Uroplasty's CEO Discusses F2Q14 Results - Earnings Call Transcript

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 |  About: Uroplasty, Inc (UPI)
by: SA Transcripts

Uroplasty, Inc. (NASDAQ:UPI)

F2Q14 Earnings Call

October 24, 2013 4:30 PM ET

Executives

Douglas Sherk – EVC Group

Robert Kill – President and CEO

Brett Reynolds – CFO

Analysts

Charles Haff – Craig-Hallum Capital Group

Christopher Lewis – Roth Capital Partners

Chris Cooley – Stephens Inc.

Jose Haresco– JMP Securities

Tim Clarkson – Van Clemens

Operator

Thank you for standing by and welcome to the Uroplasty second quarter 2014 financial results conference call. During today’s presentation all participants will be in the listen only mode. Later we will conduct a question and answer session and if you wish to ask a question instructions will be given at that time. (Operator Instructions) This conference is being recorded today October 24, 2013. I would now like to turn the conference over to Mr. Doug Sherk. Go ahead sir.

Douglas Sherk

Well thank you Jill and good afternoon everyone. Thank you for joining us for Uroplasty’s conference call to review the financial results for the second fiscal quarter of 2014 which ended on September 30, 2013. The news release announcing the results crossed the wire this afternoon shortly after the market closed and it is currently available on the Uroplasty web site. We have arranged for a taped replay of this call which can be accessed by phone. This call is also being streamed live on the investor relations section of our web site at Uroplasty.com and will be archived there.

Before we get started during the course of this conference call Uroplasty’s management may make projections and other forward-looking statements regarding feats or events including but not limited to statements about sales, reimbursement for procedures performed with our products, the potential market opportunities for our products and new product initiatives. These forward-looking statements are subject to risk and uncertainties that could cause actual results that differ materially from anticipated results. These risks and uncertainties as well as others are fully discussed in the company’s annual report on the form 10K and other quarterly reports filed with the FCC. Additionally the statements made in this conference call are made only as of today October 24, 2013 and we assume no obligation to update these forward-looking statements to reflect future events or actual outcomes and do not intend to do so. And with that I would like to turn the call over to Rob Kill, President and Chief Executive Officer of Uroplasty.

Robert Kill

Good afternoon everyone. Thanks for joining us today to review Uroplasty’s second quarter results. I would like to welcome Brett Reynolds who is on the call with me today and joined us in mid-August as our Chief Financial Officer. We are really pleased to have someone of Brett’s caliber on the Uroplasty leadership team. He spent the last ten years in senior financial roles most recently as CFO of Synovis Life Technologies which is a twin cities based medical device manufacturer that was acquired by Baxter International last year.

I will begin my remarks with a brief overview of our financial performance during the quarter followed by observations from my time in the field over the past three months and then provide an update on reimbursement. After that I will turn the call over to Brett to detail our financials. I will conclude with remarks on how we see the second half of this fiscal year trending. Then we will open up the call to your questions.

So we were pleased with our continuing momentum from last quarter delivering 10% sequential growth and 11% year-over-year growth in Urgent PC sales in the U.S. These results reflect the impact of our new sales strategies which focus on selling the efficacy of Urgent PC as well as investments, improvements, training and support for both our field sales reps and our customers.

During the last quarter I have spent a considerable amount of time in the field with existing and potential customers as well as with our field sales team and I would like to take the next few minutes to highlight some of the key points I have taken away from those visits.

First the overactive bladder market is a large one. Over 35 million Americans suffer from OAB and its symptoms and of those almost 10 million try drugs and stop taking them within the first year. After drugs the next line of OAB treatment options is Urgent PC, botox and Inter Stim. Urgent PC is the least invasive of the three with a significantly lower risk profile and its potential adverse events. As one physician shared with his patients, the worst thing that can happen with Urgent PC is that it doesn’t work for you. Compare that to the potential adverse events like urinary retention and urinary tract infections with botox and pain at the stimulator site or even the need for surgical revision as with Inter Stim. We and many others believe that after drugs, Urgent PC should be the first alternative for patients suffering from OAB and its symptoms.

