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Nevro Corp (NYSE:NVRO)
Q3 2020 Earnings Call
Nov 6, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Nevro's Third Quarter 2020 Conference Call. [Operator Instructions]

I would now like to turn the call over to Matt Beskow. From Gil Martin group for introductory remarks, please go ahead, sir.

Matt Beskow -- Investor Relation

Good afternoon, and thank you. Welcome to Nevro's third Quarter 2020 Earnings Conference Call. With me today are Keith Grossman, Chairman, CEO and President; and Rod MacLeod, Chief Financial Officer. The format of our call today will be a discussion of second quarter trends and business results from Keith, followed by detailed financials from Rod and then we'll open up for questions. Earlier today, Nevro released its financial results for the third quarter, which ended September 30, 2020. A copy of our earnings press release is available on our Investor Relations website. This call is being broadcast live over the Internet to all interested parties on November 5, 2020., and an archived copy of this webcast will be available on our Investor Relations website.

Before we begin, I'd like to remind everyone that comments made on today's call may include forward-looking statements within the meaning of federal securities laws. Our actual results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to our SEC filings, including our Form 10-Q to be filed later today for a detailed presentation of risks. In addition, we'll refer to adjusted EBITDA, which is a non-GAAP measure, that is used to help investors understand Nevro's ongoing business performance. Please refer to the GAAP to non-GAAP reconciliation table, including in our earnings press release.

And now I'll turn the call over to Keith.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Thanks, Matt. Good afternoon, everyone. Thank you for joining us today. Today we reported third quarter 2020 worldwide revenue of 108.5 million representing growth of 8% compared to the third quarter of 2019, as well as a sharp sequential recovery of 92% growth over the second quarter of 2020. us sales grew 8% of our prior year to 90.1 million in the third quarter, representing sequential growth of 78% over prior quarter and it's driven by an increase in patient and customer activity, compared to the severely COVID impacted second quarter of 2020. In the third quarter total, US permanent implant procedures increased 9% while new patient trial procedures were down only 5% compared to the prior year period. reported us revenue also excludes point 7 million of product shipments due to a customer bankruptcy during the period. Daily patient trial activity increased 50% over the second quarter of 2020 and has improved sequentially every single month from July to October. We're pleased with the dramatic pace of recovery in the US and third quarter trial activity which was approaching though still just shy of prior year levels, as we enter the fourth quarter of 2020. International revenues increased 10% year over year as reported or 5% on a constant currency basis to 17.5 million in the third quarter, representing sequential growth of 226%. Over the prior quarter. The increase in international revenue was primarily due to a successful on the launch and an increase in patient and customer activity compared to the prior quarter of 2020. Along with a rebound in customer inventory levels.

The increase in international revenue was primarily due to a successful on the launch and an increase in patient and customer activity compared to the prior quarter of 2020. Along with a rebound in customer inventory levels. Case cancellation rates peaked in April with a shutdown of electric procedures and those cancellations have since sequentially declined month over month all the way through October. We saw a few cancellations resulting specifically from COVID in the third quarter. In the case of trials. While we have largely recovered, we're still training just below prior year levels do we believe primarily to a reluctance on the part of new patients to seek care during the pandemic. As we sit here today at the beginning of November, a majority of the cancelled permanent implant cases from q2 They have been willing to reschedule have been completed, which leads us to believe that directionally the revenue recovery curve appears to be playing out as we discussed with your last quarter. With trial slowly recovering and some backlog cases still expected to be recaptured this quarter. We feel our earlier expectations for revenues that are roughly flat with our year are so reasonable. However, we're also continuing to monitor areas where COVID cases have recently started to rise as I'm sure you are. Thus far, we've seen only a small impact to elective procedures through October in the US and Europe. However, increases in COVID activity around the world will continue to exert pressure on patients willingness to seek care of all kinds, and potentially even impact facility capacity in some areas, which could provide some downward pressure to our view for q4. While the environment continues to be a difficult one, we feel strongly that we're faring better than our SPS competitors and in fact, many of our medtech peers. Within the SPS market we believe the launch of Omnia has provided an advantage to nevro, leading to additional market share gains.

Even through the pandemic position enthusiasm around Omnia and its versatile platform capable of offering hfm and lower frequencies, in addition to pairing of frequencies has led to a more rapid adoption among our customers and we initially anticipated, we believe these favorable trends confirm that the Omnia platform provides us a compelling reason to once again engage with every doctor practicing in the space. And we view most pain doctors and neurosurgeons in the field as potential customers. We also believe our commercial team is executing at a higher level, which is strengthen customer relationships during this difficult time. Our dedication to Patient Support and long term outcomes is fundamental to our company. And it's an area in which we continue to invest during the third quarter, we expanded our digital physician education programs and Remote Patient Support programs to an enthusiastic response from our customers. In addition, we launched on the end both Europe and Australia in the second quarter, and continue to ramp up efforts in those markets. Our supply chain has remained healthy, and our balance sheet provides us great resilience with roughly 570.3 million in cash and investments at the end of September actually up from the end of the quarter before it. One of the areas I'm proud of is our ability to manage expenses and drive operating leverage without eroding our team or our core capabilities to drive growth. As a result, I believe we continue to be in a strong position to execute on a long term strategy. And Ron's going to talk more in a few minutes about our results in the expense area. We continue to invest in r&d capabilities, and we're going to have some really interesting things to talk to you about in 2001.

