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Anika Therapeutics Inc (NASDAQ:ANIK)
Q3 2019 Earnings Call
Oct 24, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good evening, ladies and gentlemen, and welcome to Anika Therapeutics Third Quarter 2019 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Sylvia Cheung, Chief Financial Officer. Please proceed.

Sylvia Cheung -- Chief Financial Officer

Thank you, Andrew. Good evening, everyone, and thank you for joining us. With me on the call today is Anika's President and Chief Executive Officer, Joseph Darling. During today's call, Joe and I will review our third quarter 2019 financial results and key business highlights, which were summarized in our earnings release issued today. A copy of the earnings release is available on the Investor Relations section of our website at anikatherapeutics.com. In addition, a slide presentation is posted on our website in the Investor Relations section under the Events & Presentations tab.

We invite you to take a moment now to open a file and follow the presentation along with us. Please turn to Slide #2. Before we begin, please remember that certain statements made during this conference call constitute forward-looking statements as defined in the Securities and Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance and achievements. Please also see our SEC filings for more information about factors that could affect our results.

Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a more complete understanding of our results and is consistent with how management views our financial performance. A reconciliation of these non-GAAP financial results to the most comparable GAAP measurement, calculated and presented in accordance with U.S. GAAP, is available in the Investor Relations section of our website. I will now turn the call over to our CEO, Joseph Darling. Joe?

Joseph Darling -- Chief Executive Officer

Thank you, Sylvia, and good evening, everyone. Thank you all for joining us our third quarter 2019 earnings call. We are very pleased with the company's performance in the third quarter, which reflects the progress we continue to make in executing our 5-year strategic plan to transform Anika into a global commercial company positioned to deliver innovative products across the continuum of orthopedic and regenerative medicine therapies. As a testament to our team's strong execution in the quarter, we successfully delivered double-digit revenue and earnings growth on the strength of growing global demand, Anika's expanding commercial platform and continued fiscal discipline.

For the third quarter, total revenue increased 1%, net income increased 21% and adjusted EBITDA grew 32% year-over-year as we continue to leverage our growing global platform of innovative therapies and strong demand for our products, both in the U.S. and internationally. We successfully completed the internal build out of our U.S. hybrid commercial model and the soft launch of our first product under that model, TACTOSET. Given our strong third quarter performance, we are raising our revenue and earnings guidance for the full year of 2019, which Sylvia will discuss in more detail during her financial update and commentary.

Needless to say, execution is a team effort, and I am very proud of the continued focus and collaboration I saw from our talented employees across the growing Anika organization. Please turn to Slide #3. As we discussed at our Analyst and Investor Day last month, this pivotal time represents the dawn of a new day for Anika. Our vision is to become the global leader in joint preservation and restoration with innovative technologies that exceed our customers' expectations.

Through our 5-year strategic plan, we are actively working to expand our portfolio beyond our primary historical focus on osteoarthritis, pain management into regenerative therapies for joint preservation and restoration. We think this is a natural evolution given our strong foundation, our established footprint in the U.S. and abroad, and our proven expertise in product development, clinical and regulatory affairs, manufacturing and commercialization.

This expanded therapeutic continuum across multiple fields represents an approximate $8 billion combined global market opportunity, and we have products on the market and in the pipeline to serve both. It's important to note that the 2 target commercial segments are divided by and driven through 2 distinct channels: An office-based call point for injectable pain management therapies; and an operating room call point for our new orthopedic surgical and regenerative therapies. As many of you know, our legacy commercial partnerships have historically focused on the office-based call point exclusively.

But going forward, we plan to activate the second important channel with our new hybrid commercial structure in direct sales team squarely focused on the operating room. Through our efforts, we are confident that we can become an important partner, providing valued technologies to the surgical theater. Please turn to Slide #4. As we continue to pursue our leadership position in joint preservation and restoration, our growth strategy is driven by our focus on what I call the 3 Ps: people; products; and performance. First, we want to ensure that we have the right skill sets and the right talent to drive the organization toward operational excellence.