Second, Urgent PC works and it is changing people’s lives. While we have numerous clinical studies and published papers that demonstrate up to 80% success rates with Urgent PC treatments the real evidence comes from actual patients. There are many stories we hear from patients who are successfully being treated with Urgent PC. For example, the female patient who stated that she had been wearing pads for the past 15 years and now, nearing the end of her initial 12 weekly Urgent PC treatments, she hasn’t had to wear a pad for the past 5 weeks. Or the retired Air Force pilot who had to stop flying in air shows, a real passion of his, because of his frequency issues, and he is now returned to flying in those shows. Why? The success of Urgent PC. The bottom line is that the treatment works.

Third is that proper procedure technique and physician and patient coaching really matter with the Urgent PC treatment. The needle electrode has to be inserted in the right location, at the right angle and at the right depth all in order to appropriately stimulate the tibial nerve. If it isn’t the treatment won’t be as effective as it should be. Also the physician and patient have to be coached that they are making a minimum 12 week commitment to the treatment. The patient typically will not show progress until week 5 or 6 and sometimes the progress may not be seen until week 9 or 10. If these two things are not done, inserting the needle electrode appropriately and coaching the physician and the patient that it is a commitment to a 12 week treatment plan, patients and physicians may give up on the treatment too soon. Unfortunately that is what happened with many of our early customers and we are now spending a significant amount of time educating physicians and clinicians in order to reengage accounts that may have been lost over the past year. This is the purpose of a new clinical specialist position and we now have five in place to assist in the training and the in-servicing of our new and existing clients to ensure their success with Urgent PC.

In summary procedure, technique and coaching matter to the success of the treatment and we are working to overcome some early missteps in this area.

Lastly bowel incontinence offers significant promise for our business. Urgent PC has a CE mark for this indication in Europe and several papers have been published on the efficacy as well as the cost advantages of treating bowel incontinence with Urgent PC. In addition, one of the most prominent colorectal surgeons in the United Kingdom has a study under way with more than 200 patients enrolled and his belief is that he will demonstrate similar efficacy to sacral nerve stimulation at a much lower cost. Bowel incontinence impacts approximately 10% of the adult population here in the U.S. with few good treatment alternatives available today. We currently have a pilot study under way in the U.S. for bowel incontinence for which we anticipate completion of enrollment by the middle of calendar 2014 with one year follow-up needed. Once the pilot study is complete we expect to meet with the FDA to confirm an approved clinical trial design that would support our filing of a De Novo 510K for the bowel incontinence indication for Urgent PC.

Before I turn the call over to Brad I would like to touch on the current status of Medicare reimbursement. We currently have Medicare coverage for Urgent PC in 45 states representing approximately 43 million Medicare lives. Of the current nine Medicare Administrative Contractors, or MACs as they are called, only one NGS, does not have a positive coverage policy. NGS currently has jurisdiction in the states of New York, Connecticut, Minnesota, Wisconsin and Illinois. We are in continuing discussions with NGS in the hopes of gaining coverage in these states with a decision expected by the end of this year.

You should also know that five additional states, Massachusetts, Maine, New Hampshire, Vermont and Rhode Island will transition to the jurisdiction of NGS effective tomorrow October 25. It is important to note that patients who are currently receiving Urgent PC treatments will be grandfathered in, meaning that these patients can continue to receive treatments after the transition to NGS despite the broader NGS no coverage policy. It is also really important to understand that even after this transition we will still have 40 million lives with coverage under Medicare and if you assume 20% of the Medicare population has OAB and its symptoms, we currently have penetrated well less than 1% of this population.

So the message here is while NGS coverage is important, we still have a tremendous opportunity to penetrate the market without having NGS coverage in place today. In fact our Urgent PC business has been growing in the NGS states even without Medicare coverage due to the quality of the new sales team members that are now in place in those states. These sales reps have the opportunity to sell Urgent PC because we have coverage repayers like United, Aetna and Excellus Blue Cross Blue Shield in the state of New York.