We're also working hard to expand our total addressable market with new clinical data and new patient indications. Our PDM study continues to move forward and we've had a very high percentage of study subjects in the control arm crossover to the SS treatment arm at six months as permitted by the trial protocol. We believe that's a strong indication that our therapy addresses a critical unmet need in this patient population. We still plan to present the next round of complete six months data along with review of the 12 month responder rate data from this trial at mans in January of 2021. We've been in pre submission discussions with the FDA regarding our data and our submission strategy. And I'm pleased to say that we're now planning to submit our PMA supplement to the FDA in the current quarter, which keeps us on track for a mid year 2021 approval and a second half commercial launch. In next quarter is called what we're going to talk a bit more about our market launch plans and expectations for this really exciting opportunity. On our non surgical refractory back pain study. We continue to expect to present our three month primary endpoint data Nan's of 21 in January, with journal publications to follow. In total, we should have a very large presence at Nan's, as we usually do, with quite a number of data presentations at this conference, most notably, of course, the Pdn and NSR BP studies. In August, CMS published their proposed rule for outpatient patients or payments excuse me, outpatient payment rates for both hospital and ASC facility fees were increased between two and 5%.

We view that as a positive for the therapy. Also in this proposed rule, CMS recommended a requirement for prior authorization of SPS procedures for Medicare fee for service patients in the hospital outpatient setting only. That was set to begin in July of 2021. Now CMS has rationale for this proposed requirement was due to a perception on their part of overutilization issues. We have very thoroughly reviewed The utilization data, and we've submitted our comments to CMS on their proposal. In those comments, we pointed out that any over utilization was driven in large measure by non rechargeable or primary cell products, which require surgical replacement on a much more frequent basis than rechargeable devices like those from Navarro. The reduced product life of a non rechargeable product creates a situation in which patients must must undergo more unnecessary and costly procedures, resulting in greater expenses and increase surgical risk replace their system much more frequently than rechargeable systems. Despite this reduced durability and lower resulting economic value, Medicare reimburses non rechargeable systems at the very same amount as rechargeable devices. As a reminder, rechargeable technology has demonstrated a much longer life cycle of seven to 10 years or even longer. This is two to four times the reported life of primary sell products. We strongly recommended that if CMS were to proceed with the prior auth requirement, that they should limit it to non rechargeable products. However, if they do proceed with requiring prior auth for the entire category, will be well equipped and prepared to manage that process. Remember that the vast majority of our business, which consists of both private pay patients and our Medicare Advantage patients require prior authorization today. Lastly, we announced in mid September our plan to establish manufacturing operations in Costa Rica. Currently, as you know, we use contract manufacturing partners for our business. As part of our confidence and our growth plans moving forward.

We are establishing insource manufacturing for our pipeline of future products to ensure we have the most efficient cost structure and flexible capacity, while also maintaining the highest level of quality control as we scale. We entered into a 10 year lease for a manufacturing facility in Costa Rica, with total capital expenditures expected to be approximately 11 million between 2020 and 2023. With an additional 10 million of implementation costs over the same period of time. We expect the new manufacturing facility to be validated and approved for commercial production in 2022. Since the pandemic began, our highest priorities as a company have been the health and safety of our customers, their patients and our employees, the support and coverage of our customers and their clinical case activity throughout the period. The integrity and readiness of our supply chain, the prudent stewardship of our balance sheet, and the maintenance or improvement of our competitive position and our capabilities in order to exit this crisis the way we came in back in the first quarter, which was with a ton of momentum. Thus far, I believe we've achieved these five goals and will continue to work hard in the coming weeks and months to further our progress. While we're certainly still in the midst of this pandemic and dealing with the impacts upon our business, I remain very excited about the various growth drivers for this business. As we think about our ultimate emergence from the pandemic, the combination of a return to overall market growth continuing to grow narrows market share a measure of pent up demand likely to exist at that time for scms suitable patients. And the impact of new product indication launches like pdn. It should be the beginning of a very attractive period for the company. Lastly, and as I have been from the beginning of all of this, I'm grateful to the entire nevro team for their hard work and their dedication during a time of great and continued uncertainty.

Thank you again for joining us today. And with that I'll pass the call over to Rod.

Rod MacLeod -- Chief Financial Officer

Thanks, Keith. I'll begin with our worldwide revenue for the three months ended September 30 2020, which is 108 point 5 million, an increase of 8% compared to 100 point 2 million in the prior year period. Third quarter 2020 revenue growth was primarily driven by an increase in patient and customer activity, compared to the severely COVID impacted second quarter of 2020. us revenue was 90 point 9 million, an increase of 8% compared to 84.2 million in the prior year period. reported us revenue also exclude $700,000 of product shipments due to a customer bankruptcy during the period. year over year us permanent implants increased 9% while trials were down approximately 5% during the third quarter of 2020. Although us trials decline in the third quarter we remain encouraged by the rebound in our business and continue to realize incremental improvements month over month in organic daily trials from July to October. International revenue was 17.5 million, an increase of 10% on an as reported basis or 5% on a constant current currency basis, compared to 15 point 9 million in the prior year period. The increase in international revenue is driven by successful on the launch and increase in patient and customer activity compared to the prior quarter of 2020. Along with a rebound in customer inventory levels. Gross profit for the third quarter of 2020 was 76.1 million, an increase of 9% compared to 69.9 million in the prior year period.

