So I wanna get going with this fireside chat with Establishment Labs. So here today from the company, we have Juan José Chacón-Quirós, who's the CEO, and also Raj Denhoy, the CFO of ESTA, who's had a lot of events recently that we wanna talk about, but a really bright future ahead. And maybe just to get started, JJ, do you wanna give us a little bit of an overview of the company? Maybe talk about your, your mission in, in women's health, and what you've done to date to achieve that in a number of the markets that you're playing in worldwide.
Yes. Thank you, Matt, and very glad to be here at this conference. So when I founded this company, you know, my view was that if you were to bring this angle of women's health into breast aesthetics, into breast reconstruction, you could, through technology, through a different approach, transform these markets to bring about new levels of safety, but more importantly, to be able to expand these markets. When you think about like, you know, the expansion of aesthetics over the last 20 years, you know, the expansion of facial aesthetics, which has been, you know, tremendous, but you look at, you know, the growth in breast aesthetics, it is not the same. And why isn't it the same? Because of the lack of technology.
And I think that, you know, since we went to market in 2010 and over the last 13 years, what we've been proving is that technology and the downstream, you know, clinical evidence of that technology can truly transform what used to be commodity markets. And as we grow those markets, I think with things like Mia Femtech, new tools in breast reconstruction, we are going to see a lot of growth in the future.
Maybe just to set this up, can you talk a little bit about the differentiation from Motiva and your surface technology and how that's starting to spread through additional innovations like Mia and like your tissue expander?
Yes, of course. And I think it's always been like, you know, safety first. We have created a truly biocompatible implant. And when you think about, like, capsular contracture, which is your body's reaction to a foreign object, you know, we have an order of magnitude less complications than our competitors when it comes to that, and that used to be the main reason for reoperation. And now with, you know, Motiva, it's basically anecdotal. When you think about rupture, you know, one of our main competitors has, you know, 24% rupture rate at 10 years. You know, how is that even possible? And then when you think about, like, you know, our products now, 13 years later, 3 million implants out there, rate of rupture is less than 1%. In fact, a lot less than 1%.
You know, that starts getting, you know, the attention of not only the plastic surgery community, women who are interested in these indications and, you know, had given up on, on the safety side. And then on the aesthetic benefits, you know, when you start thinking about, you know, we created the Ergonomix implant, an implant that is comfortable, that is. You know, you're wearing these things, and, and all of a sudden, they feel like real breast tissue, and all the way into minimally invasive. So all of these things have the same, you know, angle, which is women's health can bring about value not only to patients but also to the plastic surgery community.
Great. So let's talk a little bit about your commercial experience to date. You've been approved, I think you're in 80 some countries and have a solid market share in a number of them. Maybe talk about that journey, and then I wanna get to some of the new countries you may enter in the next few months here.
Yes. When we first went to market in 2010, you know, with our first generation, of course, we didn't have all the clinical evidence that we have today. But I think now, after more than a decade, what we see is that, you know, our value proposition, where we have what is called good, better, best, basically, all three of these offerings have the same safety levels, but then we price them differently, and we can do this in every market. So we can be competitive, so our good is priced usually so that it can be competitive, and we don't lose any potential market there. But then our job is to get women with the current level of education and information so that they can choose to upgrade to the other offerings, and that has been, you know, the basis for our success.
You know, you look in many markets that used to be commodity markets. Our best-sold implants are not our cheapest implants, and that tells you the story there.
So let's talk about some of the big new product approvals, regulatory approvals that have come to pass in May here in the near future. You got a little bit of surprise with the China timing, so we should probably talk about that. But obviously, at the end of the day, that's a big win for the company and a huge opportunity. So maybe just frame, well, it'd be interesting to know what happened with China in terms of the approval timing, but also, what does that mean now going forward for near-term sales and for your long-term opportunity there?
Yeah, I think overall, like, you know, if you think about, like, when, you know, when we took the company public, I think the thesis was, you know, they have the best technology, they're taking market share everywhere, but they want to bring this technology to the main two markets in the world, China and the United States. And, we had been working for years on the China approval. It's not an easy process. It can be opaque at times, and twice we had to push, you know, the potential timing of approval. So, you know, in the last earnings call, we went, conservative on, you know, our expectation, but we still said clearly we expected this quarter. And actually, we were happy to see it happen so fast, and now, you know, we're preparing for the launch.
You know, we have to manufacture these implants after the approval date. So that's one of the reasons we took it out of our Q4 guidance, but, you know, definitely it will be one of our growth factors for 2024.
