Okay. Good morning, everybody. Thank you for joining us today for a second day of the Stifel Healthcare Conference. My name is Rick Wise. I'm a medtech analyst at Stifel. I'd like to welcome my friends from Treace Medical Concepts. To my left, John Treace, the Chief Executive Officer, and to the far left, I'm not saying anything, Mark, but Mark Hair, Chief Financial Officer. Treace has been a compelling story from day one for me. For those who are not familiar, Treace is focused on developing a steadily widening, ever-widening, maybe, portfolio of uniquely innovative products directed toward improving forefoot deformity correction outcomes, mainly focused on bunions initially. Your field of view is widening, which is an exciting journey to be with. Thank you both for being here.
It's great to have you here and to hear even more about the outlook for some of these exciting innovative products. Perhaps a good place to start, just to set us up, a year ago when you were here, we were starting to hear a little bit about foot and ankle market weakness. And some of the challenges that Treace has faced over the last year have been company-specific. We'll get into some of those. But in general, my sense coming out of the third quarter, listening to your call, John, is that it feels like the underlying foot and ankle market, in a macro sense and a larger sense, is heading in a more positive direction. Can you just set us up, talk about the pressures you and the market have faced over the last year? Where are we now? Why are things getting better?
Just at a high level. We'll get into a lot of detail, obviously.
Okay, Rick, I look forward to it, and thanks for having us here again at this great conference, our fourth year. I think taking a step back, you look at our patient demographic. Bunions are a very large problem in this country. 65 million Americans are affected by a bunion to some degree, and it causes nearly five million Americans to seek medical attention for their painful bunion each year, and then we assess about a quarter of those are what we call symptomatic surgical candidates, so a little over one million patients that have really no other option than to have surgical intervention if they want to get back to their regular lifestyle, activities, and shoe wear. That said, there's about 450,000 cases being performed a year.
So we see a significant gap between what treatments we're able to provide today and what treatments we're going to be able to provide in the future. That demographic tends to be active patients, high rate of commercial insurance. And they can shift in their timing of when they want to have their surgery. And the bunion is a very elective procedure. They can put off having their bunion surgery. But at some point, it becomes like an arthritic hip or an arthritic knee where you've got to get it fixed or you're going to change your lifestyle in a negative way. So depending on things that are going on during a certain year, last year, we saw a high prioritization of patients wanting to travel unlike ever before. And that dampened the summer months for us. Then in Q4, we saw the patients come roaring back in Q4.
It really happened in the back half of September through December. And then it led into January and February. So there was this kind of overflow of demand from those patients that waited so long because they wanted to have a priority in the summer. In the beginning of this year, and other companies have cited this now, we saw a softening that occurred in March into early May. And that caused us the need to do a re-cast on our guide. We think two things were at play. As other companies have cited, there probably was some macroeconomic or concerns over inflation, patients watching their pocketbooks, and not wanting to spend the money on bunion surgery earlier in the year.
On top of that, we did see new companies introducing Lapiplasty knockoffs into the marketplace and an increasingly strong trend of more surgeons wanting to dabble with minimally invasive osteotomies. So those two things were kind of playing in a compounding way on us. Now, as we exited the third quarter and we're into the fourth quarter here, bunion season has come back. It came a little later. It had a little delayed fuse and started in the back half of October this year. But as we sit here today, we are in full-blown bunion season in Q4, where all these patients compress up because their deductibles have been met and they want to get their surgery done in the fourth quarter. So their feet are looking good and feeling good in the spring. So we feel great about the momentum we're seeing.
We think the competitive noise was predominantly a summer effect. And now, as surgeons get into the busiest time, they're going to the things that are tried and true. And they want to work with reps that know the procedures really, really well. And that plays to our strength. So we're happy with where we are.
It's hard for me to resist this sort of jumping around my Q&A order, but so is this a better than usual, more robust than usual, or as expected bunion season? I know you always have a bigger smile on your face in the fourth quarter. Just at a high level, how are you feeling about the setup for this?
Yeah, I think that competitive trialing and noise has abated quite a bit at this point from our assessment. The patients have come back in a strong way. They've compressed up towards the end of the year like they typically do. We're continuing to see more adoption of our higher-end technologies like SpeedPlate used not only in the bunion and Adductoplasty, but in other areas of the foot as well. That's adding to our procedure average revenue per case. As we have recently introduced a couple of limited market releases of some new technologies and exposed lots of doctors out there, a couple hundred to some of these new technologies, we're seeing a real excitement in what Treace Medical is bringing to bunion surgery from this customer base in the middle of Q4. There's a lot of energy in the sales force. Doctors are excited.