Gross Margin was 70.1% in the third quarter, compared to 69.8% in the prior year period. Compared to the prior year period, the increase in gross margin in the third quarter of 2020. Rice was primarily attributable to product mix. operating expenses for the third quarter of 2020 was 79.6 million, a 7% decrease compared to 85.9 million in the prior year period. The year over year decrease in operating expenses was primarily related to reduce travel and training related expenses, decreases in discretionary expenses during the covid 19 pandemic, as well as continued management focus on driving leverage throughout the business, which began well before COVID. This was partially offset by a one time charge of 2.5 million in the quarter related to our CFO transition. legal expenses associated with patent litigation were 2.3 million for the third quarter of 2020. Compared to 1.9 million in the prior your period. We expected operating expenses will return to a run rate roughly similar to the first quarter of 2020. As revenue continues to recover. net loss from operations for the third quarter of 2020 was 3.5 million a 78% improvement compared to a loss of 16 million in the prior year period. adjusted EBIT Dasa for the third quarter of 2020 was 13.6 million, compared to a loss of 2 million in the prior year period. adjusted EBIT, Doc's lose certain litigation expenses, interest, taxes, and non cash items such as stock based compensation and depreciation amortization. Please see our financial tables for gap to non gap reconciliation. During these uncertain times, we continue to focus on cash preservation while balancing the need to reinvest in the recovery process. cash cash equivalents and short term investments total 572.9 million as of September 30 2020. net cash increased during the third quarter of 2020 by 10.5 million. That concludes our prepared remarks.

I'll turn the call back over to Matt to moderate the q&a session.

Matt Beskow -- Investor Relation

All right, thank you and can we please open the line up for questions?

Questions and Answers:

Operator

Your first question comes from the line of Lawrence Biegelsen of Wells Fargo.

Lawrence Biegelsen -- Wells Fargo -- Analyst

Good afternoon. Thanks for taking the question, guys. And congrats on a nice quarter. either keep that a key one on the pipeline, one on the recovery. In sorry, to such a, you know, short term oriented question on the recovery. But I just wanted to understand, you know, your comments on the call, you know, on trials being down 5% in q3, you know, the press release talked about, you know, recovery, or improvement through July through August. So, my question is were trials up year over year, in October? And is that cancellation rate that you talked about improving through the quarter? Are you seeing that that ticked off, and I had one follow up?

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Okay, yeah, two different things. So from a cancellation of cases standpoint, I would say spin a very small factor Larry throughout q3 and remain so frankly, even in October. So that's good news. And it's it's a little hard mean cases get put on and taken off the surgical calendar all the time. So sometimes it's hard to discern the nature of cancellation. We're more tuned into them now, I think than we've ever been. But I think it's safe to say that COVID related cancellations are sporadic and a fairly small element of of our activity right now. From a trial standpoint, trials have gone up on a month over per month basis for the last four months. Your question I think was, are they still below prior year trends on October? The answer to that is yes. So we've we've been really happy with the rapid kind of V shaped recovery of patients willing to come in and seek treatment. And we think it's different from lots of other categories of patient, frankly, from other categories of pain patients, if you look at the the doctor visit data for two pain doctors, we seem to be doing better than, than that category in general. So we're pleased with the bounce back with the pace and where and where it's landed, and the fact that it continues to grow. It is still slightly below prior year.

And I think, you know, as we try to diagnose the reason for that, Larry, it comes pretty squarely down to patient reluctance, I think it's not. While there is some, you know, friction in hospital and ASC capacity and new procedures, it's probably not that much, at least for us. And there's doctor willingness to get volume back. So everything seems to be lined up in the right way. But there's still some residual reluctance on the part of patients to seek care and, and a willingness on the part of some patients to defer care even in this category. And we believe that will free up over time. But the triggers are probably a little bit different. For every single patient, it might be employment, it might be the vaccine might be their local infection rate. It might be their level of pain. We think it will improve, but it probably won't be back to normal. I don't think in this particular quarter, it's close. But we don't think it'll be back to prior prior year or pre covid levels.

Lawrence Biegelsen -- Wells Fargo -- Analyst

That's helpful, Keith, and then on the pipeline. At a recent investor conference, he talked about new products in 2021. And I think, you know, in addition to Pdn, and virgin back, you know, I think you alluded to new products on this call. Could you are you willing to kind of give us any color on what new products you might be? You know, launching in 2021. Thanks for taking the questions.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Eah, no, I'd like to keep that one wrapped up. So we can unwrap it when we when we launch just for lots of reasons, not the least of which is his competitive reasons, like we've been, we've been a pretty open book on new patient categories and indications and the trials and datasets that will get us there. As you know, we've been tried to keep things a little closer to the best until we're ready on on product introductions, but hopefully in the in the first, first half of 21, we'll certainly be able to talk more openly about about some of those.

Lawrence Biegelsen -- Wells Fargo -- Analyst

Thanks, understand.

Operator

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

Alan -- JPMorgan -- Analyst

Hey, guys, this is actually Alan [Phonetic] on for Robbie, just start off. I had kind of a question on rdn. You know, you're kind of you have a better visibility into that second half of 21 timeline. What should we really think about the pace of adoption? Non market? I think you guys have talked about in the past a little bit of a different kind of call point for you guys. So how should we really think about that business picking up in the back half of 21? And then then 22 2022 and beyond?

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Okay, Alan, you said, I thought I heard you say rd? And did you mean Pdn?

Alan -- JPMorgan -- Analyst

Pdn. Sorry. Okay. And a long day.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

All right. So so we were trying to figure out what RDM was, and if we'd missed something here. Right. So I missed a part of the rest of your question. You're looking for any any discussion of potential adoption rates after FDA approval?

Alan -- JPMorgan -- Analyst

Yes. Is that just kind of like a different call point for you guys?

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Yeah, you know, I think we're probably not ready to provide forecasts are visibility or guidance of any kind on either on either adoption or investment for pdn. But I think we're close to being at that point we're doing we a lot of that body of work is behind us. But But frankly, a fair portion of it is still to be done over the course of the rest of this quarter. I think when we get to the first quarter call, we will almost certainly dedicate a fair portion of that call to talking about the size of market, how we're thinking about market segmentation, positioning, launch strategies and and even investment level. So give us another quarter on that one. And we'll provide a bit more visibility.