Great. And in the past, you've talked about some initial stocking that could happen in China, so maybe just articulate what we should expect from that going forward. And also, we know the size of the overall China market. What kind of a ramp should we expect there between the value prop of your implants and your partner?
So, you know, over the last few years, we've proven that in Asia, our, you know, our value proposition is solid. We are market leaders in Japan, Taiwan, Vietnam, Thailand, and South Korea. And South Korea is very important to China because Chinese consumers look up to what's going on in aesthetics in South Korea. Before the pandemic began, 25% of our patients for Motiva in South Korea came from China. So, you know, now that we're starting to prepare, we're looking at, you know, the market segments in which we play in. There are some local manufacturers in China, and we're not gonna play in that low market, but this is a market that, you know, can be sized at around $100 million at distributor-level pricing.
You know, for us, I think the expectation is that eventually, just like in the other Asian countries, after 3-4 years, we see market leadership, and eventually, we see market share numbers that range between 40%-70% in that region.
Great. Well, another recent approval was the Flora tissue expander in the U.S. So I'd love for you to talk about two things. One is maybe just articulate the opportunity and reconstruction and what that approval means for that. But also, there are some read-throughs from that approval, perhaps to the U.S. approval of your implant. So I'd love for you to talk about the FDA process and what that could also mean for Motiva Implants in the U.S.
Yeah, we're, you know, super happy with the clearance of the Motiva Flora tissue expander. You know, that tissue expander is part of our, you know, Femtech offering, meaning, you know, these technologies that are there to improve women's health. Flora is particularly important in that concept because what it does is it creates more comfort for patients. You know, we have this peer review study that was published in a direct comparative with a leading competitor from the United States, and we were able to prove that most patients think this is a much more comfortable offering.
But on top of that, because you don't have magnets in that tissue expander, you can safely do MRIs, and that completely changes the standard of care, because eventually, you can use less radiation oncology, damage less the tissue, and create, you know, the type of, you know, pocket that they need to then finalize into a great breast reconstruction. Part of the process, you know, for that approval of the breast implants includes, of course, the surface technology. So when we think about the clearance of the tissue expander, that clearance includes some of the same aspects. So one of them, most importantly, is, you know, the surface technology.
So in a way, by, you know, giving us the go-ahead with the tissue expander and the type of description of our surface technology, now we won't have to go through all of that in the final approval of the breast implants.
Great. Great. And just remind, I know you've said this many times, but, help us understand, you know, approval timing for the U.S., what to think about there in terms of what you've disclosed?
Yeah.
Then also, you know, once you get it, I guess, how should we think about the ramp of sales, but also your investment behind that?
Yeah, I think it's very important that we've never endorsed specific timing. What we have said is we're going to update you often on our progress, and we've been doing a lot of progress. You know, we've provided answers to all the questions that we were given for each one of the modules of the PMA. We also finalized all the BIMO inspection of the clinical sites, and I think the next big item is, you know, the manufacturing inspection of our facilities, which to us, you know, is just normal day life for us because, you know, we've been receiving inspections for now 13 years by high vigilance authorities. We've never, you know, failed an inspection, and we are prepared for this.
I get-
So in terms of, of, like, following with the progress, we'll continue updating. And, and I think, you know, what we are trying to be very careful with is, you know, not damaging the propriety of the trial by, you know, giving information ahead of time.
So I get this question a lot now, but in your mind, what's a reasonable timeline, maybe based on industry standard, to go f rom inspection to approval? Let's say you got the inspection today, what would be sort of the brackets of when you might be able to get approval?
I think, you know, like, all trials and all PMAs are different, but I think, you know, usually that happens, you know, in the first six months after that, and that varies in speed depending on where you are at.
Mm-hmm. And so the second part of that is, so once you do ultimately get approval, assuming that happens, which I think is highly likely, help us understand then, the ramp in the U.S., maybe comparing it to China or something like that, and what does that mean, you know, Raj, maybe for the PNL, in terms of your investment behind it, you needing to build a sales force and all that kind of stuff?
Yeah, I'll start by saying, look, we do very well in all countries. If you think about price-sensitive countries, if you think about more sophisticated markets, we do well in Colombia, we do well in Japan, we do well in Switzerland, and those are very different markets. But one of the things that makes us go faster is, you know, when we can educate patients, when we can speak freely to them, then they understand the technology, and they will ask surgeons about our technology. And the second thing is, you know, when surgeons already know how to use smooth devices, and there are markets like Brazil, which was all textured, and we had to do the work of the scientific societies and teach a generation of plastic surgeons how to use them, and that slowed us down quite a bit.