Second, we are focused on developing and delivering innovative technologies and expanding our product offerings across the joint preservation and restoration continuum of care. And finally, we are committed to leveraging the hybrid commercial model in driving operational efficiencies throughout our business to drive margin expansion. Please turn to Slide #5. Let's start with the first P, people. We are committed to building our talent base for innovation and continue to enhance our team's knowledge and expertise to make sure that we have the strongest team in place to support our transformation and future growth.

During the third quarter, we appointed James Loerop to the newly created position of Executive Vice President of Business Development and Strategic Planning. Jim is a 30-year industry veteran, who will oversee our global business development function and advance our efforts to identify and evaluate potential acquisitions, partnerships, alliances and licensing opportunities to expand our commercial portfolio and global footprint. We also recently appointed Mira Leiwant to the newly created position of Vice President of Regulatory Affairs, Quality, and Clinical Affairs. Mira will oversee our global regulatory strategy, regulatory submissions and interactions with U.S. and international governmental health authorities as well as our quality and clinical teams and new processes.

We believe Mira's role will become increasingly important as we accelerate the pace of product development, regulatory submissions, and ultimately product launches coming in the coming years. Please turn to Slide #6. We are very pleased to have completed the internal build out of our hybrid commercial sales force in the U.S. during the third quarter. We have successfully onboarded 4 highly skilled regional sales directors to manage the domestic northeast, west, southeast and central territories, all under the leadership of our Vice President of U.S. Sales, Steve Goldy.

The sales directors have extensive industry experience and product knowledge and will support the launch of other joint preservation and restoration therapies currently in development. In addition, we commenced the build out of a network of independent local and regional distributor agents, and are in the process of adding additional partners throughout the U.S. As I have noted on prior earnings calls, our hybrid commercial model will provide Anika with the direct line of sight to the market and more favorable economic results, and we are confident in our ability to take greater control of our future with this new commercial strategy. Please turn to Slide #7. Turning now to the second P, products. In September, we commenced the soft launch of TACTOSET in the U.S. As a reminder, TACTOSET is a surgically delivered therapy for bone repair procedures and the first therapy launched under our hybrid commercial model. The first surgical procedure of TACTOSET was successfully completed in August, and we continue to receive positive feedback from the physician community regarding the therapy's ease of use and procedural efficiency.

As we've discussed previously, we have showcased TACTOSET at multiple medical conferences during the quarter. We remain on track to execute the full scale commercial launch at the 2019 Orthopedic Summit and Evolving Techniques Conference or as we call it OSET, which is being held in Las Vegas this December. As we previously have stated, we estimate the bone repair market to be $350 million to $400 million annually with approximately 900,000 people eligible for treatment for bone voids and other bone defects of the knee. TACTOSET represents an attractive near-term U.S. growth opportunity for Anika. Our near-term goals for this program are crystal clear: Number one, complete the full scale launch at OSET in December; number two, onboard 5 additional distributor agents with the goal of being in 10 surgical centers by the end of this year.

We plan to grow to 40 distributor agents by the end of 2020. These initiatives once again are led by our Vice President of U.S. sales, and are important building blocks for revenue growth in 2020 and market penetration thereafter. I would now ask you to please turn to Slide #8. We expect our rotator cuff therapy will be the second product launch in the U.S. under our hybrid commercial model, and product development is currently progressing as planned. As we have previously noted, we believe this unique therapy is highly complementary to Anika's growing regenerative therapy portfolio, and we estimate that the U.S. market opportunity for rotator cuff repair is $150 million to $200 million annually.

In the third quarter, we continued to refine the prototype and began surgical instrumentation design for this therapy led by our Vice President of R&D. We anticipate that we will complete the instrument design in the first half of 2020 and plan to submit a 510(k) application to the FDA in late 2020 to the early 2021 time frame. Please turn to Slide #9. CINGAL continues to perform very well in Canada and across Europe. International revenue from CINGAL increased 35% year-over-year in the third quarter and 40% year-to-date. The continued growth of CINGAL this quarter has further reinforced our confidence and our decision to advance CINGAL toward regulatory approval in the U.S. market.