Alan -- JPMorgan -- Analyst

Got it? And then I guess talking about Omnia, and kind of, you know, the other new products that maybe some of your competitors are bringing up, you know, it seems like clearly Oh, us that looks has been a very strong launch for you but even like domestically, how should we think about, you know, physician willingness to really look at new products right now? Is that a discussion they're willing to have? And like, what are you seeing on the competitive front as well? Thank you guys.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Yeah. Well, there's certainly a willingness to look at a new product like this with existing customers. That's clear. I mean, if you look at Omnia currently represents, you know, between 70 and 75% of our of our utilization in the US market. In, in Australia, where you typically see once a product is listed as a complete switchover we have maybe as we expected, now see a virtual 100% utilization of Omnia in Australia, and the European markets where we've just introduced our sort of somewhere in between, but ramping ramping quickly. So the acceptance of Omni has been, at least as good probably better than our internal expectations among our own customers. With regard to other customers, I think, you know, you fall back on sort of a market share, look, we do, we do think we have continued to take a bit of share each quarter even through COVID. It's really hard to quantify market share, because we don't have a lot of transparency from our competitors, given their ownership structure. We do some of our own work on market share.

But it's it's a little opaque. And it's difficult to make really granular sense of it. But I would say we do continue to gain share. And if you look at share over a longer period of time, say from 18 months ago today, I think it's it's pretty easy to discern an increase from what was probably the mid teens, you know, low to mid teens to today, probably upper teens to even 20% or so, share of the US market. So I think it's been a it's been a nice range of capture for us over the last call of 18 months or so.

Operator

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

David Lewis -- Morgan Stanley -- Analyst

Hi, can you hear me OK.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

All right. Yeah, we got you, David.

David Lewis -- Morgan Stanley -- Analyst

Perfect. Lucky me. Thanks for taking the questions here. I guess, just the two for me key. The first is I know, it's I know, it's obviously early. But I sort of think about the structural growth rate. And obviously, at a recent conference, you want to talk about, you know, broadly how investors can start to think about the forward year I mean, I think it's three consensus numbers for 21 Keith, and they're kind of upper teens type of growth. 21 versus, versus 19. Obviously, that implies sort of a business that's kind of growing, you know, 10% ish, or two extra market rate over a two year period of time. You know, how are you thinking about your ability to grow relative to market or any any thoughts you believe in this year, next year and other revenue? And then kind of related for this kind of Raj, just thinking about profitability? That was a pretty, you know, very, very good number here, on a profit basis that I appreciate optics will start to scale, but it does, look, you're making dramatic progress on optics here and profitability toward the back half of this year. And I'm sort of assuming that extends in the next year. So just first stuff, any commentary want to share on top and bottom for next year, even at a high level?

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Yeah. So as you might expect, there's not a lot I can give you on on 2021. You know, we don't we don't have a guidance for fourth quarter, much less 21. I do think we view this as sort of a, you know, a pre and post, like probably most companies pre and post COVID basis, and I think our view of the business on a post COVID. And we think by the way, the 21 will have some portion of both of those areas within it. But yeah, I think our view of post COVID portion or 21, is is very bullish, you know, we look at the things that are lined up with Omnia and the trajector, we were on as a company, the execution of our sales organizations, the probably the impact from what will then be a fair amount of pent up demand from patients whose whose pain doesn't resolve through some other way, or they don't have an alternative therapy.

So So we think the whole space will actually see a bit of a nice long wave behind it when when COVID resolves. And if you layer on top of that, the fact that we've been capturing share, we think we can continue to do that. And that around the second half of next year, we're launching pdn. It does feel like the outlook for that portion of 21 is quite good. The real question is, does that portion of 21 start on March one or September one? And or is it kind of a slow, slow and steady ramp up until somebody flips a switch of some sort. So I think that that's what everybody is, is grappling with, I think between here and there. So the COVID portion of 2021 sort of feels to us like it'll be a continuation of maybe what q3 look like with kind of slow and steady improvement. And and not a lot of impact from the kind of dramatic closures we saw back in in March and April. trying to piece all those all those together and come up with guidance is certainly a little bit difficult today. Hopefully, we'll get a little bit more clarity by q1. But we'll just have to, to see and maybe I'll let Rob take on the the spending and operating income clutter.

Rod MacLeod -- Chief Financial Officer

Hi, David, this rod, thanks for the question. From an operating expense standpoint, like a lot of other businesses, we're getting a little bit of a good guy in q3 as expenses are reduced travel conferences, etc. related to COVID restrictions. So we're getting a little bit of lift from that, as even tracking as well, the the management team is made a lot of decisions, a lot of what started before COVID in terms of driving business leverage at nevro. Here, driving efficiencies in the sales channel Patient Support process, have have continued to drive leverage. And we'll continue to focus on that as we go forward, as well as in other parts of the business. We've also continued to focus on driving investment and resources around around are our key strategic initiatives, which is which is driving focus in the business as well. As we noted, in q3, we also had the two and a half million dollars of the CFO transition costs, and our litigation was 2.3 million versus 1.9 in the prior year. And like he said, we're not providing guidance, but we're We are pleased with our adjusted EBIT da, in, in in q3. As we go forward, though, we, we are going to have a bias toward toward growth. And with some of the initiatives and opportunities that keep mentioned, there will be opportunities for us to forward spend, for instance, in the Pdn, in anticipation of the Pdn launch, where we could see a little bit of fluctuation on a quarter over quarter basis as it relates to some of that investment. And as COVID restrictions begin to lift. So super pleased with our third quarter results. And we are we're continuing to drive leverage throughout the business as as we move forward.