When you think about the U.S., all surgeons know how to use these devices. Of course, we're gonna give them some tips and tricks on how to, like, do a smaller incision, not having to use this, you know, implant under the muscle. So all of those are positive for them and for their patients, but it means that, you know, a lot of the speed that we want to see, we have the opportunity to get it.
Yeah, I guess on the expense side or the cost side, you know, it is the U.S. will be a direct market for us, as you know, and we kind of think about it in two buckets, right? There is the foundational work that we need to do to prepare to be in any direct market, right? So think about logistics, finance, the back office, you know, onboarding customers, invoicing, those kinds of things. You know, that work has already begun, right? And it will continue into next year. But as you get closer to that approval and the commercial launch, there is a second kind of more variable piece of that spending that you can time, you know, as closely as you can to that approval date.
And so some of that activity happens maybe 60 days ahead of the approval, which we should get good visibility on when that's coming, and we'll start to ramp that spending around that time. I'd also offer that that foundational work that we're doing, it's possible to leverage that as we are now thinking about the Flora approval in the United States. So now that we have that in hand, it is possible to start realizing sales with that product even before we get the full implant approval. So there is some ability, again, to leverage even what we're putting in place already.
And I guess I want to combine a couple concepts here, but first, you know, on the last earnings call, you did lower guidance. Part of that was China, which we now have, but not, maybe not this year. And then you did talk about some underlying softness in the market. So I was hoping you could frame that a little bit. We've seen that some of the peers are talking about that as well. Maybe you could talk about the magnitude of weakness you've seen in some of the different markets and compare this to other periods of stress in the industry.
Yeah, I think it's important to contextualize this and what we saw in 2022, which is, you know, we had a hard time keeping up with demand of our products. So one of the complaints that we heard often from our distributors, but also in direct markets from our clinics, is that they, you know, not all the time they had access to the exact sizes or profiles that they needed of Motiva. So we made a conscious decision in Q1 and Q2 of this year to accelerate manufacturing, added a third shift. We're producing 24 hours a day, so that we could bring everyone's inventories to the right place, and we did so.
So, you know, by the time that, you know, the third quarter kicked in, and that's a quarter with a lot of seasonality often, you know, we were not surprised to see, you know, soft July, an even softer August, because normally when they come back from the summer holidays is when they start reordering again. But we didn't see that this year, and because of that softness, we started, like, inquiring not only the clinics, but also our distributors. And what we understand is that there's, you know, depending on the market, between 10%-20% slowdown in the number of procedures that are taking place. Many, you know, patients are just kind of, like, delaying the procedure, although they have made the decision to have it, well, not now.
So, you know, as we came into October, we made a decision that it was time to lower that guidance to the right amount. I guess the effect of it feels amplified because even though the distributors did not, you know, receive an impact of more than 20%, you know, in average, their ordering patterns came down in Asia by 80%, and that's why you see it amplified. But eventually, you know, as they destock, they will have to restock. Distributors are very careful with their cash flow, but they're also very careful not to lose customers because they don't have the right product. So I think that, you know, in Q1, we'll start seeing those patterns come back to a more normalized level, albeit perhaps, you know, with some softness still in the market.
We have prepared the company for this period. We've taken actions to reduce substantially some of the costs associated with that manufacturing ramp, overall costs across the company, so we're prepared for that.
Mm-hmm. And I get this question a lot as well. How do you think about that period of destocking and when ordering resumes? And when it does resume, how would it compare to maybe what they ordered last year or something like that?
Well, I think, you know, it's definitely accretive over, you know, Q3 and Q4 because you're going to have a more normalized level of ordering from distributors, plus whatever we see in direct markets. If you think about direct markets, we're down only 7% when most of the countries are down 10%-20%, which means we continue taking market share, and that's what this is all about. You know, in a period like this, you've got to make sure that you're continuing to gain new accounts and make sure that you can grow, you know, not only through new things like markets and Mia and all of that, but also that you're ready to ramp up as things come back to normal. I think in Q1, we'll see at different speeds and levels, you know, our distributors starting to come back to that.
What would some of the prior analogies tell you about how long this period of softness might last?
We've seen, you know, slowdowns like this in many markets across the world. You know, in some markets like Brazil, it happens, like, every three to four years, something like this takes place. So, usually, it's just a delaying based on uncertainty, and eventually, after one or two quarters, you see it happen. But like I said, you know, we are preparing the company so that if it lasts longer, then, you know, we can be in the right place then.
Great. You know, somewhat related to this, Raj, you talked about some of your EBITDA goals, cash flow goals, and to be EBITDA positive by the end of next year, and that and cash flow positive in 2025. Certainly, China helps with that, but maybe you could frame up how you would achieve that in different scenarios and how China now would help you achieve those goals.