One last point on reimbursement. While the final 2014 Medicare physician’s fee schedule has yet to be published, the proposal released in July reflected a 2.4% decrease in reimbursement for the Urgent PC treatment. Of course this is also dependent upon the annual sustainable growth rate decision by Congress and all are well aware that they have regularly, favorably adjusted this rate in what come to be known as the “back fix [ph]”. Previously it had been inaccurately reported that the proposed 2014 decrease was 6.9% and as I said it is proposed as a 2.4% decrease.

So now I would like to turn the call over to Brett to give some additional detail on our financial results for the quarter.

Brett Reynolds

Thank you Rob and good afternoon everyone. It is a pleasure to be part of the Uroplasty leadership team at this exciting time in the organization’s growth. I would like to quickly recap our financial results for the quarter.

Total revenue for the second quarter was $6 million up 5% from the same quarter in the prior year. Sales in the U.S. were $4.5 million driven by an 11% increase in sales of our Urgent PC system compared with sales in the second quarter a year ago. U.S. Urgent PC sales were $3.1 million representing 51% of total sales compared with $2.7 million and 48% of total sales in the same quarter of the prior year. U.S. Macroplastique sales were $1.4 million a 6% decline compared to the same quarter a year ago. The decrease in Macroplastique sales reflect the emphasis and focus that our sales force has been placing on the Urgent PC opportunity.

Sales outside the U.S. were $1.5 million in the second quarter a slight increase over the same quarter last year. International Urgent PC sales in the second quarter grew by 11% over the second quarter of last year and 9% on a constant currency basis. Gross margin increased 87.6% for the recent quarter similar to our gross margins in the first quarter of this year excluding the impact of currency rate fluctuations, the current quarter’s gross margin improved 1.2 % from the year ago period driven by product and geographical mix.

Operating expenses totaled $7.2 million in the second quarter compared to $5.6 million in the same quarter last year. Included in the recent quarter’s operating expenses were approximately $1.2 million of one-time costs due to legal and accounting fees associated with the internal review of the past management team’s accounting practices as well as costs associated with the changes in executive management.

Selling and marketing costs increased approximately $600,000 due to higher personnel expense resulting from increased head count which includes the addition of five clinical medical specialists and from revised variable comp plans. In addition we incurred approximately $75,000 of incremental costs this quarter due to the new medical device tax. The operating loss for the quarter was $1.9 million compared with an operating loss of $642,000 in the same quarter last year. Excluding the one-time cost of $1.2 million previously noted as well as excluding recurring non-cash charges for depreciation, amortization and stock based comp, the operating loss for the quarter was $411,000 as compared to $1163,000 in the year ago quarter.

The loss per share on a GAAP basis was $0.09 in the quarter compared to a loss per share of $0.03 last year. The loss per share in the current quarter excluding one-time and non-cash items was $0.02 per share which compares to the loss per share of $0.01 in the year ago period. In the second quarter we had 701 active customers in the U.S. for our Urgent PC system which compares to 664 active customers in the first quarter of this year. We sold 3,925 lead set boxes this quarter which is up from 3,601 in the first quarter of this year. Utilization in the current quarter was 5.6 boxes per active customer which is up from the 5.4 that we saw in the first quarter.

Turning now to the balance sheet. At September 30, 2013 we had cash, cash equivalents and investments of $12.5 million compared with $14.1 million at the end of June. The decrease in our cash reflects payments of approximately $1.1 million during the quarter for non-recurring legal, administrative and severance expenses that were accrued for in both the first and second quarter but paid in the second quarter. We believe we have sufficient cash to meet our liquidity and growth requirements beyond the next 12 months.