David Lewis -- Morgan Stanley -- Analyst

Super helpful and Keith just one more quick, you know, future question for you on sort of product pipeline. So number one, obviously Medtronic has sort of, you know, confirmed to be copying your clinical playbook, both in terms of Pdn, non surgical, as well as you ln. So two questions, one, you have kind of expressed obviously less relative interest in Ulan, just given the clinical data requirements, and the bigger opportunity have in front of you, is that sort of still your view relative to you, ln, just give them a tronics interest in that particular category. And then if you think about the future, Keith, and you're not gonna tell us much about what these products are. But should we think of this more as labeled extension or think of it more as fundamentally new therapeutic areas? stimulation patterns and things of that nature? So is it more software label? Or is it more hardware? Thanks so much.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Yeah. Well, let me take the first one, you all and I think, as Medtronic or any other interns, I expect our competitors to have an interest in the segments that we've expressed interested in interest in, for all the same reasons. They're, they're good and large opportunities to grow the business and have a lot of patience. So I'm sure that they have the same interest for the same reasons, assuming they couldn't get there with their technology. And I think that's, I think that's a very large assumption, in the case of Pdn, they've got a long way to go. And if they want to generate the kind of data that we believe both regulators and payers and and clinicians in the diabetes world want to see, they're going to have to pursue some pathway that doesn't represent a shortcut. And so there's a significant Head Start Here on the part of nevro, at the very least, and all that's based on an assumption that that high frequency doesn't have some meaningful differential benefit in this category of patient something by the way that we believe and believe pretty strongly.

Now, in terms of whether or not these indications are just claims or or distinct markets and market launches, I really think in the case of Pdn, it's very much the ladder or maybe better footage, the both. It's both it certainly has to be a label claim addition and FDA approval, but it is a distinctly different market, different referral base different patients, a different type of pain, different competitive therapies, and a different decision making process and the payers will view it you know, differently as well. So I think We look at it, this is really launching into an entirely new market. last part of your question was, I think, what are the implications for the product? And could it be product differences over time as well? And it certainly could be. If not, initially, over time, I think that's quite possible effect over time, it might even be likely. But we're taking this. We're taking this internally as a significant new product slash new market launch. Oh, David, does that help answer your question?

David Lewis -- Morgan Stanley -- Analyst

It does very much, sir. Thank you so much for the detailed answer.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Okay, you bet.

Operator

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

Bob Hopkins -- Bank of America -- Analyst

A Thanks and good afternoon.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Hi, Bob.

Bob Hopkins -- Bank of America -- Analyst

Hey. So just wondering if your how your thoughts may have evolved over the last couple of months on on Pdn and the timelines for when that can have a real, you know, commercial impact. And just curious if that's changed at all, over the last couple months, as you guys are getting, you know, closer and closer to, you know, data and commercialization? And it kind of what I'm getting at is, is this going to be kind of a long slog in terms of developing the market? Are there ways to, you know, accelerate the creation of those pathways?

Rod MacLeod -- Chief Financial Officer

Well, let me answer that a couple of ways. I'll, I'll tell you that as time has come along here over the last quarter or two, we're smarter about this opportunity, internally, at least in two ways. One, we continue to see more data. Some of that data will be seen by everyone in a couple of months. And we continue to get more information and get more data about the market. And expose a lot more endocrinologist and podiatrists and internal medicine folks in primary care physicians on the technology and talk to a lot more patients and do a lot more market research. And we're doing really a tremendous amount of work internally. And I would say that the the sum total of the impact of all those things is a has been a growing level of excitement among our team and our board about this opportunity. So I would say we're, you know, with each passing month, we get more psyched internally about the ability to enter this market, and grow a meaningful and, and defensible business, and help a lot of patients that couldn't otherwise be helped in and start to talk to a whole different group of, of doctors. So that's one side of it, in terms of in terms of the impact on the business and ways to accelerate, certainly, we're always looking at ways to accelerate the impact. You know, if you think about maybe a mid year approval, what do you do from that, really, you're you can't do a lot of market education until you have an FDA approval, of course, I mean, those are the rules of the road.

And like everybody else we play by them. So most of our education effort will take place after an FDA approval. And, and we have some work to do with at least some payers out there as well. So those things take a little bit of time. On the other hand, there's going to be great exposure to not only six months, but 12 months data. By then there will be data in the published literature. By then we will present a data at not only Nan's but likely Ada by them. And so there will have been a fair amount of exposure and there is a lot of pent up demand among these patients. So I do expect some short term impact. But we but we have to get patients referred, get them trialed and then get them implanted. And that referral comes from a new referral base. So we'll do as much as we can to see that market and that initiative up front, but much of it will start at launch. And so I think you'll see second half of 21, where there's there's almost certainly be some revenue impact. But it's it's likely to be mostly preparing for a broader revenue impact in 2022. So without putting numbers to it, I think directionally that's how you should be thinking about it.

Bob Hopkins -- Bank of America -- Analyst

That's great. Thank you for that. And then one short term oriented question, I just want to understand your thought process around the comments you made earlier in reiterated about the the fourth quarter. I'm just curious if your commentary on q4 assumes an increasing cancellation rates from here. And just what you're seeing on that front front today. Just want to understand how you how you thought about those comments.

Rod MacLeod -- Chief Financial Officer

Yeah, it really doesn't reflect I mean, you know, with with October under our belt and a couple days in November, it really doesn't reflect current cancellation rates. This is less about looking at our own, our own patient records and more about reading the newspaper. And just kind of seeing what's going on out there and hearing what hospitals in Europe might be talking about doing in November and December plans that they're making. rumors that are that are afoot in certain countries about, you know, you know, maybe maybe treating certain hospitals or certain types of procedures differently, nothing has actually happened at this point other than infection rates are are beginning to, to spike around the world.

