All right. Good morning, everyone. Thank you for joining us on the second day of our UBS MedTech Genomics Summit. I'm Danielle Antalffy. I'm the medtech analyst in the U.S. here, very lucky to have with us, Treace Medical. We have the founder and CEO, John T. Treace. We have CSO, Mark L. Hair. Thank you, gentlemen, so much for joining us. Maybe just to start, from a top line growth perspective, Treace has sustained very strong double-digit growth for the last few years, even through COVID. With a guide for 2023 of close to $200 million now, what do you guys see as the sustainable sales growth rate outlook for Treace from here?
Great, great opening question. Danielle, thanks for having us here. We're really excited to be here in this gorgeous location to talk about the company with you. Yeah, the, it's been an exciting ride. We've had a lot of success. We, we created a disruptive technology that's targeting a very large $5 billion U.S. market opportunity. We're displacing conventional treatments in bunion surgery with our Lapiplasty three patented correction. Yeah, three years of 50% growth, except for COVID, that was 46%, but we would be doing three years as of last year. Market's very large. We're only about 3% penetrated into the opportunity. Midline guide is 37% growth this year. We continue to execute our commercial strategies.
Foot and ankle growth rate is pegged, you know, around 7%-8%. We feel very good about our market opportunity ahead and our ability to execute and deliver multiples on top of that, foot and ankle market growth rate.
Okay, great. Maybe let's talk about the, the TAM for Lapiplasty®. Maybe talk about, in case people are listening and they don't know what Lapiplasty® is, maybe let's also talk about what you guys do, and how fast the TAM is growing specifically for the bunion component of foot and ankle, and what the competitive landscape is and standard of care today that you're trying to displace.
Sure. So maybe starting with the bunion problem, large, large problem, 65 million Americans are affected with a bunion to some degree. They tend to be run in families or hereditary. They're progressive in nature. They only get worse over time, and that results in about 4.5 million Americans seeking medical treatment each year, or seeing a doctor because their foot's in pain from their bunion. We think about a quarter of those will not resolve with conservative care, and those are what we call a symptom or the symptomatic surgical candidate population, and we deem that to be about 1.1 million patients.
That said, only about 450,000 procedures are occurring each year, and we believe that's largely to the deficiencies of current treatments, which is what we've approved, improved upon with our Lapiplasty 3D Bunion Correction, and we're very successfully, you know, displacing conventional treatments today with that technology.
Okay. So you already started to address this, but the barriers to adoption today, I guess, first for the standard of care, which it sounds like it's just poor, but maybe talk a little bit about, about why that is so and how 3D Lapiplasty changes that.
Sure. Great question. The vast majority of bunion corrections today are what are called metatarsal osteotomies. It makes up about 75% of those 450,000 procedures. What the surgeon does in a metatarsal osteotomy is identifies the bump, cuts the bone below the bump, shifts the bump in, but doesn't end up addressing the root cause of the bunion, and there are multiple planes involved in the bunion that historically have not been addressed. The result of that is recurrence rates or return of the bunion rates in the clinical literature, 35%, 65%, as high as 78%.
Wide variability, high recurrence rates, and part of our huge opportunity with Lapiplasty, we've been able to deliver a full comprehensive fix of the bunion, fixing all the planes and fixing the instability, and delivering through our clinical data, very low single-digit recurrence rates. We're letting patients get back to walking in a postoperative boot within days of their surgery, versus weeks and weeks in a cast. That's what's been driving the success of the company. We married that with our commercial strategies, and we've been very successful at penetrating the market. Again, we're only at 6% of the procedure base, and we have a long way to go.
Yep.
A lot of success ahead of us.
What's preventing you from, you know, going from 6%- 12% overnight? Because it feels like you could do that if you wanted to. Maybe talk about the commercial strategy here a little bit.
Sure. Yeah, that's a great question. you know, one of the things that we're, we're focused on is overcoming a lot of historic dogma in the, in the training centers for foot and ankle. It's long been established and taught that the majority of your bunion procedures ought to be metatarsal osteotomies. There was another predating procedure to Lapiplasty called Lapidus fusion.
Mm-hmm.
It treated the deformity at the anatomic location that we treat the deformity with Lapiplasty. It was technically very challenging. You typically only got two of the three planes of the deformity corrected, and then the patient had to be in a cast for 6-8 weeks. An osteotomy they can do rather quickly. It's rather straightforward. The patient can be bearing weight on their foot, you know, within one or two after that surgery. We've kind of given this long enduring correction of the Lapidus type procedure, but made it better, and we've democratized it with our instrumentation and techniques so the vast majority of surgeons can now do this procedure repeatably, reproducibly, and consistently that are also reflected in our clinical studies.