As we look forward we expect to achieve operating leverage as we believe that our current cost structure is sufficient to support higher revenue levels. We currently have 44 U.S. sales territories and based on Q2 revenue the average annual revenue per territory slightly above $400,000. At the current time we do not expect us to financially change the number of sales territories for at least the next 12 months. Rather we anticipate higher revenue per sale territory as a result of the changes we made and are making to our strategy in our organization.

We believe that our ability to grow revenue with our current cost structure will allow us to be cash neutral on annualized revenue of approximately $28 million. For reference our Q2 revenue annualizes to $24 million.

Now I will turn the call back over to you, Rob.

Robert Kill

Thanks Brett. In summary, the business has undergone significant change during the past six months and as you know change is never easy. The good news is that the positive results from these changes are evident in our continued sequential quarter over quarter growth after the previous three quarters of decline in US UPC sales. At the same time as we said several times before, we expect that the true effects on change of this magnitude will take time.

Three of our five regional sales managers are new to the roles in the last quarter. 14 of our sales reps are new to the company in the last six months. We currently have four of our 44 sales territories open, two due to internal promotions into the regional sales manager roles and two due to territory turnover. We expect that we will experience additional turnover as the changes to our sales force continue to take hold.

While we are very bullish on the results, we believe that these new reps will deliver, it typically can take up to one year in their territory for them to achieve full productivity. On top of that, over half of our sales team has been here less than two years and we are spending a significant amount of time providing ongoing training on how to successfully win and onboard a new customer.

Many of those reps who were here prior to the start to this fiscal year we see variable to formal training when they originally joined Uroplasty. So as you can see the changes in the field will be an ongoing process. At the same time we are also training our customers on the proper procedure technique and educating them in their passions that Urgent PC is a minimum 12-week treatment and results may not be evident immediately. The process to re-engage those customers who weren’t initially trained appropriately isn’t always an easy one. In many ways, it can be more challenging in winning a new customer as these former customers did not have a successful experience with Urgent PC with their first usage, so they may have formed an incorrect judgement that treatment isn’t effect despite tremendous evidence to the contrary.

So as we look forward, we remain optimistic in our outlook but do so with a patient long term view. While we don’t provide annual guidance we do project that next quarter will again be one of sequential quarter over quarter growth for Urgent PC in the US with year over year growth in the high teens. We also expect US Macroplastique sales as well as the international sales to remain relatively stable. That concludes our formal remarks today and now Brett and I would be happy to take your questions. So operator, could you please open the call for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Charles Haff [Craig-Hallum Capital Group].

Charles Haff – Craig-Hallum Capital Group

You guys had a good number for utilization boxes of 5.6 this quarter. Do you have any visibility on how we should be thinking about that over the next quarters or if you can give us maybe a target that you want to be at, a year from now that would be helpful?

Robert Kill

Yes, Charles, we don’t provide that kind of forecasting going forward. We think as we said next quarter we expect continued sequential growth and we expect year over year growth in the high teens. We are focused on engaging new customers as well as re-engaging former customers and treating our existing customers further. But we are still working through the process of retraining our sales team and working with our existing customers to help them.

Charles Haff – Craig-Hallum Capital Group

And then on Urgent PC in the US as you mentioned you had a nice sequential improvement versus last quarter and I noticed that last year, you also had a sequential improvement although a smaller magnitude than you had this quarter. Is there any seasonality between fiscal Q2 and fiscal Q1 or is all of that just kind of all of your sales and marketing efforts and there is no seasonality there?

Robert Kill

Charles, in a business where the market is penetrated to the level we’ve penetrated at it, when there is a huge opportunity, our belief is there is no seasonality.

Charles Haff – Craig-Hallum Capital Group

And then regarding Kaiser, you guys have just kind of started that new effort out there and wondered if you had any data points or any color that you can share with us on how the uptick in the Kaiser business is going?

Robert Kill

Going very well. We continue to grow quarter after quarter. They are having significant success not only in treating their patients, right, so the efficacy of the treatment but also in growing the number of procedures. So that the results we’re seeing there are very significant.

