Sientra, Inc.
Q4 2019 Earnings Call Transcript

Published: 12 Mar 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Sientra's Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker, Mr. Oliver Bennett. Please go ahead sir.

[Oliver Bennett:]

Thank you, operator. Good afternoon and welcome to the Sientra's fourth quarter and full year 2019 earnings conference call.I would like to remind everyone that in our remarks today, we will include statements that are considered forward-looking statements within the meaning of United States Securities Law. In addition, management may make additional forward-looking statements in response to your questions.Forward-looking statements are based on management’s current assumptions and expectations of future events and trends, which may affect the company’s business, strategy, operations or financial performance. A detailed discussion of the risks and uncertainties that the company faces is contained in its previously filed quarterly report on Form 10-Q and annual report on Form 10-K that the company will file with the SEC in the next few days. Actual results may differ materially from those expressed and/or implied by forward-looking statements. The company undertakes no obligation to update or review any estimate, projection or forward-looking statement.I would also like to note that Sientra's uses its Investor Relations website to publish important information about the company including information that maybe deemed material to investors. Financial and other information about Sientra is routinely posted and is accessible on the company's Investor Relations website at www.sientra.com.Today on our call, we have Jeff Nugent, Sientra’s Chairman and Chief Executive Officer; and Paul Little, Chief Financial Officer, Senior Vice President and Treasurer.I’ll turn the call over to Jeff. Jeff?

[Jeff Nugent:]

Thanks, Oli. Good afternoon everyone and thank you for joining us today.2019 was another pivotal year of strong performance, demonstrating consistent growth and strategic transformation for Sientra as we made real strides toward our goal of becoming an aggressive world-class global aesthetics company. Q4 in particular was an exceptional quarter as we achieved record net sales in both our business segments, both breast products and miraDry.I'd like to start by highlighting a few of the significant accomplishments and how these position us for 2020 and beyond. Most importantly, Sientra achieved record total net sales in the fourth quarter of $23.2 million or an overall growth of 22% year-on-year.The record net sales is in both breast products and the miraDry segments. For the fourth quarter, total breast product sales grew 22% year-over-year to $12.8 billion for the full year 2019 breast implant and tissue expander sales grew 25% in an overall market that we continue to estimate is flat. That's further evidenced that Sientra continues to make sizable share gains.We saw a continued strong growth in augmentation procedures as well as record growth in our tissue expander businesses as well. Further during '19, approximately 50% of our implant and expander business came from the reconstruction procedures segment and we believe this reflects what our go forward mix will continue to look like. This momentum reflects the advantages of our superior product portfolio as well as our continued ability to benefit from Sientra's new customer conversion programs and the increasingly deeper penetration of our existing accounts.The success of our marketing programs and our best in class plastic surgery consultants support our continued confidence in the market share recapture opportunity going forward. We also achieved the advantages related to our vertical integration through our acquisition of the OPUS breast implant manufacturing operations in Franklin, Wisconsin, which we announced and completed in November of last year. The strategic financial and operational benefits of having a turnkey vertical operation can not be overstated. Owning this dedicated Class III FDA approved site enables us to accelerate improvements to our product development, manufacturing yields and resulting margins all while maintaining the highest quality and safety standards in our peer group. The results to-date are exceeding our expectations as a result of the increased experience and capabilities that we have brought inside of the company and the corresponding increased sense of urgency and discipline that they have brought with them. It compliments our ongoing R&D efforts that are enabling Sientra to increase our speed to market for both new innovative solutions and support for new international opportunities.And finally, as we look ahead, we expect to increasingly benefit from the economies of scale as our production continues to ramp up. Importantly, we remain very focused on strengthening our capital structure and are pleased to announce that today we raised $60 million through a convertible debt financing with Deerfield management. This infusion of capital provides us with enhanced financial flexibility and the necessary capital to execute on our strategic initiatives as we continue on our path to aesthetics market leadership and cash flow positive.Turning to miraDry, the segment continued to demonstrate robust traction and delivered another record quarter growing net sales for quarter four by 22% year-on-year that's to a total of 10.4 million for the quarter. Sales continued to be well balanced across geographies with a continued 50

[Paul Little:]