The patients are back.
That's great to hear. No, and obviously, particularly important on the competitive side. Do you think they're gone and now forgotten? These inferior products sold less optimally by a less focused sales force? Or do you think it's just, is that going to continue to be an issue from time to time?
Yeah, I'm not going to discount competitors in the marketplace. There's a growing number of them. But we continue to find ways to work through that as a business and bring to our customers those new innovations that a lot of these multi-line companies that are spread very thin just can't rapidly innovate and iterate their designs and keep bringing that new advance to the doctors and then working them through very detailed, focused training events where they really learn well how to apply these products. And that's reinforced by reps that only focus on these bunion procedures and midfoot procedures. So there's that expertise in the OR as well.
Good. And just to get some of the macro stuff out of the way, and it can be yes or no or a sentence, did the hurricanes affect you? Or it's all past and you're right on track?
You know, we have a significant amount of business in the Southeast.
Exactly.
We're not immune from the impact of cases being canceled or delayed due to hurricanes that come through those pathways. We did feel some of that, as well as the IV bag shortage. We had some cases up in the Northeast, I know, that were canceled or delayed. We believe most of those are going to come back in the fourth quarter. Some of them could slip over to Q1. We just don't know yet. Sometimes there's only so much OR time that patients could fit into. We'll just have to see how that plays out. We feel good about it.
That's certainly not lost, as you say.
More delayed timing.
Timing. Right. Just stepping back, John, as I hinted, the Treace story in part now is this company that's moving from being just, with big air quotes, a Lapiplasty bunion repair company to a broader foot and ankle company. You've evolved significantly over the last year or so to even a bunion correction company. And I know it didn't happen overnight, this decision. I think the messaging may be surprising to some people. But talk about this strategic decision. What drove it? Why is it important to understand? And the implications longer term from this wider field of view, if you will.
Sure. And I think maybe what you're getting at is entering the metatarsal osteotomy space. And if you go back to the beginning of the company, we were looking at the ability to apply rotational correction of the bunion deformity, not only in our Lapiplasty Lapidus type procedure, but also in osteotomies. And we played with ways to fix both Lapidus procedures and osteotomy. How do you instrument them and fix the third rotational plane to make a more efficacious procedure on both sides? Given we had limited funds, we were funded by friends and family to start the business and limited bandwidth. We really dialed into the Lapidus or Lapiplasty concept and said, let's focus our resources on that. And so we did that. And we drove it deep into the marketplace up until the IPO, where we had much greater resourcing, much greater funds.
We said, we're going to double down on our R&D. We're going to do more DTC. And we're going to build out our direct channel. And now you're beginning to see some of those investments we made in R&D shortly after the IPO come into the marketplace. So the osteotomy, we wanted to make sure when we came back to doing the osteotomy, we wanted to do it at the right time. And we wanted to do it on the right trend. So we're playing off that trend of minimally invasive osteotomy, but adding what Treace Medical can uniquely add to this, fixing the third plane, and providing really elegantly designed instrumentation that can democratize a procedure that's been in the hands of very few or has very high learning curves. And we can talk more about that later.
But if you go back, some of our earliest patent filings contemplated and covered rotational osteotomies. So this is nothing really that we hadn't explored or planned. And the time is now. And we're here. And we've got great products coming.
Talk about, if you will, define just for folks who may not be up on the language, define Nanoplasty versus Lapiplasty. Help us understand what that is and the opportunity, if you will, at a high level. We'll dig into some details too.
Sure. So if you look at the market today, and we'll start at a high level, the procedure base we've taken the Lapidus type of procedure and that's fixing the bunion further up in the foot at the tarsometatarsal joint. We fix it there with Lapiplasty. That's about 30% of the procedures today. When we started with Lapiplasty, it was about 10%, so we've expanded and grown that part of the market and it's built a $200 million business. It's worked very well for us. That said, there's a 70% of the marketplace that's a metatarsal osteotomy and this is a procedure where the doctor focuses on trying to cut below the bump and shift it in, so they're doing it further down in the foot on the long metatarsal bone itself.