As we discussed last quarter, we are currently working to initiate a pilot study to confirm our trial design, increase our probability of success in a Phase III trial and generate data that ultimately will be needed to support FDA approval. We remain on track to commence the CINGAL pilot study in the first half of 2020, and we are in the process of finalizing the newly designed pilot clinical trial protocol. The pilot study is expected to enroll approximately 240 patients across 30 sites in the U.S. randomized to receive either CINGAL, the steroid triamcinolone hexacetonide or saline placebo. As a reminder, there are 3 different key differentiators in this revised protocol compared to the prior Phase III 16-02 study.

The first is the inclusion of a placebo arm; the second is the addition of a much larger TH arm, triamcinolone hexacetonide, meaning the steroid arm; and the third is the modification of the patient enrollment selection criteria to target the ideal patient profile. We believe these elements will enable us to generate the data needed in a subsequent Phase III trial. We continue to expect that the pilot study will take approximately 1 year to complete. Despite the delay in time to market, we remain confident in CINGAL's U.S. market opportunity, which we have estimated to be approximately $1 billion. Turning now to Slide #10.

We are focused on accelerating the pace of enrollment in the ongoing HYALOFAST Phase III trial for U.S. approval. During the quarter, we continue to implement the changes following the protocol amendment approved last quarter and are currently in the process of adding 8 new sites outside the U.S. and Europe. Patient enrollment is currently in the 60 percentile range, and we expect to complete enrollment by the end of 2020. Additionally, we look forward to benefiting from the leadership of Mira Leiwant, our new Vice President of Regulatory Affairs, Quality, and Clinical Affairs as we continue to advance the trial.

We recently held an educational symposia for orthopedic surgeons on HYALOFAST at the 2019 World Congress of the International Cartilage Regeneration and Joint Preservation Society, held in Vancouver, Canada. Over 80 surgeons participated in the symposia, and we continue to see a very high level of enthusiasm among physicians and patients for this innovative regenerative therapy. HYALOFAST represents another significant U.S. market opportunity, which we conservatively estimate to be more than $0.5 billion.

We are very pleased with our third quarter business results and the continued progress we are collectively making across our organization as we execute our growth strategy. I will now turn the call back over to Sylvia to review our third quarter financial results in greater detail. Sylvia?

Sylvia Cheung -- Chief Financial Officer

Thank you, Joe. Please turn to Slide #11. Total revenue for the third quarter increased 11% year-over-year to $29.7 million compared to $26.8 million for the third quarter of last year. Revenue growth for the quarter was driven primarily by MONOVISC and CINGAL, which delivered worldwide revenue growth of 15% and 35% year-over-year, respectively. Global viscosupplement revenue in the third quarter increased 9% year-over-year. Domestic viscosupplement revenue increased 7% year-over-year for the quarter.

On a sequential quarter basis, domestic end user net sales price decreased around the high single digit percent range for ORTHOVISC and increased around the low single digit percent range for MONOVISC. On a year-over-year basis, end user volume for the quarter increased 6% for ORTHOVISC and 26% for MONOVISC. Of note, the end user volume for MONOVISC has grown in a double-digit percentages year-over-year each quarter for 18 consecutive quarters since its launch in the second quarter of 2014. International viscosupplement revenue increased 17% year-over-year for the quarter, driven primarily by CINGAL and ORTHOVISC.

As Joe noted, the 40% year-to-date revenue growth of CINGAL demonstrates the continued strong demand for this therapy internationally. Product gross margin increased to 80% for the quarter compared to 69% for the third quarter of 2018. The strong revenue -- sorry, the strong year-over-year increase was primarily due to more favorable changes in product revenue mix, in particular, an increase in U.S. royalty revenue for MONOVISC. As a reminder, 2018 product gross margin was negatively impacted by a voluntary product recall, which was resolved in the fourth quarter of 2018. Total operating expenses in the quarter were $17.6 million compared to $18.2 million in the third quarter of 2018.