And we're anticipating what might happen in the second half of the quarter so far, but it's based much more on that than it is, hey, something starting to happen in October, October actually felt pretty good. So and keep in mind, this is a fourth quarter where when we talk about being flat over prior year, we were getting a whole bunch of traction last year, and in fourth quarter, that was that was a very strong comparable for us, we had just launched Omnia. And it was a good quarter for so I think absent a you know, kind of an erosion of patient demand here in November and December due to COVID. Kind of a flat performance to prior year feels a very good and and be pretty likely. But we temper that with what's the likelihood that there won't be an incremental COVID impact in November and December, based on what we're seeing in infection rates, etc. And it seems like there probably will be we can't size it. We don't have guidance. We can't we can't give you a range, we just think it's likely to have some impact to that view.

Bob Hopkins -- Bank of America -- Analyst

Got it. Thank you very much. Appreciate it.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Okay.

Operator

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

Danielle Antalffy -- SVB Leerink -- Analyst

Hey, good afternoon, everyone. Thank you so much for taking the question. Keith. I just wanted to ask you, one of one of the competitors in your space has been, you know, talking about going on the offensive, more generally speaking, and it has specifically talked about spinal cord stem, and the recent DTM launch did see a data update there. I think it was the nine month data back in October. I was wondering if you could talk about that and how you're viewing that potentially changing the landscape for you guys.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Yeah, yeah. Thanks, Danielle. I'd love to I you know, certainly that's, that's something we've been following. The to Medtronic you're talking about, and they held a company sponsored webinar to present 12 months results for their new approach of multiplexing, or pairing to existing low frequency waveforms, which is something they call DTM. As you mentioned, I guess first of all, it's important to remember that these data were simply released by the company. So they, they haven't been peer reviewed or accepted for publication or presentation anywhere at this point that we know of, sort of an unusual way to unveil important data, something at least I don't think we've seen before. But anyway, DTM it seems like to us, based on what we know, to be sort of a simple trial and error programming programming of two low frequency programs, probably something in the area of 300 hertz and 50 hertz after performing traditional paraesthesia mapping in the O r. So far, at least Medtronic hasn't disclosed the frequencies or the waveforms involved to their own customers, which we know at least some of those customers have found sort of puzzling, I don't know the analogy we've used internally, I doubt most doctors would prescribe a pill with two active ingredients they didn't understand and, and that sort of lack of transparency may seem equally inappropriate to some conditions when delivering, you know, a dose of electric current. The pairing by the way of two frequencies is something that any Omnia user can program today if they want, though importantly on the also gives them the ability to do hF 10 in a pairing platform, as you as you know, as for the Medtronic data, specifically, which I think is your question that this was a fairly small cohort that hasn't been peer reviewed, they had a very high loss to follow up in their 12 month date, I think it was like 15, or 16%. But they actually excluded them in their reported responder rate. In the sense of trial, By comparison, we only lost one patient to follow up at 12 months in a study that was double the size.

And we actually included that patient in our intent to treat analysis. And finally, we didn't have never Oh personnel programming patients in the control arm. Unlike this study, where the unblinded employees program, both the control and the and the test arm so it's very different. It's it's been received, I think in the market as being that look, it's great. It is great to see competitors spending time and money bringing innovation and investment to the field. We kind of feel like if you're going to progress to therapy, we're going to need to see product specifications and clinical data that are just a bit more transparent and objective than that But eventually all of this will be up to the bodies of scientific and clinical leadership in our field to adjudicate. In the meantime, we're pretty confident that the quality of evidence that we brought to the therapy through the initial RCT as well as our ongoing initiatives like NSR, VP, and of course Pdn, that we've been talking about, and that those will continue to bring gain the greater support of decision makers going forward. But it's something we'll continue to to keep an eye on for sure. And we are glad, as I said, that we have competitors that are that are bringing new things to the market to try to capture more of these untreated patients.

Danielle Antalffy -- SVB Leerink -- Analyst

That's great. Can I just ask one quick follow up, and it's around clinical data in general in this market, you know, when whenever first presented their data, and there was lots of excitement, but then it felt like it sort of subsided, this has always been an industry that has been driven Bor feature and relationship driven. And I'm wondering if you feel like now a few years down the road, that the paradigm has shifted, and the bar is is higher for data. So you're pointing out all, you know, all of the issues with or, you know, the differences between the trials? I mean, does data matter more now in this industry? And is it continuing to matter more and more as more of these data sets come out?

D. Keith Grossman -- Chairman, Chief Executive Officer and President

That's a great question. I. So I think the answer is yes, without questions. And I think nevro coming to the market with the original RCT that it really boldly had invested in made a big difference. And and I think it's changed the tone and tenor of the market and the discussion around the importance of clinical data a lot since then. But I think it's kind of an ongoing process. You know, we I don't know how many data sets we publish or present every single year. It's, it's a lot. And so we've added to this body of literature very considerably over the last 345 years. And I and I do think that as you want to grow this, this business through new kinds of patients, it's going to require the payers and in some cases, entirely new sets of users. And I'm thinking of PDM specifically, are going to demand a level of clinical evidence to which they're accustomed. And, and so I think I think that will I think that will elevate the game for FCS generally speaking, if you want to grow the market by treating new categories of patients.

Danielle Antalffy -- SVB Leerink -- Analyst

Thank you.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Thanks, Danielle.

Operator

Your next question comes from the line of Joanne Winch[Phonetic] with City.

Joanne Winch -- City -- Analyst

Good after afternoon. Well, then a long day already by. Alright, two questions. the competitive landscape you've been fairly active and taking market share, help me understand how much of this is Salesforce driven, product driven? Or what do you think is really going on in terms of just the general competitive landscape?