Lapiplasty is a highly instrumented way that people can reproducibly do a three-plane Lapidus correction further back up in the foot. Nanoplasty is going to be for that 70% of the total procedure volume out there today, where we're going to cut the bone below the bump and manipulate it in three planes and fix it.
That's a great idea.
Through a small keyhole incision, a 1.5-centimeter incision, single incision hidden down on the side of the foot. With Nanoplasty, from a cosmesis and patient appeal standpoint, it's very powerful. You're getting a three-plane correction. Like other minimally invasive procedures, we believe you can have less pain, less swelling, and if you look several months at someone's foot, you're going to have a hard time telling they had surgery.
No. I mean, please go ahead.
Just on the shift to MIS osteotomy bunion correction, can you just expand a bit on your decision to start in the smaller MIS osteotomy category rather than the broader 70% of osteotomy procedures being done today? It kind of strikes me with Lapiplasty, you started off with a larger incision first and worked your way down. So why are you starting with the MIS space in osteotomy?
Can you repeat the question just so I can?
I think the question is, given the minimally invasive osteotomy space is small today, why are we starting there for our first entry into the market? We've done a lot of surveying with our customers. And we're very close to foot and ankle surgeons, as you might expect, being a company 100% focused on bunion and midfoot deformities. And we've identified that although it's a small share today, call it 10%-15% of all the osteotomies are minimally invasive, it's the fastest growing segment. And it's the most challenged segment for surgeons to adopt. So you have so many doctors that go and try to learn the conventional ways of doing minimally invasive osteotomies. And they give up. Or they do a couple cases. And they go really poorly. And they give up. They want to do it. Patients want this. They're learning about it online.
We believe we're a company that can take, like we did with Lapiplasty, take that 10% to 15% and expand it pretty rapidly over time through our innovative approach to democratizing these challenging procedures and the bunion-focused sales force, of course.
Talk to us about where you are in the Nanoplasty rollout, either in terms of accounts or percentage of rollout or how long it's going to take to be fully rolled out and sort of what's next after that?
Sure. Well, we announced the initiation of our limited market release several weeks ago. We're out there doing cases today with the couple hundred surgeons that we've already trained. A portion of them will be getting their hands on this between now and year-end as we get more instrumentation into the company, as our clinical specialists can get to more of these initial cases of these doctors. We have a fleet of clinical specialists we've used for Lapiplasty. They've learned and become experts in Nanoplasty. So like we did with Lapiplasty, for us, it's really important that after the surgeon gets trained, when that doctor gets in the OR with their first one or two patients, we hold their hands really, really well, make sure that they follow the steps, the OR staff understands what we're trying to do, and that these surgeons get great outcomes so that it sticks.
So that's kind of the plan that we have. We'll incrementally add more doctors as we exit the fourth quarter. And we'll build towards full commercial availability and sort of a more gloves-off approach as we enter the back half of next year.
And, Rick, if I might add to that, John mentioned some of the instrumentation. Again, this Nanoplasty will have that same capital light model where the profit that we get from one case is enough to purchase all that instrumentation that's used in the case. So again, it's very capital light. It allows us to grow very rapidly as well. So no change to the way we're approaching that instrumentation. You may be surprised to hear, maybe you won't be, that we actually tracked down an early adopter, early user. And we had a very encouraging conversation. You'll even be happier to hear that the doctor we spoke with, he said he's planning to fully convert his MIS osteotomy cases to Treace products from another competitor. And I wanted to talk to somebody because I was concerned about Lapiplasty cannibalization in some way, shape, or form.
I'm just trying to understand what's happening. Now, this is an N of 1. But gosh, it was an encouraging conversation. He was excited about the product. Everything that you're saying, John, help us think about this conversation and what it might mean if we multiply it times hundreds for the business. And should we be worried about cannibalization? Or is that just a non-issue?
Yeah. I think maybe it's a great question. And a lot of investors are asking this question. It's a concern. I think it's a misperception or conception. And maybe we haven't done a great enough job communicating that. But.
I blame Mark, by the way.
I blame Mark.
OK.
First of all, if you look at the way that these minimally invasive osteotomies are reimbursed, it's a more complex form of an osteotomy. And it actually reimburses more like a current Lapiplasty does prior to the 2025 adjustment. So it's a really nicely reimbursed procedure. And the cases that we've done so far are more closely aligned with those price points we're getting from a Lapiplasty case than they would be an old traditional osteotomy case. So now, if you take our over 3,000 customers, Rick, we've got about 25% of their overall bunion procedures. The remaining 75%, the majority of that 75% are some form of metatarsal osteotomy. These are great customers. They love their Treace reps. They want more technology from Treace. They know that when we come out with something, it's a home run.