The year-over-year decrease in total operating expenses was due primarily to lower cost of product revenue, partially offset by higher selling, general and administrative expenses. Net income for the quarter was $9.2 million or $0.64 per diluted share compared to $7.6 million or $0.53 per diluted share in the third quarter of 2018. Adjusted EBITDA, earnings before interest tax, depreciation and amortization, increased 32% year-over-year to $14.9 million for the quarter compared to $11.3 million for the third quarter of last year.

The increases in net income and adjusted EBITDA were due primarily to the increase in total revenue and decrease in cost of product revenue. During the third quarter, we generated $21.8 million in cash from employee stock option exercises and approximately $10 million in cash from operating activities. We ended the quarter with cash and investments totaling approximately $173 million. Our cash deployment strategy remains focused on making organic investments to drive top line growth, pursuing strategic M&A to augment organic growth, and returning capital to shareholders through share repurchases.

We continue to expect our $30 million accelerative share repurchase program to be completed no later that the first quarter of 2020. And we have not yet had any share repurchased under our Board approved $20 million open market share repurchase program. Turning to guidance on Slide #12. Based on our strong third quarter results, we expect total revenue to increase 6% to 7% above the prior year for the full year of 2019. We now expect total operating expenses to be in the mid-$70 million range for the year. Adjusted EBITDA is anticipated to be in the mid to high $40 million range for 2019 based on the net income expectation around the mid- to high $20 million range for the year.

And we expect capital expenditures to be around $5 million for 2019. This concludes our financial review. And I'd like to turn the call back to Joe to discuss near and long-term growth drivers and our strategic priorities to deliver on our 5-year strategic plan.

Joseph Darling -- Chief Executive Officer

Thank you, Sylvia. Please turn to Slide #13. Before I open the call for questions, I'd like to review the 5 key business and financial objectives that we need to achieve through our strategic plan over the next 5 years. As discussed at last month's Analyst Day, we want to: First, accelerate profit and growth and deliver sustainable double-digit revenue growth; second, we want to diversify our revenue stream and enhance our value capture. We're also diversifying through different sales channels and international expansion; third, increase our vitality index to greater than 25% by the end of 5 years.

As a reminder, vitality index is defined as the percent of new product revenue compared to total revenue; fourth, pursue strategic M&A focused on tuck-in acquisitions to augment our organic growth; and finally, fifth, continue to maintain a disciplined and balanced approach to capital allocation, focused on the highest return opportunities for our shareholders.

We are very committed to sustain our legacy of trust, operational excellence and financial discipline as we execute our growth plan to transform Anika into a global commercial company focused on joint preservation and restoration. And turning to Slide #14, I'd like to close my comments on the quarter by highlighting what we view as the 4 key elements of our strategic growth plan. First is talent and culture, focused on fostering an innovative environment across our organization.

Second is commercial acceleration through our U.S. hybrid commercial model and international expansion, both in market penetration and then expanding into countries where we currently don't have a presence. Third is R&D innovation through investments in R&D to expand and advance our organic pipeline across the joint preservation and restoration continuum of care. Fourth is inorganic growth. This is focused on tuck-in acquisitions that will complement our existing and future product portfolio. All of our strategic initiatives are focused on positioning Anika to achieve a leadership position in joint preservation and restoration and also doubling our total revenue within the next 5 years.

I am confident that we can achieve our goal of becoming the leader in joint preservation and restoration and successfully double our total revenue within the next 5 years. This quarter is just the beginning, and we look forward to delivering continued progress, operational and financial performance and value to both patients and shareholders as we execute on these initiatives in the coming quarters. We are now happy to take your questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Jim Sidoti with Sidoti & Company. Your lines now.

James Philip Sidoti -- Sidoti & Company -- Analyst

Afternoon. Can you hear me?

Great, great. Sylvia, when you talked about pricing earlier, were you referring to end user pricing or the transfer pricing?

Sylvia Cheung -- Chief Financial Officer

Yes, Jim, I was referring to the end user pricing and end user volume. So the stats that were stated were the end market information, which impacted the royalty revenue.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay. And I know you're not going to want to give us 2020 guidance until at least the next quarter. But can you just give us directionally where you think pricing is going over the next 12 months? Do you think that will continue to move up or do you think it will level off from here?