Yeah. Actually, on the clinical data point, you do have the ALIGN3D trial. I'm curious how much that is resonating. Are you feeling it, it start to resonate a bit more as you're adding more surgeons into the mix?
We, we definitely, we definitely are. We just recently submitted to the American Orthopaedic Foot & Ankle Society meeting in September, our two-year primary endpoint data on our ALIGN3D study. This is a five-year study that we've been running. We'll have results on 157 patients at two years and a lot of patients at three years. This is a 13 surgeon, seven center, prospective study that not only measures, you know, time to weight bearing, time to return to work and full activities, but also and, and radiographic recurrence rates, which are low single digits. We're also taking patient-reported outcome scores to see how these patients are doing socially, activity-wise, and, and mentally. It's pretty impactful data that we'll be demonstrating.
Do you think that's been a critical piece of, of the story, the ALIGN3D trial? I ask that question because, you know, there is, and we'll get to this in a little bit, but, you know, there are some other players trying to get involved here, acquired some assets, but don't really have that level of clinical evidence, and quite frankly, probably never will because you have a head start on them. Just curious about how you think about that?
We, we definitely think it differentiates us. You know, we believe that it does matter to the surgeons. It really does matter to the patients.
Sure.
It matters to the facilities and the payers, as we're trying to, you know, get our product approved at facilities to have that data, and be the only one with that type of data. On top of that, we have 21 peer-reviewed publications, so no other company has any kind of clinical evidence like this behind a commercially marketed bunion product.
Yeah.
Back to your question earlier about the, you know, we have about 26% of the surgeon base, 10,000 surgeons that do bunion surgery in the U.S. but 6% of the procedures.
Right.
Right? Why is that? Yes, we're trying to overturn that dogma and accelerate that, but a lot of it is temporal, because each year that a surgeon uses Lapiplasty, they use it more and more and more each year.
Right.
In the first year, they'll do about 6.5 cases. By year three, they're doing 13.5, and by year five, they're approaching 20 or so, which is about half of their clinical practice for a procedure that historically was relegated to 15%-20%.
Okay.
We're seeing a really big shift there. 42% of our, our 2,600 surgeons came on in the last, within the last 24 months. They're in that low utilization curve. The more they use it, they see the good results in their practice. They have more patients coming in asking for it from our DTC initiatives. They see more of our clinical data. It reinforces the success they're seeing, so they climb and climb and climb. If you take that and project it way out, you know, if we can get to 40% of the surgeons in this country using this product, that translates to a, a business of about $600 million in revenue.
Yeah.
We're at 26 today. We were at, you know, one out of five in 2018. We've made a lot of progress. It, it, it's not that we'll stop there at that point, the 40%, but it's a good mid-point to shoot for.
Do you see, the surgeons that have been doing the procedure for a long time, since 2018, or so, that they have converted their entire bunion treatment to 3D Lapiplasty, or is there still a role for, you know, the osteo-?
Yeah.
I'm not going to pretend I know how to say it.
Good. That was good enough. Yeah, you know, we have a mix in that distribution curve of surgeons that still use it for just their bigger deformities, and then we have surgeons that have adopted it very broadly and use it for the vast majority or all-
Right
Of their bunion procedures. When they get really great at it, and they see the great results, you know, a lot of them want to keep doing it, and they want to adopt our mini-incision technique, make incisions smaller.
Yeah.
We have Micro-Lapiplasty coming out next, even smaller incisions, less invasive. We're giving them more and more and more reasons to want to increase their ratio of Lapiplasty versus osteotomy in their practice.
Right. Given the recurrence rates of osteotomy, it makes a lot of sense, I think, logically, to even if it's a mild case, to do a 3D Lapiplasty versus an osteotomy, right?
Yeah. It's, it's, you know, historically, there have been 100 different ways described to surgically treat a bunion. You know, and, and you talk about high variability, low quality, that's, that's an institutionalized knowledge in manufacturing and, and frankly, in surgery, too. Big medical trends like this take 10 years. That's not unnatural. You know, when you think about it, it was really mid-2018 before Lapiplasty was refined to a point where it could be taught and expected to be reproduced repeatedly by a broader surgeon group.
Yep.
We had the right tools in place. We had the right teaching. We're really in our fifth year, and we're really pleased with the way this is going so far to have over a quarter of the bunion docs doing it by now.
Yeah. Yeah, it's a great point. Actually, I wanted to follow up on something you said on the procedure time or procedure reproducibility. What about procedure time? Is there a difference there and given the reproducibility, more consistency, better scheduling, important for especially ASCs?
Yeah, great, great question. You know, a lot of our doctors are doing Lapiplasty now in the same time it takes them to do an osteotomy.
Yeah.