We have the immediate opportunity to take a nice price point problem-solving minimally invasive osteotomy solution to set up to 75% of those cases. This is an immediate injection for this company into a significant portion of the market that we're not getting today. We think that can speed market penetration in the overall bunion market, increase surgeon utilization, and just build a more diversified and powerful business surrounding our customers.
Yeah. This particular surgeon seemed to think that Nanoplasty pricing would be pretty close to Lapiplasty. Is that the right way to think about it? Is that if you're comfortable answering?
Yeah. Not far off of it. And don't forget, they don't just typically, when they do a Lapiplasty, they do other complementary procedures, little tune-ups that utilize our products. This is occurring the same way with Nanoplasty cases. So our blended price per case, this isn't a big disparity. And it's such a high opportunity area for us to capture market share and bring better solutions to the docs and their patients that we think it's the right thing to do for the business.
Maybe I'm not understanding. You'll clarify. You've announced your intention to simultaneously launch an unbranded minimally invasive osteotomy product almost simultaneously. You don't need to go to depth. But why simultaneously? And is one going to be a bigger opportunity than the other? Or are they both interconnected in some way?
Yeah. Great question, and if you go back to one of the challenges of the currently available techniques and methods for doing minimally invasive bunion surgery, one of the biggest learning curves about it is doctors have traditionally used power sagittal cutting saws to make their bone cuts. With the minimally invasive techniques today, they have to learn how to use a powered rotary cutting burr instrument blindly under live fluoroscopy. That is the big part of this learning curve that people that teach it say it can be 40%-50% cases. Nanoplasty, it's the familiar saw technique, so it makes it a lot more straightforward and welcoming to doctors to begin with. Now, there's another segment of the market that's already become competent and confident using the powered rotary cutting burr, and they use sort of advanced, what they call, beveled screws for their fixation of the osteotomies.
So we want to be able to appeal to that market too and have that comprehensive bunion product portfolio. So as we go into an account, we've got all the bases covered for all the different flavors that doctors want to use at that particular facility. And this two-screw minimally invasive osteotomy technique, we're going to pair that with, again, what we're great at, enabling advanced instrumentation that makes the procedure really elegant and reproducible and add the third plane of correction to it. So let the doctors have a controlled, instrumented experience when they're doing these minimally invasive two-screw osteotomy techniques. The other part that's appealing about this is once we have the screws in our inventory, these doctors do a multitude of other procedures in the foot using their powered cutting burr and applying these screws.
So we get an additional pull-through revenue stream from the utilization of these screws and these other procedures once they're using them.
I'm a lot clearer now. Thank you. As you said to me when we started, I have two hours of questions. And we've got 30 minutes. So I'm going to just say a couple of other topics I want to hit at a high level. There's a lot more going on in the pipeline. And we talked about SpeedPlate. What else would you have us focus on and key products that we should be very focused on, especially as we look ahead to 2025?
Yeah. Great question. We've mentioned that after three years post the IPO, we've been really working hard developing a strong, robust pipeline to drive our top-line growth in 2025 and well beyond that. We've talked about four really great technology platforms we're bringing out shortly. We talked about Nanoplasty. We talked about yet-to-be-named minimally invasive osteotomy screw platform. We haven't really talked about RedPoint. And we continue to expand surgeon access with our RedPoint PSI. These are personalized cutting guides based on a CT scan for that patient that we can hand the doctor. They can put on the patient, make their correction. It speeds up the procedure. It's potentially more accurate. And it's patient-specific. So it's very attractive from a patient standpoint. We're going to be starting our first PSI RedPoint Adductoplasty cases before the Thanksgiving holiday. So that's a new development.
We think that could have a really, really big impact on the future market penetration of our Adductoplasty opportunity. We talk about Adductoplasty. This is a concomitant deformity that coincides with the bunion that affects up to 30% of bunion patients. It's very challenging. We brought forth the Adductoplasty system a couple of years ago. That continues to gain more and more adoption and attachment rate to our Lapiplasty procedures. We think bringing PSI RedPoint to that application can be a real breakthrough that can continue to drive that long term. We have new forms of our SpeedPlate technology coming to market as well that are going to help advance small incision procedures, whether it's the Adductoplasty or Micro-Lapiplasty. We'll be building all these out and getting into full commercial supply as we enter the back half of next year.