Sylvia Cheung -- Chief Financial Officer

Yes. So I can comment on what we have seen is, in 2019, we certainly have seen stabilization of pricing. And MONOVISC pricing actually increased on a sequential basis for 3 quarters in a row now. If we look back a little bit further, I think the pricing volatility certainly was strong, in particular, for 2018. So this is a topic that we are actively discussing with our commercial partner, J&J, DePuy Synthes Mitek Sports Medicine, and we're closely monitoring the development. I think the year-to-date results are good. Whether or not it's going to sustain? I think we need to keep monitoring the progress going forward.

James Philip Sidoti -- Sidoti & Company -- Analyst

All right. And then at one point you thought you might receive a $5 million milestone payment and then when the pricing came down that went away. Is there any chance that, that comes back in 2020?

Sylvia Cheung -- Chief Financial Officer

Unfortunately, there isn't. This is a contractual term under the existing MONOVISC agreement that Anika has with Mitek. And that particular term has a time element to it, and we are beyond that window.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay. And then last one from me, you said you received about $22 million in employee options. And I was not -- is that spread out over a number of employees or were there any -- was there 1 or 2 employees?

Sylvia Cheung -- Chief Financial Officer

It was spread out over a number of employees, but I can also tell you that it included a couple of former executives of the company.

James Philip Sidoti -- Sidoti & Company -- Analyst

Okay. So it was unusually large this quarter, it sounds so.

Sylvia Cheung -- Chief Financial Officer

That is correct.

James Philip Sidoti -- Sidoti & Company -- Analyst

Thank you. Thank you.

Operator

Thank you. And our next question comes from the line of Joe Munda with First Analysis.

Joseph P. Munda -- First Analysis -- Analyst

So first off, can you give us what the split -- well, first off, can you give us what CINGAL's revenue contribution was in the quarter?

Sylvia Cheung -- Chief Financial Officer

CINGAL's revenue contribution for the quarter is roughly about 5%, and it's been pretty consistent in terms of percentage of total revenue. It's been pretty consistent on a quarter as well as on an annual basis.

Joseph P. Munda -- First Analysis -- Analyst

And then the split on ORTHOVISC and MONOVISC?

Sylvia Cheung -- Chief Financial Officer

Domestically or global?

Joseph P. Munda -- First Analysis -- Analyst

Total? Global?

Sylvia Cheung -- Chief Financial Officer

Global. So international, viscosupplementation is in the high-teen percentage range, and the domestic is roughly around low-70 percentage.

Excuse me?

Joseph Darling -- Chief Executive Officer

Yes, domestic 70%. Did you get that, Joe?

Joseph P. Munda -- First Analysis -- Analyst

Yes. I got it. And then, I guess, as we look out to 2020, Joe, you're talking about adding 40 distributors for TACTOSET. I mean, is there a specific bogey that these distributors need to hit? In addition, can you give us some sense of what that's going to look like? Are we talking 10 a quarter or is it going to be scaled evenly throughout the year? Any color there would be great?

Joseph Darling -- Chief Executive Officer

Yes, sure. And that's a good question, Joe. The way we look at adding the distributors is first in the high prioritization area. So we've now dealt the priorities across the geographic U.S. So that's number one. Number two is, we certainly want to get to the high volume surgical centers that really start to ramp up TACTOSET on the sales. So we've looked at that as well. So the answer to your question, we would expect this to be a smooth transition, adding the distributors when we find the right ones.

So I don't want to limit us to just, say, 10 per quarter from a numbers perspective, let's say, but I want to go after the best, the brightest, the most connected and the ones that have the experience in going after the bone therapy product. So we're going to do this in a very systematic manner that would address the market opportunity. Did I answer your question?

Joseph P. Munda -- First Analysis -- Analyst

Yes. It does. And then I had just one more. The product gross margin up now nicely 80%. Sylvia, you made some comments about the mix as well as the royalty. Can you give us some sense of how much the royalty -- what percentage of revenue was that royalty component in the quarter?