Rod MacLeod -- Chief Financial Officer

Yeah. Well, I'll take the coward's way out and say it's 5050? Or maybe in an effort to look more like I'm putting a finer point on it, I should say, 6040, right. Look, I really think it's both I don't I don't think I know how to break it out. Our sales team, our sales and management group, our marketing group has been going through lots of changes over the last year and a half, I think they are doing a great job they are, they are much more productive and effective. They're doing the right things are focused on the right things. They're not focused on the wrong things. And we're just getting a ton more productivity and they're winning, which is terrific. So and we have we have more to do there, I think in in putting a much finer edge on our commercial initiatives. But I'm really pleased with where they are. And I think it has quite a lot to do with our relative performance to competitors over the last year or two.

But I wouldn't underestimate the importance of Omnia I think, you know, we said when we introduced this, this wasn't just a minor generational improvement just you know, a smaller can or with a new waveform, this was a significant strategic change of being able to say look, we we can bring to the market, a unique product like h f 10 for stimulating these patients and getting better workflow completely better outcomes with better data to prove it. But we can also do everything else. And we can you know, any patient that requires any kind of different treatment over time. We can pair those therapies. We can do them separately over time. That's a really meaningful change that isn't a you know, one year lifecycle kind of change. That's a significant strategic product offering change for us. It's durable, and I think it's meaningful. And I think that has had also quite a lot to do with, with what's been going on. Sorry, I don't really know all kidding aside, I really don't really know how to weight to the difference between those two things. But But I think they both made a difference. And I think they'll both continue to make a difference.

Joanne Winch -- City -- Analyst

That's helpful. Just for my second question, the whole discussion of CMS pre authorization, I'm trying to understand whether or not the whole discussion at the beginning of this was so was a, so by the way this is happening, but don't worry about it, or how should we sort of gate this? Thank you.

Rod MacLeod -- Chief Financial Officer

Well, I think the safest way to, you know, to kind of talk this in and think about it as part of the story is that usually proposed rules become final rules. Everybody comments? And and rarely do they affect change from proposed to final? Sometimes it does. I felt it was important for for investors to understand two things, one, that we looked at the utilization data as well, that we've come to a very clear conclusion about what they were seeing and why they were seeing it. And we've presented that back to them. And I think that the I think that we had a very engaged very curious, and and maybe even a little bit surprised audience, when we did present that back to them. That doesn't mean that the final rule will be any different than the proposed rule. That's all I think, always the safest baseline assumption that we as an industry will have to deal with prior asked for this for this segment of of patients, just like we do for almost all the other patients. And we do it now we do it. Well, we'll continue to do it with this category. But I do think what is clear to us is that there's an educational initiative that needs to happen with not just CMS with payers, and they need to understand what's beginning to happen to their patient mix, what they're really paying for, and, and how often they're paying for the same therapy for the same patient when they need not do that. So this was, I think, an eye opener for us and for CMS and and something that will be a message will be I think sending on a regular basis.

Joanne Winch -- City -- Analyst

Thank you.

Operator

Your next question comes from the line of Kayla Crumb with Choice Securities.

David Roscoe -- Choice Securities -- Analyst

David Roscoe, and for Kayla, thanks for taking the questions. But first one for me, you know, if we assume that the fourth quarter typically is kind of stronger, the strongest quarter given the dynamics around patients meeting their deductibles by the year end? You know, how, how do you expect that factor to play out this year given that, you know, the impact of COVID may have left some of the patients reducing healthcare spend earlier in the year and thus not meeting their their deductibles by the fourth quarter? And then, you know, the second part of that question, as you look into the first quarter next year, you know, how do you think about patients who or have you heard any Actonel evidence thus far on patients pulling forward procedures from the first quarter into the fourth quarter, given that they may have some visibility around returning to work and potentially trying to get an FCS procedure? And a lot of that.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Yeah, it's a it's a Well, sir, it's a sharp, sharp insight on the deductible. And we're we're watching that we actually think that is part of the normal for q4 seasonality. And we don't think this is a normal q4 by any stretch. So I do think that that impact that we typically see in q4 patients may be trying to rush through the door to, to therapy to take advantage of a of a lower or spent deductible is kind of kind of be attenuated this year. So I don't think we'll I think we'll see some impact from that. But I think it will be reduced, frankly, whether or not payers will or patients will try to pull procedures in with the assumption that they're going to be busy and back at work after the first of the year. That I don't think we have any insight to AI. It's the logic makes sense to me. But I don't think we've seen evidence of it. I don't think we've tested that, that thesis with any of our patient research. Another area of speculation we've heard is that doctors may may press into for to treat patients where there's optionality between q4 and q1 when they may try to push patients into q4 due to a perception of, of tax law changes from a 20 to 21. Now, it may be that the election results of this week May May doll that impact if there was ever going to be one as well. So these are interesting theories and they're really hard to test and prove until you until you until you watch them. I think But none of them would change the commentary that we've given you today about q4, however.