We've really kind of neutralized that. Going beyond that, we'll be introducing at the end of this year, our SpeedPlate technology. We have instrumentation and steps that have made the procedure faster, faster, faster, easier, easier, easier. Now we're looking at our implant fixation, which is currently two plates that they have to drill eight holes and then put in eight screws to fixate and put in the patient. SpeedPlate will have no screws. It's a single unibody construct. They just drill some holes, pop the implant in, it compresses the joint together, and this saves significant time in the case. We're looking for ways to just consistently make it faster, easier, more reproducible, more minimally invasive, so patients recover quicker and can get back to their activities.
Great. Okay. Then you mentioned the 26% penetrated into the surgeon base, 6% penetrated of the procedures. At what penetration rate does 3D Lapiplasty become saturated and grows more in line with the market? Is this something like this could get to 75% penetration? How should we think about long-term, that 6% number? And when we can get to the majority?
Yeah, great, great, great question. You know, I think we're, you know, we mentioned earlier, hey, 40% of the doctors, you know, this could be a $600 million business. That'd be roughly 20% procedure penetration. We're not going to stop there. You know, as we continue to penetrate more doctors, they ramp their utilization over time, as they have pretty predictably, and we continue to launch next-generation fixation technologies that have a higher selling price, and then also launch additional complementary products that fit other procedures that are done within the bunion procedure. Those have been a very important contributor to our blended average selling price...
Mm-hmm.
or the sales reps, you know, share of wallet.
Yeah.
As they go into these cases, they're now able to service them with more and more products, that's what's been growing our blended average selling price really nicely. I believe it's up about 11% year-to-date over last year. That's not all coming from just selling more expensive plating kits. That's just a couple percent. The rest of that is coming from additional products that doctors are using.
Got it.
Like a Adductoplasty, that's for the midfoot correction.
Yeah.
Every time they do that, it adds $4,000 per case. We have these single-use, sterile instruments that are real problem-solving tools that add several hundred. We have a whole pipeline of these types of products coming out over the next 24 months.
Just following up on that, I, I think you answered my question, but I was going to ask you, that is something that we see in the positive pricing dynamics per case, I think is the right way to think about it, right? I was going to ask, how sustainable are these pricing dynamics? You know, you mentioned these products coming over the next 24 months. Should we think of the pricing dynamic as continuing at, you know, this double-digit increase rate?
Yeah, it'll, we, we, we have a nice commercial strategy, and then our R&D pipeline is really strong, and we believe it's going to support, you know, upward and to the right, you know, over the next foreseeable future. We, we don't see that, that dipping. We don't see a necessarily a ceiling from a reimbursement standpoint, because most of these new additions that are driving the blended ASP higher service other procedures that have separate reimbursement.
We have a, you know, it's not well known, but by the focus on the bunion with our direct sales force and our company's focus there, over time, we can get to 60% or 70% of the entire foot and ankle opportunity because there are so many concomitant pathologies interrelated to the bunion, either that the bunion drives or are driven or create the bunion problem.
Yeah.
They're all interrelated. We can continue to broaden out and diversify while still staying focused on penetrating those bunion procedures over time.
Yeah. important to note, you say up into the right for price per case, but, you know, noting every quarter can be a little-
Little. You can have wobble, you know-
Yeah
... in, in quarter to quarter. I think we were, you know, up, up 13.5% in Q1, and then only up 8% over prior year in Q2.
Yeah.
We had a little mix shift there, but, you know...
Still up.
you know, and up into the right is the way we see it going.
Yeah.
Yeah.
Totally. Okay. You know, just have to ask this question: I mean, what do you see as the biggest risks to the story and the growth outlook in the near term, and, and I guess long term, whether it be competitive dynamics, is there a reimbursement risk here, price risk? You know, maybe talk about what does keep you up at night?
Yeah, it's a, it's a, it's a tough question because we're, we're growing so rapidly. We're having a lot of success. I, I think it's, you know, fortifying the business with the right infrastructure and the right support systems along the way.
Mm-hmm.
As we, you know, we more than doubled our, our direct sales force last year. We're up another 20% this year. We hit our year-end goal of 200 reps by the end of Q2. Most of them came right at the end of Q2, so end of the year, we can start seeing some productivity there. You know, I think it's just a matter of can we continue to fuel and drive and grow that direct sales force and, and drive that productivity that we've been seeing over the long term? You know, can we continue to change the mindset of doctors over the time- over time and shift them towards the Lapiplasty philosophy?
Some, you know, of these disruptive medtech technologies, it takes some time to get there, but get into, like, fellowships and things like that, and then you have doctors starting to train on that specific procedure.
Right.
Is that something that could drive, you know, this shift, mindset shift faster?