Charles Haff – Craig-Hallum Capital Group

And my last question is on WPS, was there much addition of WPS territories for Medicare patients in this quarter and how should we expect the rollout of the WPS to be accretive to your US or Urgent PC revenue?

Robert Kill

There were no additions of reps for WPS. Obviously when you gain Medicare coverage from a Mac, the ramp-up tends to be a bit slow especially in a geography like WPS where they had coverage once before and was taken away. Those customers will start slowly because they want to make sure that they can get reimbursed. So it's not a very sudden ramp. It's a slow but steady ramp and our view is that we will gain penetration over time where we have coverage in those specific Macs.

Operator

Our next question comes from the line of Chris Lewis with Roth Capital Partners.

Christopher Lewis – Roth Capital Partners

For some of those customers that you talked about that may have had some unfavorable earlier experiences with Urgent PC. What are your expectations around how long do you expect it to take to kind of reengage those former customers to come back on board, reengage them, retain them the correct way so that they will start using and ordering Urgent PC again?

Robert Kill

Hi Chris, great question. I think the answer is customers aren’t created the same. So it’s going to vary on each individual customer. It’s going to vary on the needs they have with their patients who have built drugs with OAB. And so there's no kind of cookie-cutter answer we can give you, other than it’s a lot of hard work. They tried it once and may not have had success and you've got to work hard to demonstrate to them the efficacy of the treatment. And it’s a lot more difficult in many cases than selling to new customers. But there is no -- we can't give you an answer as it’s going to take X amount of time.

Christopher Lewis – Roth Capital Partners

And then it sounds like you are pretty happy with the direct sales size at this point. You mentioned you had five clinical specialists. Is there any plans to build -- to continue to build that over time?

Robert Kill

The approach we have taken with the five clinical specialist is we have a process in place in terms of how we will measure their success, we’re very confident that it will be successful but at the same time until we can demonstrate that success we are not interested to making a much more significant investment that we have, because we want to sure it works. And so it will probably be over the next quarter or so and as it works we will expand that in a very judicious way over time. But again once we demonstrate that it adds value, you can help us grow our business.

Christopher Lewis – Roth Capital Partners

And then just one more from me here, I think you said when you were talking in your prepared remarks about NGS expect some type of coverage announcement, that could come by the end of this year. Could you kind of just provide some more detail around what type of coverage decision you are expecting to hear from them?

Robert Kill

Well, today they have no coverage, they are the only Mac out there that has not coverage, which is a bit of an anomaly. They have communicated to us that once these transitions take place that there will be a coverage decision by the end of the year and that’s as much as we know. Now we are hopeful and if they've taken on states where there are patients who were covered, now they have been grandfather then but I can assure you they’ve heard from physicians and patients about this issue and just time will tell. So we will know at the end of the year.

Operator

Our next question comes from the line of Chris Cooley with Stephens Inc.

Chris Cooley – Stephens Inc.

Just curious if you go back and you kind of look at your growth in the states during the course of the quarter, how much do you think you are seeing from I guess going deeper within the existing accounts versus new accounts, we can see the active account ordered number, they are obviously going up sequentially. But help us get a feel for where you're getting or how growth is being driven between clearly new accounts versus going deep with existing users?

Robert Kill

Yes, it’s a mixture of both, Chris, and we don’t have any details beyond that. I think as we talked about in the past we’re still working through some of the ongoing metrics. And we’re not quite 100% confident and some of the metrics in their comparators from the prior year based on the way that business has been run by prior management with promotions that we have put in place. But we feel pretty confident that we will provide metrics around new and reengaged customers on the next earnings call.

Chris Cooley – Stephens Inc.

And could you also maybe tell us – are you seeing any changes just in the field level in terms of inventories? You have gained a lot of accounts, obviously they are ordering now. Are you seeing differences and what's kept in terms of stocking inventory at the physician office level versus a six-months, nine months ago?

