standard risk? Is it different? I mean, different training, different physicians, different salespeople? Help us understand that.

Erica Rogers (CEO)

Yeah. Sure, Joanne. Hi. And thanks for joining us. In terms of how we've been telling the story up till now, it's really been working with our physicians to identify the high surgical risk criteria that qualify a patient for treatment.

If and when we obtain the standard surgical risk PMA approval, it'll be the first time where a therapy has been on a level playing field with carotid endarterectomy. That inherently is going to change the way we talk to our physician customers, where the focus will really be on reasons not to do TCAR versus finding those high surgical risk patients and the high surgical risk criteria. We will be working on additional marketing materials, additional training materials for our own team. Obviously, there are labels that get changed that flow through the marketing materials. Those are all the things that we are doing in the background.

Joanne Wuensch (Managing Director)

That's helpful. My last question is, were there other milestones you're in a position to share with us for ischemic stroke?

Erica Rogers (CEO)

Joanne, we continue to be excited by the opportunity.

It's a very fast-growing market, as you know. It's highly competitive, as you also know. As a result, we're saving the details until such time that we really kind of have to talk about them. We're pleased with the progress that we're making. The progress is really on the clinical and regulatory fronts within R&D at the moment.

Joanne Wuensch (Managing Director)

Terrific. Thank you so much and have a great night.

Erica Rogers (CEO)

Thanks, Joanne.

Operator (participant)

Your next question comes from the line of Danielle Antalffy from SVB Leerink. Your line is now open.

Danielle Antalffy (Analyst)

Thank you so much. Good afternoon, everyone. Thanks for taking the questions. Just to follow up on Joanne's question regarding standard risk.

Erica, you alluded to this, but I guess once you do have standard risk, you're going to, it's kind of like the question might be, "Why not TCAR?" versus "Who can get a TCAR?" versus "Has to get CEA?" I'm curious about how you're thinking of the sort of halo effect on the total market that standard risk could bring once you have it and how much of an accelerant this is, even just in the existing high-risk indication. That's the first part of the question. I just have one follow-up.

Erica Rogers (CEO)

Yeah, I think overall, Danielle, it's certainly positive news. Again, this submission is really the first part of a journey towards standard surgical risk. We don't want to get too far ahead of ourselves.

I think we've said this all along, Danielle, which is vascular surgeons don't really divide up the world in high surgical risk and standard risk. That's a vernacular that is born out of regulatory and reimbursement policies. What we find ourselves doing now is really having a conversation that is kind of not natural around high surgical risk and standard risk. This will be, for the first time, putting us on a level playing field. Whether or not that has a halo effect for the overall market opportunity, the number of patients treated, etc., I think it's too soon to tell. I don't want to get ahead of ourselves. I do think there's a tailwind in this JAMA paper that we just talked about, which is the presence of TCAR in an institution improves the outcomes overall.

That, coupled with our entry ultimately into standard surgical risk, these are the kinds of tailwinds that will begin to move us toward the standard of care and potentially begin to expand the market.

Danielle Antalffy (Analyst)

Yeah. Okay. That makes sense. That's helpful. I guess just to get my follow-up, I mean, you kind of answered it already. I'll ask it anyway to see if there's any more color to be gleaned here. If you get a little bit more granular there, and as we think about using the centers that are already doing TCAR, for example, I mean, if they're already treating these patients, they're already trained on the device, what would be the rationale in continuing to treat a patient that they're going to intervene with anyway with a carotid endarterectomy once you have the standard risk indication?

I mean, it just seems like there is no rationale. But maybe I'm being overly bullish.

Erica Rogers (CEO)

Danielle, this is the question that we ask ourselves every day, right? What is the continued rationale? It really comes down to inertia. We're up against a 70-year-old procedure and physicians who have been doing that procedure for multiple decades, many of them. We've talked about this inertia before by saying a mid-career vascular surgeon's done 400, 500 carotid endarterectomies compared to maybe 50 or 60 TCARs, which is a lot, but it pales in comparison. It's really about physicians in their own hands, the predictability of TCAR. I think this JAMA paper furthers the evidence on the predictability of TCAR. It's baked into that whole improving of the overall outcomes.