I think so. You know, now being commercial for over 8 years, we're established in a lot of the teaching centers-
Yeah
We're having residents graduate and, and go into practice after their third year of podiatry residence, and they've been in 100 cases.
Yeah.
I mean, they're already highly elevated on our, our surgeon locator on our website. Something we haven't talked about, which is a really unique and powerful part of our strategy, is our, our patient awareness or DTC, that informs patients about the difference of Lapiplasty relative to the prior procedures they may have heard of.
Yeah
allows them to get educated on our website, learn more, and then connect with doctors in their markets.
Yeah. Look, TMI for the folks listening and in the audience, I have a bunion. Did not even know what it was until I met these guys. It's a fair point on the DTC side of things. All right, let's talk about something you mentioned earlier. You added the majority of your surgeons over the last two years. I think, you know, it does take time for these surgeons to get up to sort of normalized productivity. Should we expect an inflection in utilization rates in the coming months, quarters, as those surgeons do get up to more normalized productivity?
Maybe I'll jump into that. We do track the utilization from all of our different surgeon groups and, based on their tenure, we've consistently seen them do more cases year after year. As John mentioned, 42%... of all of our new surgeons have come in the last 24 months. In one sense, they bring down the average, but we know as they move up with their more experience and tenure, that yes, the rest of the group is doing at a higher utilization rate than what our overall average is. Yeah, we think there's a lot of good coming because we know how everyone else is doing, and we've seen this pattern year after year after year.
The, the number of surgeons that have made it to five years, we know how they, they really behave. Yeah, there's a lot of good to come.
Do you have surgeons that you would characterize at peak productivity? I'm not going to ask you to define peak productivity, but, you know, that you think are using it as much as they could, should, and how long has it taken them to get there?
Yeah. So I, I think that's a great question. As you know, not, not every practice, not every surgeon is exactly the same. We, we've talked to a lot of our surgeons, and some of them have really taken Lapiplasty and wanted to even brand their entire practice around Lapiplasty and be an outpost for bunion procedures in their, in their region. Some of them have, you know, will do well over 100 or even 200 cases in a year. Some other surgeons are just, you know, they just have a smaller bunion-related practice, and so they can still do a, a majority of their cases with Lapiplasty, but that's just not the focus of their practice.
We've seen, we've seen smaller practices really lean into Lapiplasty, and we've seen other practices who have made Lapiplasty their focus of their entire practice. We've seen both.
Yeah. You guys also call on the, the podiatrist. Do you also call on the orthopedic surgeon? You call on both. Just curious how this procedure stacks up in those two practices relative to other, you know, procedures, things these docs are, are doing from a, you know, profit perspective, time perspective, things like that.
Yeah, it, it stacks up very favorably.
Yeah.
It's a relatively short procedure. The reimbursement's relatively good, and centers do well on the economics. Because the population is so large, there's a ton of referrals that come from treating somebody's bunion that helps build that surgeon's clinic. A lot of their clinic practices are more profitable, and they make more money in the clinic than they do in the operating room. But the operating room gives them additional income, but it also allows, you know, a tremendous referral stream of patients. You know, when you're talking about something as prevalent as a bunion, everybody knows somebody with a bunion, and they're going to talk about the foot doctor that helped them with their bunion, and then that patient's going to be more inclined to go to that doctor.
Yeah. Yeah. Okay. All right. Not to nitpick here, but you did have your, your lowest quarter of new surgeon adds, 82, so still a big number, in Q2, I think since Q1 of 2021. Can you talk about, you know, what went on there, and should we be concerned at all?
Yeah. So, so year to date, we've, we've added close to 200 surgeons, and we, we commented a little bit on our earnings call last week, too, that we've, we've definitely noticed in, in our base and area that we've definitely had some surgeon travel as well as some patient travel, that has been a little bit higher. We're really focused on two areas in our medical education, and medical education is just one of those things that it's a priority for the company. One, we, we educate surgeons, we introduce them to Lapiplasty. Secondly, what we're doing is we're educating our entire customer surgeon base, 2,600 surgeons, on all of our new technologies so that they can benefit from Adductoplasty, so they can benefit and be ready when SpeedPlate comes out, these single-use instruments.
It's important for us to, to be focused on both, and so there is this split focus, and so we've, we've done a really good job on both. We're really pleased with that 200 or so that we've added in the front half of the year. As you may recall, a lot of our seasonality is in the back half of the year. Deductibles are met, the volumes go up substantially, and we tend to add a lot more surgeons in the back half of the year, specifically in, in Q4.
We feel really good about where we're at, especially since we're adding or, or we're training, rather, all of these surgeons. With our existing surgeon base, we're committed to them to ensure that they understand all these new technologies because they're better for their patients, it's better for the surgeons in the OR.