Robert Kill

The short answer is no. But I don’t have an insight or we don’t have an insight that what’s sitting in all of our customers’ shelves. But what I can tell you there was a past style here where there was a lot of promotions for our reps and for customers. We haven’t run a single promotion in the past nine months to get customers to buy product, or get reps to sell product. We are going to deliver this product based on its efficacy and the value it brings to these physicians in treating their patients with OAB.

Chris Cooley – Stephens Inc.

And if I could just squeeze one – other one and I will get back in the queue. Just in regards to Macroplastique, I think there at the conclusion of your prepared remarks you mentioned that you expected that to basically remain stable. Any chance that we see that stepping back up – basically dropped off about three quarters ago, four quarters ago, any chance that we have seen kind of restoration growth there is to focus clearly on Urgent PC and so on a go forward basis, is this kind of the new normal from a revenue run rate standpoint?

Robert Kill

No, our belief is that you may see an uptick several quarters down the road. The reality is we’ve got a very inexperienced sales team as it relates to our business. The significant growth opportunity is in U.S. Urgent PC and that's where we've been training and focusing those new sales reps. And as I said, it takes sometime up to a year for them to get to full productivity, to really understand their territories and the products. And our initial focus with those new reps is on Urgent PC. So over time as they gain time in their territory and expertise I think you'll see Macroplastique maybe take a different slight uptick than it has over the past couple quarters. But again it’s a relatively small market, not growing. So if you are looking for this to become a 10% growth, you’ve got the wrong product.

Operator

Our next question is from the line of Jose Haresco with JMP Securities.

Jose Haresco– JMP Securities

Just a housekeeping item, you mentioned that you had 44 sales people, 14 of those have less than six months in experience and you have four open territories. At what point do you expect those 14 other salespeople to be – have that one-year training and tenure so that they can be considered stably productive. And when do you expect that close those four open territories?

Robert Kill

Two of those open territories, we expect to close shortly, two we are in the midst of recruiting for. As it relates to the tenure of the reps, of those 14, six or seven of them started in April through June, so they will come up to speed quicker, you just apply kind of one year to full productivity, than those who started July through the date of this call.

Jose Haresco– JMP Securities

And as we train towards Urgent PC you’re spending a lot more time training and teaching people how to use it, that becomes stickier. Do you have a sense as to what the gating factors are within that process that make the products stickier, in other words, if we look at training was done or maybe not done over the last regime of management, what do you guys do sort of differently other than just putting more people there and potentially getting face time with customer, is it something that you would stand out – you know what, we didn’t do this, and maybe help us understand one or two things are that you think really helps – make a believer out of your customer?

Robert Kill

Well, first and foremost if you turn over the – your sales force like we have, that’s a big statement right there. Secondly, as we said on the call you have to appropriately train the customers, you have to train your sales people to train the customers. We didn’t invest in any kind of training for our sales team prior to over the patents they [ph] joined us. As an example, we literally in the month of October had over a 100 selling days of the reps out of their territories where on a regional basis we bought them in to train them and selling the efficacy of Urgent PC. So we’re making significant investments in that training, because that’s the biggest difference there is.

If the customer doesn't place the needle, the needle in your appropriate location, at the appropriate angle, at the appropriate depth, they are not stimulating their tubular nerve and therefore the treatment won’t be as successful as it could be. And so those are the key issues Jose and that’s what we’re focused on and we are executing against and you can see we are gaining traction. But obviously it’s a relatively inexperienced sales team as it relates to world class. Not as it relates to marketplace, we are not hiring folks spread out of school who have never been in the device space. But it does take time to learn new territory, learn the products and really ramp up to the full productivity.

Jose Haresco– JMP Securities

Do you have a sense for what an annual run rate would be a fully productive rep?

Robert Kill

Well, we have – if you look at our territories last year we have had reps who produced over $1 million now, that’s not all of our reps. We have reps today who are producing in 700,000, 800,000 range. So we think there is clearly a room to grow from the average of 440,000.

Jose Haresco– JMP Securities

And the last question is – remind us again what the sales force look like last quarter at this time in terms of active reps, folks in less than six months and in open territories?