Yeah, I think the way you should think about that for us is that those are hard targets in a way, right? That you know, regardless of how the top line does next year, we plan to be EBITDA positive by the fourth quarter. And then as we move into 2025, we expect to be cash flow positive. And so you've already seen, as Juan José's been alluding to, some of the steps we've taken with the reduction in force that we undertook earlier this month, the reductions in operating expenses that we've undertaken, the management of inventory and other working capital items. And so we're taking steps to essentially rightsize the business for the opportunity that we're seeing, and we will continue to do that as we move into next year.
You know, the uncertainty around the end markets persists. We have these nice things you mentioned with China now coming online, with Flora in the United States. We have some nice offsets, but we just have to prepare the business for weathering, you know, whatever comes to our way next year.
What about other changes? Have there been any changes in the competitive landscape that you would view as meaningful? I'm sometimes asked about the health of Sientra and whether that could actually help you or in other international markets.
Well, I think we've seen a competitor dislocation, you know, in the last six to nine months. You know, there are two companies, smaller companies, one in the U.S. and one in Europe, that went into bankruptcy during this period. Yes, we have another of our competitors in the U.S., that we don't really compete with, you know, that is experiencing some of those difficulties. But I think it's across the board. If you look, you know, at all markets, you know, everyone's feeling the effect. I think the good thing for us and the one reason why, you know, I, I'm looking at 2024 with a lot of positive expectation is that, you know, we have all these growth drivers that are new to us.
Even if the market stays soft for a while, we have China with, you know, our highest ASP to distributors. We have the tissue expander, which we are currently selling in Europe. You know, in the U.S., is like 3x that price. You know, and we have Mia, which continues to grow in the number of clinics. So all of these things are growth that I don't think our competitors have, and that's, you know, a very good thing for this company.
So we've only touched on Mia a little bit. You know, maybe just for everyone's benefit, talk a little bit about some of the highlights in terms of the value proposition there. And it's early days in the commercial experience, and it seems like everything's going very positively, but still, you're kinda pumping the brakes a little bit to make sure that the results stay, you know, very strong. So I guess, number one, can you describe the value prop? And two, help us understand when Mia can really ramp commercially.
Yeah, I think the most important thing for investors to understand is that with Mia, we are creating a new category called breast harmonization. And this category is really to bring new consumers to breast aesthetics. In most markets, the number of women who have undergone a breast augmentation in the segment that we are looking for, you know, it's low single digits. How many women are using padded bras? Like, 70%. So, you know, what it tells you is that there's a huge opportunity that needs to be properly addressed. So, you know, with Mia, what we do is, you know, basically, we can create one to two cups up, you know, in less than 15 minutes with general anesthesia and a quick recovery because it's a true minimally invasive procedure.
So some of the highlights of everything that you've seen in the other surgical specialties with minimally invasive applies to here. And eventually, what does that tell you is that, you know, when people become aware of Mia, you know, they'll be most likely to say, "Well, that's a good option that I didn't have before." It comes at a different price point, so that's the other thing you want to prove, but you're creating a category. You want the market expansion. So what we are focused right now is on the outcomes of those, you know, consumers, on creating a network of clinics. Now, we are at 15 in, you know, Japan, Sweden, Switzerland, Germany, France, and Spain. But we will be adding more clinics, we will be adding more, more countries.
But in all of those, we wanna be able to prove that, you know, the outcomes are amazing, that the willingness to pay is higher, and that we can deliver this experience again and again. This is not a marketing funnel, it's a flywheel. You need to, you know, basically attract, then engage, and eventually give this amazing experience so that, you know, one woman that has Mia eventually brings five more to that same clinic. And we're working hard towards this. We're very happy with the, you know, the awareness we are creating. Just to give you some examples, if you look at known aesthetic brands like HydraFacial, like CoolSculpting, we're actually ahead of them in Google searches in some European countries.
So that tells you that something good and positive is going on with Mia, and, you know, as we do this, we will keep expanding the network, and you'll see more and more traction coming to these clinics.
Great. And then just on the U.S. for Mia, are you still thinking that could be a PMA supplement post Motiva approval?
Well, we're very you know, focused on the current process, so we need to finish that first. So let's just, you know, make that super clear. But yes, our, our regulatory experts believe that, you know, this will be a supplement on the implant side.
Great. I think we're about out of time. We should probably end there. And, thank you so much for your time, and thanks for your interest in Establishment.
Thank you.
Yep, thank you.