What we also find is it also increases their utilization, and it also increases our blended ASP.
Mm-hmm.
in those cases as well. It's, it's the right thing to do is to, to keep bringing them into the funnel, but to keep our large surgeon customer base always educated on all of our new technologies.
Yeah, great point. Actually, just following up on, on that, what are the points of friction to adding a new, a new surgeon that you guys have found now five or eight years into commercialization?
Oh, points of friction, you know, we're, we're, we're kind of at that early majority part of the adoption curve.
Yeah.
you know, we've recently surveyed our surgeons that come in for training and ask them, "Why are you here?" For the first time, we're seeing a respected peer of mine is using it and getting good results. Now it's reaching that kind of sixth degree of separation point.
Yeah.
The resistance, I think, is less. There's certainly a correlation between sales force additions and new surgeons coming in for new trainings. You know, we more than doubled the size of the sales force last year. That group delivered, you know, the 612 new surgeons we added last year, which is a really powerful add, and then the other, a good portion of the, you know, couple hundred we've added this year. That's a lot of throughput and output. We just reloaded with another 32 reps here at the end of Q2. We'll continue to hire reps, you know, selectively and opportunistically for the remainder of the year and then reload and figure out what we need to do for next year.
Okay. Just following up on the rep point there, how do we think about the steady state size of the sales force? Maybe talk about, I think you guys have one of the largest bunion-specific sales forces out there. Maybe talk about that, how we should think about how big this is going to be, and, you know, what does that mean for leverage in the P&L?
Well, you know, I, I can, I can speak to how- first of all, I think, I think we're the only, bunion-focused sales channel...
Yeah
in the U.S. med tech industry. It's a proud point of distinction, but, you know, now, now, just the bunion-focused people, they're becoming masters of, of midfoot surgery, and they're going to become experts in other areas that are interrelated to the bunion, which is really starting to define this great, unique presence in the OR, in our customer's mind, of these bunion expert salespeople. You marry that with all the advanced education and training that, that, you know, Mark talked about that we're doing, the support of the DTC that's informing more patients and inquiring into their practices, and then, obviously, the clinical evidence that I think as we continue going, we're going to build, build, build, and we'll continue to figure out what's the right ratio of surgeons to reps.
You know, how many doctors can the average sales rep fully support and defend and continue to grow and optimize that over time?
Is the rep in every procedure?
Not in every procedure, but they tend to be in, in a large number of procedures. We do some things to make it more efficient. We have, you know, we talk about our 200 at the end of Q2, you know, quota-carrying reps. Well, we have associate sales reps that help those reps service accounts, and they'll cover cases with more established customers so that the senior rep can go find new surgeons to bring into our trainings. We also have a sales management team and national accounts group. There's actually 290 people, employee people in the field working at the customer level to drive this business every day. It's a very large fleet, and it's going to continue to expand over time.
Okay.
You mentioned a little bit about the leverage, and I think, you know, there's a little bit of a similar story as we talked about the surgeons, how they start low, and then they ramp up. It's, it's really the same way with a lot of our sales reps. They may, as far as the leverage perspective, they may not be leveraged immediately, but we know that they get trained, they get very comfortable and confident in the OR. They build their relationships with additional surgeons, and they get more and more productive over time. This is a little bit of the same situation, that early on it, it costs a little bit more, but it absolutely leverages. Again, we have a lot of data that shows how these sales reps really leverage and become very productive.
That, that whole ramp process, they begin to become somewhat productive that 6-9 months, but it really takes about 24 months. We, we think that there's a lot of leverage coming because of this large build that we've done over the last, really, 24 months.
Okay, got it. Then site of care, I mean, broadly speaking, in orthopedic, ASCs have been a big growth driver. Curious what it's been for the 3D Lapiplasty story, how much ASCs has contributed to growth?
Great, great question. Just, just to clarify, you know, all of our procedures are done in day surgery settings, whether it's an outpatient wing of a hospital, a freestanding surgical center owned by a hospital, or a privately owned or a surgeon-owned ASC. Our procedures have been happening there on a fairly stable basis in terms of ratios for decades. There's not a huge movement or shift like there is in inpatient hips and knees-
Got it.
or, or invasive spine surgery into these ASCs. You know, we service all those areas with our products, very effectively, and we're constantly, you know, enhancing our portfolios and tweaking them to make sure that we're successful in those environments.
Let's talk about the product portfolio now, because you touched on, some of the ancillary, or I don't know if that's the right way to, to describe it, but incremental products, and the ability to treat other areas of the foot. You mentioned, I think, that ultimately you can get to 60% of all foot and ankle, or I forget-
Kind of an estimate. Yeah.
-ish?
You can, you can work your way around the foot pretty well related to the bunion. Yeah.