David Roscoe -- Choice Securities -- Analyst

Okay, that's, that's helpful. And then I guess a little bit more on PDR. And I appreciate the the commentary from our so far on that. You know, you mentioned the press release that the companies in the discussions with the FDA around submission strategy there. You know, I guess, has there been any thing surprising to you in those initial conversations? And can you provide any insights around the payer strategy or the market development progress that you've made so far ahead of the commercial launch? And then, as a second part of that, have you? Have you seen any increase in maybe off label use or physician interest? So far, that indication just following the three month debut last year, thanks.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Okay, there's a few buried in there. So conversation to CMS, I think there's nothing nothing i would i would reveal that I that I haven't, I think, look, the conversations we had with both FDA and any conversations we've had with CMS, which have been a by the way with CMS so far, really not. Not a lot has happened yet, with CMS, most of our conversations have been with FDA, those have gone very well keep in mind, FDA saw not only a submission strategy that we wanted to pursue, but the data that would support it. And if they're not obligated to make a commitment in a pre submission process. They're they're merely giving feedback. But with that feedback, we concluded that submitting primarily leaning on the six month data, not entirely but primarily in the q4 timeframe was the right thing to do. And and so we've used that as as a good thing. In terms of CMS and payers, there just hasn't been a lot of contact on this point yet, we have been doing some research with private payers, we have been, we have been gauging the response from medical officers within different types of private payers, we have some really interesting data there. It's been actually very encouraging. But that data is, as you saw on the three month data, that data is pretty compelling. And that trial was very well designed.

So we kind of expected a good response. And we've gotten a good response. But I think a really full push with private payers will come once we have a little bit further data published the six month data published presented we have an FDA approval, we will have a planned and orchestrated initiative to launch with payers that will that will go out very quickly. Finally, on off label, no, we really haven't seen a lot of off label. I mean, this is not a we can't go out and promote Pdn remember, what is a new group of referring doctors who aren't necessarily aware of FCS at all, much less as a treatment for some of their patients. So I wouldn't expect a ton of off label there likely has as it's been some but it probably would be a onesie twosie kind of thing where patients are, are maybe coded as as being on label and we and they just would never show up to us. So that would be that would be between the doctor and the patient and and the payer. So I would say off label from a visible standpoint has had very little impact so far.

Operator

Our final question comes down the line of Margaret Katza [Phonetic] of William Blair.

Margaret Katza -- William Blair -- Analyst

Hey, guys, thanks for taking the question. And then you know, a couple a couple things for me. So number one that you guys tend to talk about on the relatively bullish lid. I know everyone's so focused on Pdn and these new Tam opportunities, but maybe talk to us a little bit about why so much confidence that not only can it be it has been a driver this year. But this is a driver for next year. Yeah. Is it simply reach is it you know, continued evolution of the technology, meaning you'll kind of launch new wave forms on top of what you got, you know, any details.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Margaret, I just want to I'm going to kind of feed this back, because I just want to make sure I really understand the question. You're, you're wondering why the impact of Omnia would exceed a normal new product lifecycle in its in its impact and why it would would help us in 2021 and beyond. Is that right?

Margaret Katza -- William Blair -- Analyst

Yeah, I mean, it'll be the second year of the launch. Right? So so why would it be as impactful on a second year of launch as it has in the first other than the pandemic?

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Well, two reasons. One is this was a little bit of a last year so you know, a lot of a lot of product launches I think, are kind of in suspended animation, this Didn't get the full impact. I think that's true not only in our sector, but in others There are even companies who pulled or delayed new product launches that I'm aware of that will launch them after the fact. But so I think we get, you get a little bit of a timeout in the game for new product launches, in the case of Omnia, and I spoke to this a little bit earlier in the call. So I won't go into quite as much detail, but I don't think on the is really a typical new product lifecycle kind of thing. You know, when you introduce a product that says you can uniquely and solely offer the most effective stimulation therapy for these patients in the industry, and now you can offer what everybody else can do in the industry on a stand-alone basis or on a paired basis, that's not typically is something that you can erode over the course of what might be considered a normal life cycle that is kind of a permanent and durable capability that can't be replicated without high frequency. So now, does that mean it's it's an effective product? And we never have to develop a new product for the next 234 or five years? And of course not. But I but I do expect the durability of impact from a product platform change like that to be far more meaningful and durable than just a typical lifecycle add on, or capability change in a product? I hope that makes sense.

Margaret Katza -- William Blair -- Analyst

Yeah, yeah. And part of the question is, is that just more of an education effort on your end, because you're not able to reach some of these clinicians? And would that then be new accounts that maybe you guys aren't a part of, or trying to go deeper within accounts?

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Yeah, and that's, and that's the part that gets you got kind of delayed this year. So certainly, our existing doctors understood on the immediately they have the ability to choose to use ami as their primary product and their patients that we're going to treat anyway, with an epidural product, that conversion has happened pretty widely. But the ability to really get to those doctors who might be using a competitor's product to treat other different kinds of patients, and really talk to them about using on the or, or, or even more, so to get to completely competitive accounts. That's been harder to do, I think, during COVID, for lots of reasons. So I expect that gets a little bit easier as our sales force and our doctors and our patients, you know, ramp up to full speed over the coming months and quarters.

Margaret Katza -- William Blair -- Analyst

Okay, great. Thanks a lot, guys.

Operator

I would now like to turn the conference back to Mr. Grossman, for any additional or closing remarks.

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Okay, thanks, everybody. I and I'm aware of the fact that we stranded up a question or two but we're we're at the mark here and, but I appreciate everybody's time and interest in what we're doing. It certainly has been an interesting time. And if you have more questions, please reach out and we'll look forward to talking to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Matt Beskow -- Investor Relation

D. Keith Grossman -- Chairman, Chief Executive Officer and President

Rod MacLeod -- Chief Financial Officer

Lawrence Biegelsen -- Wells Fargo -- Analyst

Alan -- JPMorgan -- Analyst

David Lewis -- Morgan Stanley -- Analyst

Bob Hopkins -- Bank of America -- Analyst

Danielle Antalffy -- SVB Leerink -- Analyst

Joanne Winch -- City -- Analyst

David Roscoe -- Choice Securities -- Analyst

Margaret Katza -- William Blair -- Analyst

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