Sylvia Cheung -- Chief Financial Officer

Yes. So we were definitely pleased with the strong improvement in product gross margins, 11% this quarter versus last year's Q3. They are really 2 key factors, and I'll comment on each of them. On the revenue side, we saw an increase in revenue of $2.9 million year-over-year, and $2 million out of the $2.9 million is related to U.S. MONOVISC royalty, so that is a big driver. And as I mentioned on the earlier part of this earnings call, we saw volume increased about 26%. So both volume and price was a positive trend this quarter versus last year's Q3.

So that is a meaningful margin contribution for the quarter contributing to 11% uptick from last year. On the cost side, as you can see, on the P&L, our cost of good decreased by about $2 million year-over-year. And there were 2 drivers there: One is product mix, meaning that we are -- we have a larger portion of our product revenue this Q3 from higher margin products, like MONOVISC, CINGAL and HYALOFAST, comparing to the year before. So positive product mix; and the second factor is related to higher production volume in the current year comparing to previous year. As a reminder, the voluntary recall that took place last year had impacted our product margin throughout 2018. So those are really the key drivers contributing to the 11% increase of product gross margin.

Joseph P. Munda -- First Analysis -- Analyst

Can you just remind us what -- how much of an impact it was last year on the margin, roughly if you wouldn't, let's say, normalize that?

Sylvia Cheung -- Chief Financial Officer

I would say that it would be around low to mid-single-digit percent, yes, from a margin standpoint, just looking at the production side.

Operator

And our next question comes from the line of Brian Gagnon with Gagnon Securities. Your line is now open.

Brian Joseph Gagnon -- Gagnon Securities -- Analyst

It appears that J&J switched from WAC pricing to ASP pricing on MONOVISC on October 1. What would this mean for pricing on MONOVISC a few quarters out because I know this doesn't change things in the current quarter?

Joseph Darling -- Chief Executive Officer

That is true. So you observed in the press -- Brian, this is Joe, by the way. Obviously, they started reporting to CMS. And as you look at pricing in this market, we have limited visibility from a actual true pricing perspective until you get toward the end of quarters. So we see volatility potentially on a quarterly basis that we saw last year. But it's part of the reason why we are moving toward a direct hybrid sales organization so we can have a more predictable business. It ties back to our 5-year strategy, utilizing the hybrid commercial model. But from a perspective of what impact it's going to be? I can tell you that throughout the year it's been pretty consistent. But as you start to now take a different path on a strategic front that they have taken, it's still limited visibility for us unfortunately.

Brian Joseph Gagnon -- Gagnon Securities -- Analyst

So they were reporting -- they weren't reporting ASP at all. So pricing went up quite a bit and then with the switch, you are looking at this and not necessarily sure what the volatility of pricing is going to look like going forward?

Joseph Darling -- Chief Executive Officer

We have limited visibility to it. So we have to triangulate all the data that we get. I think the good news is, now that we have feet on the street and direct line of sight to customers, although the different call points, we're hoping that we'll pick up on some competitive intelligence and feed it back into us. But really from a pricing perspective, pricing questions are really supposed to be directed toward J&J, Mitek due to our contract and the nondisclosures that we have. So I really can't comment on it much further than that, Brian. That's the best I can tell you at this point.

Operator

[Operator Instructions] Our next question comes from the line of Mike Petusky with Barrington Research. Your lines now open.

Michael John Petusky -- Barrington Research` -- Analyst

Hey, good evening. So Sylvia, on the R&D, I assume, R&D ramp associated with the CINGAL pilot, when should that -- the first 3 quarters of R&D expense have been pretty consistent for 142. I mean, when should that sort of take that step up more toward, I don't know, maybe 5.5 to 6.5 or maybe 7 a quarter. When does that start to ramp? I mean is there something in advance, so sort of mid-year 2020, can you just speak to that?