Is that where you are today, or where are you today, and, and how should we think about you getting towards that, ultimately covering most of the foot?
Yeah, we're a fragment or a very small percentage of that today.
Okay.
The majority has been on the bunion. We introduced Adductoplasty, which is a really meaningful breakthrough from Treace Medical Concepts, one that's extremely exciting to doctors because it addresses a concomitant deformity that resides with the bunion, where the midfoot bones are misaligned as well. It affects about 30% of bunion patients, so it's not a small opportunity. We've introduced a system that allows the surgeons, for the first time, to use instrumentation and alignment jigs and a step-by-step process, like we did with Lapiplasty, to treat this really challenging deformity of the midfoot. We've been training our surgeons on this.
They're telling us that they could foresee using it on about 15% of their bunion cases, so half of that 30% they see as severe enough deformities that they would actually surgically intervene and correct them.
The reason they want to do that is the, the clinical literature shows if they only correct the bunion, and they leave the midfoot problem maintained, you get a much higher recurrence rate of the bunion, because you can't move the big toe over far enough because the other toes are in the way. You have to move them over first to make space.
That's the big, the big benefit that Adductoplasty is bringing. You know, we go to our labs and talk to doctors that have done a handful of cases and are refining their techniques at these advanced courses, and maybe they're trying SpeedPlate for the first time at that lab, and they're just telling us how remarkable this is and what a huge difference it's making in the outcomes of these patients, and also their practice.
They're operating on, on people that they weren't able to operate on before. They'd refer them to a university. Now they have a very straightforward way to do it.
Yeah.
It's helping them, it's helping their practice, it's helping their patients, and it's obviously helping the company, because every time a Adductoplasty is done, it adds another $4,000 in blended ASP, and we're very low on the penetration curve of that, and we're working on and we'll be introducing next generation instrumentation and implants to make it even easier to do. This could expand over time really nicely as well.
Add $4,000 in ASP to the, the company. It's covered by its own DRG or code.
There's elevated, reimbursement-
Reimbursement
-in that type of procedure. Yeah, because they're doing it along with the Lapiplasty.
Right. Then what about procedure time and recovery time? Does it add anything meaningful there?
It does add more procedure time, and that's where this fourth quarter SpeedPlate introduction really makes a big impact. You know, it, it's a longer procedure. If a Lapiplasty is, you know, let's call it 1 hour, it could be 1 hour and 45 or, or two hours. Some surgeons are doing these in, in 90 minutes.
Mm-hmm.
In and out, they're quicker. If you can increase the speed of fixation, applying the fixation, that's, that's really meaningful there, and that's what SpeedPlate allows.
Okay, got it. Given the fact that you're launching all of these new, you know, a slew of new products, you mentioned SpeedPlate in Q4, coming over the next, 24 months, Are these the types of product launches that should accelerate revenue growth? How do we think about the contribution, how quickly they take to ramp, from a top-line growth perspective?
Yeah, they'll, they'll have a... You know, SpeedPlate's exciting, and it's going along with our Micro-Lapiplasty instrumentation as well. Now we have a technique to allow Lapiplasty to be done through a 2cm incision. Prior to that, it was roughly a four with our mini-incision technique, but Micro is a real breakthrough. It relies on SpeedPlate to be able to do it, because we can't put our standard plates through that 2cm incision. SpeedPlate enables Micro, which is going to be another driver. SpeedPlate not only will have an elevated ASP along with it, so every time it cannibalizes one of our plating kits, we're going to get a blended ASP lift. It's going to appeal to a whole new group of surgeons that have a different mindset towards fixation, and their mindset is more towards that SpeedPlate type implant.
We think this is going to help bring on new users as well and continue to just drive that new user adoption and blended ASP, you know, over time.
And just-
We've heard a lot of really good feedback from our surgeons. We, we have had some opportunities to have a, a limited release with, with several of our surgeons, and, and many of them have just said, "This is, this is the way I'm going to take my practice going forward." They, they love fixation. They love the compression that, that John's talked about. A lot of them have said this is a very meaningful advance for, for Lapiplasty wholly. We think it will not only be beneficial to our existing customer base, but it's really going to be able to attract new.
Attract surgeons, yeah.
Yeah, we were at a conference in Pittsburgh where a lot of those early users were sharing their, this was last weekend, their results. The comments that they were making and the results they were showing were, I, I, I can't really state them because it would be equivalent to claims.
Mm-hmm.
They're extremely pleased with the healing they're seeing, the reduced swelling they're seeing. These are their anecdotal comments, but comments like, "Biggest thing from Treace Medical since Lapiplasty.
Oh, wow! Okay.
That's, that's saying a lot.
That is.
Because Adductoplasty is pretty big itself.