And then we have a few more tricks up our sleeve, we have yet to talk about. Some are going to be TAM expanding. Some are going to be complementary procedures and products to what we're doing today. And those will be entering the marketplace in the first half of 2025 as well.
Exciting. It took time to maybe get the whole pipeline going, but it sounds like it's really accelerating.
This is a big moment for this company. I can't be more excited about where we are. We had an all Sales force call last night on the status of all these products and projects. The excitement level we're getting is beyond a 10, so.
I've been interested in your comments, but this is all, I have to tell you honestly, been a setup for Mark, so I can ask him about 2025. It's like you hear the boss telling me about the pipeline. The street looks we in the street are roughly modeling high single-digit 2025 growth, 8.5% sales at $225 million. In the first quarter, $52 million, up 2%. I mean, my goodness. It just seems like, and I say this in the most respectful, wonderful sense, a conservative setup for the year ahead. Help me. Am I characterizing it correctly, Mark?
Rick, it's good to be here. Thanks for that question. I hope everyone gets such a great setup for questions. So you know what? I'm right there with John. This is a very important time for the company. We've got some fantastic technology coming out. We guided this quarter that we're in the middle of right now, fourth quarter, is going to be the biggest quarter in the history of the company. We're excited about that. It takes a lot of heavy lifting through our great sales force. And really, we're not benefiting much from these new products. So we're talking about them. But there's really very little impact in Q4. So we're going to begin to start feeling that impact in Q1. And then, as John said, we'll have really that full commercial quantities of inventory available.
So I think Q2 is when we really start to see the benefit of this. And I think when we get to Q2, we can talk about how we're seeing doctors and surgeons adopt these new technologies. So until then, we're saying, let's give it a little bit of time. We think we've got the right setup. We've got the right products. We've done a lot of training as far as surgeons as well as our sales force. And so we're excited about what 2025 can bring. We've got a little bit of a difficult comp on Q1. But candidly, post Q1, we believe that there's a great opportunity to hit double-digit growth after that.
Yeah. Is it too much to dream, aspire, hope for double-digit growth next year or returns for the year as a whole?
Do you know? It's always our objective, for sure. I think there may be an opportunity for it. If these products do what we think that they can do, then I think that's definitely in the realm of possibility. And that's what I know a lot of people are shooting for at the company.
Yeah. That's great. No, I think it makes a ton of sense. I don't have a ton of time. I do want to touch on reimbursement again. Recently on CMS, hospital outpatient ASC final rules seem like they're going to be positive. Just how positive? And how do you want us to think about them and the impact on next year?
Yeah. Great question. So first of all, we were elated to see this change, the elevation of CPT 28297 from APC class 5114 to 5115. That's something we've been hoping for for many years. The outcome of it, we are the largest share player in the Lapidus market from our procedure standpoint. Maybe we're call it mid-20s. But from a revenue standpoint, maybe it's mid-40s. So of that 30% of the procedure base, we're a large player. So this will impact all Lapidus procedures, obviously, and in both settings of care, the ASC and the hospital outpatient. But as a rising tide lifts all boats, we're a very large boat in the ocean here. So I think the hesitancy to become very, very bullish on it is just we want to see how it plays out. We certainly have the majority of our business in the hospital outpatient setting.
And there's a 90% increase there occurring. The ASC, it's doubling to nearly $10,000. We think that's great. And we think it could have the impact of patients being able to receive Lapidus or Lapiplasty-type treatments in a much more patient-friendly setting. ASCs are just more warm and inviting for patients to go to. And if the doctors are now enabled to use higher-end technologies or there's margin to do that, that bodes well for that dynamic. But I think we just want to see how it's going to play out in reality before we start giving too much of a quantitative impact on how it's affecting the business. And maybe after Q1, we'll have a little bit of a feel for that and be able to comment on it better.
That's great. Unfortunately, we have to stop, but gosh, it sounds like things are going well, heading in the right direction. I'm very much excited to look forward to what's happening for next year. Thank you both for being here and being so gracious about responding to my annoying questions.
That's right.
Thank you.
Appreciate it. Thank you.
Thank you.