Robert Kill

I think the territory count was similar, in terms of open territories we don’t have this at our fingertips, so we can get that for you. But I don’t know that it was significantly different than what today is. But maybe if I want one or two reps either way.

Operator

And our next question is from the line of Tim Clarkson with Van Clemens.

Tim Clarkson – Van Clemens

Your breakeven is about 7 million a quarter, then on a quarterly basis?

Brett Reynolds

That’s true with the current cost structure and we’re still looking at the business what strategic investments we want to make going forward. But with the current cost structure the normalized growth in expenses there will be a $28 million run rate approximately.

Tim Clarkson – Van Clemens

Secondly, is there anymore feedback on this Botox, I know that was kind of a big deal few quarters ago with its getting introduced in the marketplace, any feedback as to whether the excitement over there has slowed down or if it still has a lot of momentum?

Robert Kill

So two ways to answer that is, one, I don’t know that, it ever had a lot of momentum, it was new and different. Our view is right [indiscernible], I don’t think the introduction of Botox has an impact on our business today.

Tim Clarkson – Van Clemens

My sense of it is a big problem is just these doctors, ingrained in a drug culture and the convenience of handing out a drug, that, that really is a big fundamental problem, they are just kind of lazy in terms of solving things and they have been doing it one way for so long that it’s hard to get them out of that mindset. Am I right about that or what’s the challenge you are getting this – because your biggest competition is drugs, not these Medtronic, Botox, it’s really the drugs, right?

Robert Kill

Well, couple of thoughts, one is I never call our physician customers lazy. They work hard to provide care to their patients. Two is the fact is that the AUA care algorithms say the first line of therapy is behavioural therapy, so drink less fluids, less caffeine, before exercises. Second line is drugs, and the simple fact is that 80% of those folks aren’t taking drugs at the end of the first year, and that’s approximately 10 million patients. And they need a third line option for those patients and we think we fit very well as the first treatment in those third line option.

Tim Clarkson – Van Clemens

And is that message getting through these physicians in terms of being open to that?

Robert Kill

Well we have shown continued sequential quarter over quarter growth for the last couple of quarters. And so I suggest that – or I think that suggests we’re making progress but we still have work to do because the level penetration in the marketplace still is not significant.

Tim Clarkson – Van Clemens

Even the docs that had a bad experience on the first runway, that’s still a small percentage versus people that have never even tried it, right?

Robert Kill

Yes. No doubt that this is a different treatment. It’s 12 weekly treatments or a treatment once a week for 12 weeks and anytime you change the way someone is delivering care that always takes time. But we feel like we’re making progress and we will continue to make progress.

Tim Clarkson – Van Clemens

And the other factor is nobody talks about cost but I mean this clearly is a relatively inexpensive treatment certainly in comparison to the Medtronic treatment.

Robert Kill

I think the cost – the total cost of care around Urgent PC when you factor in adverse events also, I think it fares very well versus competition. And when you look at the importance of cost with the changing reimbursement models in healthcare today, accountable care organizations and no one likes to say the word capitation but capitated reimbursement, we think we are positioned very well for the future of healthcare.

Operator

And your next question is from the line of Bob Silver [ph] with First Associates.

Unidentified Analyst

Your revenue growth looks very, very encouraging. I was just curious what your goals are for becoming profitable and do you think this might be any time soon?

Robert Kill

Well, as we said we don't provide any kind of annual guidance, we gave you a little sense of our direction for next quarter and Brett told you that on an annualized basis 28 million in revenue gets us there.

Operator

And there are no further questions at this time. So I will turn it back to management for any closing remarks.

Robert Kill

Well, thank you and thanks everyone for participating today. We do appreciate your interest and we look forward to updating you on our progress for our fiscal third quarter of 2014 in January. So thanks very much.

Operator

And ladies and gentlemen that does conclude your conference call for today. Thank you for your participation. You may now disconnect.

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