Yeah.
I think there's a lot of, there's going to be a lot of demand for SpeedPlate. It's going to do a lot of great things for us.
2024 guidance then is going to be very good?
It's a little bit early for 2024, but we, we feel like, you know, every year we begin the year knowing that that fourth quarter is going to be our big quarter, and so we've been doing all those things tracking to that. We're, we're excited for the back half of this year, and then we'll, we'll get into next year.
Okay, got it. Just, last question on the product portfolio, your approach to R&D and how we should think about these types of incremental products. Do you have sort of a target for, you know, X number of products every year, two years?
We do, you know, and a big benefit of this ramped up R&D innovation spend and investment we started in early 2022. You know, we said we're going to double down and invest heavily in R&D innovation, sales channel, and patient awareness DTC. Those are our big thee drivers. We continue to drive those things. Now you're starting to see the fruits of those early investments starting to play out. You know, we, in the back half of last year, we had a Adductoplasty full launch. We had our S4A plating kits, and we had our SpeedRelease and TriTome instruments. Those ramped really nicely, you know, through the back half of the year, and they still continue to ramp. Then with SpeedPlate coming towards the end of the year, that's going to be another nice new advance.
We got a couple other things up our sleeve that we may be dropping in between now and then to help
Okay
back half of the year and then 2024 as well. You get to middle of next year, and we'll be introducing, you know, RedPoint-enabled, you know, cutting guides, you know, personally matched cutting guide technology for midfoot corrections, you know, and Adductoplasty-type procedures and, and, and Lapiplasty-type procedures.
The acquisition that we finalized in the 2Q of the RedPoint PSI technology, we think is really important. It's going to be a great additional momentum driver, you know, into 2024 and, and beyond. Gives us new capabilities. We have software engineers on site now. We're, we're working with our surgeon design teams to integrate them with our, our procedures and instruments, and we think it's going to be pretty incredible. We think it's going to make some very challenging cases approachable-
Yeah
-to surgeons for the first time. You know, we keep talking about our agenda on Lapiplasty, make it easier, more approachable, less invasive, less steps. We think it can save time. We think it can cut steps out, so we're really looking forward to that as well.
Actually, that's I'm glad you brought that up because, I think there's been a conversation building with ChatGPT and stuff, you know, sort of AI-enabled, more, more of that kind of technology informing medical device procedures. Safe to say, this RedPoint PSI is just the start of where this, this could go over time and how to think about, you know, more enable, enabling for these procedures?
Yeah, we think so. Then if you can get down to, you know, personalized solutions for, for the patients and, and that confidence that the doctor has, that they know that, that, you know, the cuts they make are going to be exactly what they want and the procedure is going to go very smoothly, you know, that's just going to drive further and further adoption. I think it's going to drive more patient interest, too, in getting their bunion treated or their midfoot deformity treated, et cetera, so.
Yeah. Okay. Well, we'd be remiss if we didn't address the competitive landscape. There has been some activity over the last few years on the competitive front. How has the landscape evolved? Some of these larger ortho-focused players have made acquisitions here. What are you seeing, broadly speaking, from a competitive perspective?
Yeah, great question. Obviously, we've, we've created a lot of excitement in, in the space, and as we built the company and developed the company, there are a lot of great minds at the board level that have been helping us strategically. You know, we built this company very intentionally, knowing that if we're successful, people are going to want to try to come in and capitalize on the market that, that we pioneered and we've developed.
We've had several competitive, quote, competitors out there in the marketplace for the last several years. One introduced in early 2020 from a major player. I don't think that product has changed in form or design to this day. At the same time, Treace Medical has changed its instrumentation and its implants 3x , and with SpeedPlate and Micro, it'll be 4x .
Mm-hmm.
I, I think it's really hard for these multi-line. These are excellent companies. We have tremendous respect for them, by the way. Just the reality of all the product lines they're carrying and the salespeople that have to go in with a very large bag of items and try to target this one procedure that we are absolute experts in, and we haven't seen a technology that can match Lapiplasty at the surgeon-patient interface yet. With eight years of just rapid iteration and improvement, Lapiplasty is so refined.
Mm-hmm.
There's just nothing yet that performs like it at the end-user interface. You combine that with all the expertise we have, all the support we put around these doctors, with the education and informing patients and, and our direct channel and the clinical data, it's hard for these larger, multi-line companies to keep up with a rapidly innovating, focused company like Treace Medical.
Sure. That's, and that's usually the case, too, right? You know, they're not as nimble, and they can't be. Actually, that's where the clinical data also comes in. My understanding is there's no other real clinical data here. Is it, the clinic, the ALIGN3D trial, is there any risk of that being viewed as, like, a plat effect and not necessarily specific to the Treace technology and just more Lapiplasty broadly?