Sylvia Cheung -- Chief Financial Officer

Yes. So the pilot study we had showed that the timing of commencing that study would be in the first half of 2020. But from an expense standpoint, we actually have preparatory start-up activities that is actually happening right now in the fourth quarter of this year. So we do expect R&D expense to pick up in the fourth quarter from Q3 and the first half of this year due to the starting activities related to the CINGAL pilot study as well as a couple of smaller scale European post-market studies, one for MONOVISC and one for our tennis elbow product. So these activities are incremental to earlier year R&D expenses. And on top of that, obviously we're rapidly advancing with the rotator cuff repair program, which Joe commented about. So these are the key drivers for the increase in R&D expense as we head into Q4 of 2019.

Michael John Petusky -- Barrington Research` -- Analyst

Any sort of -- I mean, it's -- is it going to essentially the R&D line, is that going to sort of go to sort of what will be kind of a consistent R&D spend roughly going forward in Q4? Or is it kind of the first step and then it will ramp further as we get closer to the trial starting?

Sylvia Cheung -- Chief Financial Officer

Yes. It will scale up next year as we start to enroll. So as you know, once patient enrollment stipulates, the incremental costs will be picked up. And further along, once the Phase III study starts up, that trial's cost from a dollar standpoint would be more expensive as we previously talked about. So for us, it is difficult to pick a baseline number. A lot of the R&D expenses, as you know, scale with the timing of clinical studies as well as dependent upon the size of the clinical studies that we take on.

Michael John Petusky -- Barrington Research` -- Analyst

All right. All right. Sylvia, did you have capex handy for the quarter, I didn't hear it if you mentioned it?

Sylvia Cheung -- Chief Financial Officer

I think it's between $400,000 to $500,000 year-to-date, it's roughly $2.3 million, if I remember it correctly. Hold on one second.

Joseph Darling -- Chief Executive Officer

$400,000 to $500,000 until the third quarter. $2.3 million for the third...

Sylvia Cheung -- Chief Financial Officer

Yes. $2.3 million, $2.5 million, yes.

Michael John Petusky -- Barrington Research` -- Analyst

Okay. All right. So you expect that to ramp quite a bit in fourth quarter, obviously, with the guidance?

Sylvia Cheung -- Chief Financial Officer

Yes. We have some planned facility improvement as well as equipments purchases toward the end of the year.

Michael John Petusky -- Barrington Research` -- Analyst

Okay. And just last one for Joe. If one were to attend that Las Vegas conference, what -- I mean, is it white papers or are there actually demonstrations? What would a person see?

Joseph Darling -- Chief Executive Officer

Well, it's a good question, Mike. You'll see a couple of things. You'll see podium presentations. I believe, we have 2 physicians presenting based on their experiences with TACTOSET. You'd also see in booth demonstrations of the product. And we will also have physicians in the booth as well to answer any technical -- surgical questions on technique who were -- having their presence in the booth is always a strong point for communicating a message. You'll see flyers...

Michael John Petusky -- Barrington Research` -- Analyst

And these are doctors...

Joseph Darling -- Chief Executive Officer

Pardon me?

Michael John Petusky -- Barrington Research` -- Analyst

I'm sorry. These are docs that have actually already done surgical procedures, correct?

Joseph Darling -- Chief Executive Officer

Correct, yes. Doctors that have used TACTOSET.

Michael John Petusky -- Barrington Research` -- Analyst

Yeah, yeah. Perfect. Alright. Thanks, guys.

Operator

Thank you. And I am showing no further questions. So with that, I'll turn the call back over to CEO, Joseph Darling, for closing remarks.

Joseph Darling -- Chief Executive Officer

Well, first of all, thank you all for your time today. We look forward to continuing to update you as we execute on our growth strategy. So I wanted to thank all of you, and have a great evening.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Sylvia Cheung -- Chief Financial Officer

Joseph Darling -- Chief Executive Officer

James Philip Sidoti -- Sidoti & Company -- Analyst

Joseph P. Munda -- First Analysis -- Analyst

Brian Joseph Gagnon -- Gagnon Securities -- Analyst

Michael John Petusky -- Barrington Research` -- Analyst

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