What happened

After management offered an early look at the company's fourth-quarter financial results, Axonics Modulation Technologies (AXNX -0.37%) shares are rocketing 24.5% higher at 1:00 p.m. EST on Thursday.

So what

Axonics secured Food and Drug Administration approval to begin marketing its implantable treatment for urinary and fecal incontinence in November 2018, and this morning, management reported preliminary fourth-quarter sales suggesting a brisk launch. Specifically, fourth-quarter revenue is expected to be $10 million, resulting in full-fiscal-year revenue of approximately $14 million.

A man drawing a rocket flying in outer space on a wall.


The fourth-quarter sales were boosted significantly by the U.S. launch of its device, which accounted for about $8.4 million of total quarterly revenue. The remaining roughly $1.6 million in sales were generated overseas, where the device is sold in Europe and Canada. For perspective, sales were just $1.3 million in Q3 2019, when it was only sold outside the U.S.

The early revenue success is particularly intriguing given the market for implantable devices that stimulate the sacral nerve to reduce incontinence is worth about $700 million, 90% of which comes from the United States.

Until Axonics launched its product, Medtronic's (MDT -0.11%) InterStim II had this market all to itself. Axonics believes its device offers advantage over InterStim II that could allow it to win significant market share. InterStim II isn't approved for full-body MRI scans, and it has to be surgically replaced every five years. The Axonics implant, inserted in the upper buttocks, can be recharged in an hour every two weeks, lasts 15 years, and is compatible with full-body MRI scans.

Now what

Currently, neurostimulation devices are viewed as third-line treatment in patients who inadequately respond to early lines of therapy, including behavior modification and twice-yearly Botox injections. Despite the third-line status, this market is still significant. Each year, an estimated 30,000 patients have surgery to insert their first sacral neurostimulation implant, plus an additional 11,000 per year receive InterStim II replacement implants.

While it's still early going for Axonics, there's reason to believe it can win away a substantial piece of this market opportunity. In clinical trials, 90% of patients responded to Axonics' implant, including 34% who had a 100% response. Also, 92% of patients said they'd choose to undergo the therapy again, and 93% report being satisfied with it. It might take a while to convince doctors to adopt it over Medtronic's offering, but I think this has a good shot at becoming a nine-figure product, which could make Axonics one of the fastest-growing healthcare stocks over the coming years.

Investors will need to be patient about profit, though. The company is spending heavily on sales and marketing to reach the 1,000 or so physicians responsible for 80% of all implants, so its operating expenses are likely to outpace its revenue for a while. We should get better insight into a potential path to profit when Axonics reports its full fourth-quarter results on March 4.