Yeah, that's an interesting question. You know, the instrumentation and the technique that we have is, is patented really, really well. You combine that with our implant technology and, and everything that we bring to it, it's, it's hard to just cast that all over all these other products, I think, and say it's going to behave like Lapiplasty. When patients get informed about Lapiplasty, and they come in and they ask the doctor for Lapiplasty, they want Lapiplasty.
Right.
They don't want X company's version of Lapiplasty.
Yeah.
Because there's only one Lapiplasty, by definition. It's a patented method. It's a registered trademark of Treace Medical. There is no substitute.
Okay.
You do have the clinical data backing our product, not anybody else's.
Okay, got it. In the last few minutes here, I want to talk about the PNL, also first, Mark, I'd love to hear your approach to, to guidance and thinking about guidance. What sort of level of visibility do you have in any given quarter when you're updating guidance? just, yeah, your broad approach.
Yeah. We, we look at revenue in a number of different ways. We've, we've been doing this for a long time. Again, going back to some of our prior conversation, we, we understand the number of surgeons that we have. We understand where they are in their, in their journey and in their tenure. That's somewhat predictive, very predictive as far as what we anticipate they, they will produce in their utilization in the coming year. We also have a lot of, of course, spreadsheets and algorithms and all kinds of things that we use to help predict, but we're also relying a lot on our massive sales force channel and their, their relationships with their existing surgeons. I think we get a lot of information from case schedulings.
We have a lot of analytics that go behind it, so we feel really good about being able to, to look into the future and giving, giving our guidance.
Okay. Actually, I meant to ask this earlier. you know, there's been a lot of This has not been a normal healthcare procedure environment for a few years now. Curious about, there's this whole ortho backlog that everyone's talking about. Do you think your business has any sort of backlog? Has there been any backlog benefit? I mean, you've continued to grow almost 50% through COVID, so.
There have been other players that have talked about this backlog. It has a very different patient demographic.
Yeah.
It seems to be more hips and knees. They tend to be a little older and Medicare patients, and so that's not our patient demographic. We, we haven't experienced the same thing that, that others have talked about, but we've been able to just consistently find new surgeons and, and have patients asking for Lapiplasty. It's, it's a different group and, and, but not, not really the same backlog effect that we've seen.
Were you impacted in 2022 by staffing constraints?
You know, what we did talk about is we, we saw the same thing that everyone else saw. One of the benefits that we had is. John mentioned it earlier, that we're all outpatient, and that, that seems to be a benefit to us because some of the, the staffing and even the, the hospital beds and spacing seems to be more focused on if you were inpatient, if you're going to be there a little while. I think we've benefited from that because it's, you know, whether the hospital setting or the ASC setting, it was kind of in and out and less, less requirements from, from staffing. We were able to. We saw what everyone else saw, but it didn't seem to directly impact us the way
Okay.
It impacted some other companies.
Okay, got it.
We probably realized that backlog faster-
Faster.
Earlier.
Like maybe in that quarter or the very next quarter.
Right.
or something like that. Yeah. Okay. Okay, I, I think we have time for one or two more questions, so I'm going to ask, I, I think this is for you, Mark, but, at what revenue run rate do you think Treace can achieve sustainable profitability based on, you know, the need, you know, sales-- how to think about sales force ads, things like that?
Well, that's a great question. You know, we've been able to show profitability in our fourth quarters in the past. That's when a lot of the revenue ramps up, and, and we, we really have a lot of leverage in the P&L. So, you know, we don't want to be cavalier about it, but, you know, we saw great leverage last year in the fourth quarter, and we're anticipating some really nice leverage again this year in the fourth quarter. A lot of it is really our focus and what our priorities are. To John's point earlier, we're really focused on getting a much larger share of the surgeons in, in our space. So we really talk every day about getting 40%, 50% of those surgeons.
So in order to do that, we're going to continue to invest in our sales channel, our sales reps, our, our DTC. We're going to continue to do that. I don't know that I'm giving you a, a, a number, but we, we feel really good about where we are now, the size of the company, and, and there will be leverage on, on particular quarters, for sure.
Sure. Safe to say, you know, yes, you'll be adding reps, but, you know, the spend will be slower than the-
Right.
You know?
Right.
Fifty-
A lot, and a lot of these investments that John talked about really started last year. This year is the first year full annualization-
Yes.
of those investments. We, we, we've talked about having some improved leverage on adjusted EBITDA this year compared to last year, and that will continue to improve going into next year.
Also increased revenue per case helps that as well.
Absolutely. Absolutely, it does.
With that, I think we're out of time. Thank you, gentlemen. Thank you, everyone.
Thanks for having us. Thank you, Dana.