Each and every month that goes by and every publication that is presented in a peer-reviewed journal begins to chip away at that inertia.

Danielle Antalffy (Analyst)

All right. Thanks so much.

Operator (participant)

Your next question comes from the line of Adam Maeder from Piper Sandler. Your line is now open.

Adam Maeder (Senior Research Analyst)

Hi. Good afternoon, and thanks for taking the questions. I had just one quick question on the voluntary recall, Erica and Lucas. I know you acted out of an abundance of caution there and also did a thorough investigation. It sounds like you've effectively fenced off the issue and that's behind you. I was hoping you could just help us better understand what the root cause was of the tip detachment issue. I had a follow-up or two. Thanks.

Erica Rogers (CEO)

Yeah. Sure. Happy to talk about the root cause. Thanks for joining us, Adam.

As we talked about before, the root cause was really human error-centered, having to do with a particular part of the manufacturing process. We consider it very good news that a root cause could be identified. Often in these recall scenarios, you're looking for kind of a needle in a haystack. You're trying to find some commonality among the lots that have been recalled. Thanks to the excellent work of our engineering team and our quality team, we very quickly zeroed in on a particular human aspect of the process.

Adam Maeder (Senior Research Analyst)

Okay. Thanks for the color there, Erica. That's great to hear. For the follow-ups, I guess the next question is on just the growth outlook for 2021. It feels like the focus has really started to shift more towards increasing utilization in the existing customer base versus training more and more physicians.

The question is, qualitatively, how should we think about the growth of the business in terms of the contribution from increased utilization with existing docs versus new doc adds? I know you gave that 200 new doc number. What does that mix look like? Maybe you could level set us on those dynamics in past years in terms of their contributions to growth.

Lucas Buchanan (CFO and COO)

Yeah. Adam, maybe I'll take that one. Erica can add any color. We've always said that training new physicians is kind of an investment in the future, not necessarily what's driving the business in the near term. Going back to 2019, we trained quite a bit more physicians than we had planned to. Our bias has been, even throughout COVID, towards more and more focus on the trained physician base. We're exiting 2020 with just 6% penetration overall.

There is just a lot of room to run by applying that focus. The good news is this is already a concentrated group of docs. We are now in a position to benefit from all those prior-year training activities and the fact that we have gotten a lot of physicians now through their first cases and early part of their experience curve. As the data and the experience in individual hands accrue, that is where we can constantly kind of revisit and remind about all the benefits of TCAR against CEA, which they still hold in high regard. That is where we have been increasingly applying the focus. That continues even more so in 2021, as well as planning for hopefully positive news with FDA on the standard risk indications.

Adam Maeder (Senior Research Analyst)

Thanks for the color there.

Then just one last one, if I can sneak it in, just on the P&L, OpEx in Q4 was a little bit above what we were modeling. I think that was due to the R&D step-up. It sounds like you expect continued growth in OpEx in 2021. Just trying to, I guess, dial that in a little bit better for our model. Just any quantitative or qualitative color you can give on OpEx spend in 2021 would be great. Thanks so much.

Lucas Buchanan (CFO and COO)

Yeah. As I said in my prepared remarks, there were some timing-related effects in Q4. That being said, if you annualize that number, you can look at a run rate. Not only are we continuing to invest in certain product and clinical and regulatory activities, but we've got some new ones this year.

We're also investing, as we said, in the commercial team over the next two years to a slightly different mix. All of those investments should incrementally take up OpEx in the 2021 quarters and drive long-term growth.

Adam Maeder (Senior Research Analyst)

That's helpful. Thank you.

Operator (participant)

There are no questions from participants online. I will turn the call back over to Ms. Erica Rogers for the closing remarks. Please go ahead.

Erica Rogers (CEO)

Thank you all very much for tuning in to the Silk Road earnings call. We hope you have a terrific 2021.

Operator (participant)

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect. Speakers will stay on the line for your post-conference call.