Thanks Jeff.As Jeff mentioned, Sientra achieved a record fourth quarter and saw strong growth across both of our segments. We achieved record total net sales of 23.2 million which equates to a 22% year-over-year growth. For the full year 2019, we grew sales 23% to 83.7 million above the high ends of both the original guidance we provided last May and the updated guidance we provided in September.Net sales for the breast product segment totaled 12.8 million in the fourth quarter of 2019 a 22% increase compared to 10.4 million for the same period in 2018. Net sales for breast products in four year 2019 was 46.4 million, a 25% increase compared to full year 2018. As Jeff mentioned, this growth was primarily driven by continued market share gains from Sientra's new customer conversion programs and deeper penetration of existing accounts.In miraDry, we also delivered another record quarter achieving net sales of 10.4 million or 22% growth year-over-year and full year 2019 net sales were 37.3 million a 20% increase compared to full year 2018. miraDry growth was driven by continued momentum about both system placements and consumables as well as Sientra's cost-effective global marketing and brand awareness initiatives launched in early 2019.Gross profit for the fourth quarter 2019 was 14.2 million or 51.3% of sales compared to gross profit of 11.4 million or 59.7% of sales for the same period in 2018. Gross profit for the full year 2019 was 50.7 million or 60.6% of sales compared to gross profit of 43 million or 60.6% of sales for 2018.In terms of our organizational efficiency initiative, we remain on track to reduce annual pretax operating expenses by approximately $10 million in 2020 and another $5 million in 2021. Importantly, savings from this program to-date are tracking in line with our expectations. Based on our progress to-date, we remain confident that these actions will create a simpler and more cost efficient operation, enable us to create significant value over the long-term.Excluding 1.1 million of restructuring charges related to Sientra's organizational efficiency initiative, operating expenses for the fourth quarter 2019 were 32.4 million compared to 35.7 million of operating expenses for the same period in 2018, while still achieving a 22% year-over-year revenue growth in the quarter.Net loss for the quarter of 2019 was 20.2 million or $0.41 per share compared to a net loss of 24.6 million or $0.86 per share for the same period in '18. Net loss for the full year was 106.8 million or 2.63 per share compared to a net loss of 82.6 million or $3.25 loss per share in full year 2018.On a non-GAAP basis, the company reported an adjusted EBITDA loss of 14 million and 72.8 million for the fourth quarter and full year 2019 respectively compared to a loss of 19.4 million and 60 million for the fourth quarter and full year 2018 respectively.Turning to cash. Net cash and cash equivalent as of December of 2019 was 88 million compared to 121 million as of September 30, 2019. Uses of cash in the quarter included a 14 million up front payment and $5 million of working capital investments associated with our manufacturing acquisition in Franklin, Wisconsin.Taking the impact of coronavirus into consideration, we expect to achieve full year 2020 total net sales at 94 million to 90 million, which represents growth of 12% to 17% compared to sales of 83.7 million in 2019, in breast products we expect net sales of 55 million to 57 million and in miraDry, we anticipate net sales of 39 million to 41 million. This is a dynamic situation we are monitoring it closely and staying tight coordination with our sales team and physicians. We will provide financial operational updates if our 2020 outlook changes as a result of the coronavirus impact to the company.I will now turn the call back over to Jeff for any concluding remarks. Jeff?

[Jeff Nugent:]

Thanks Paul.Let me close by saying that I'm incredibly proud of Sientra's achievements in 2019. It was a year of important progress as we advanced our goal of becoming one of the leading providers of products in the worldwide breast augmentation and reconstruction markets. We've solidified our position as an industry leader with vertical integration, added top talent to our team and continued to grow miraDry.I'm confident that these accomplishments positions Sientra from market leadership and strong results in 2020 and beyond. We're monitoring the coronavirus issue extremely carefully. I'm confident that we will manage this real challenge as successfully as we have managed all the past issues over the past several years. The Sientra team is one of the strongest and most resourceful I have ever had the experience to work with. This team is battle-tested and exceptionally well qualified to professionally overcome anything that we find in front of us. So with that, let's open up the line for Q&A. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question will come from Alex Nowak with Craig-Hallum.

[Alex Nowak:]

I know this is an ongoing situation here and I just want your help with how to think about the current guidance. So I mean, when you say you're assuming the best current estimates for miraDry breast products help us out there from the guidance. So we're hearing reports that APAC sales could be kind of down all over the place in Q1. Are you assuming APAC business is going to be down in the 50% range for miraDry?

[Jeff Nugent:]

No. It is premature to make that kind of an estimate at this stage. What we're trying to do is indicate what we're beginning to pick up in the Asia Pacific market and like we're seeing with so many different businesses, this is such a rapid realization that we're not prepared to make any more significant estimates at this time. We're watching this very closely that I think it's certainly primarily a miraDry situation. I think as we indicated that is -- we're not beginning to see any real impact on the breast side, but certainly from a, an international, primarily Asia Pacific standpoint we're just beginning to understand what that impact is. I think one of the pieces of that is that we're still seeing continued procedures, but we're seeing postponed demonstrations for new systems purchases. But again, this is a real-time monitoring process. And as we're sitting here on this call, I'm getting texts updating us on a daily basis. I hope that answers your question, but it is very premature to go any more detail than that.

[Alex Nowak:]

And I get that. I understand you obviously have limited visibility there. Just to go off a piece you mentioned there, in just the last week or so, is the implant team in the U.S. having any sort of issue getting into either existing accounts or new accounts just because the centers are closing up and saying we're only allowing essential staffing?

[Jeff Nugent:]

On the breast side of it?

[Alex Nowak:]

On the breast side in the U.S., right?

[Jeff Nugent:]

Yes. U.S. breast side, I've spoken with a minimum of 50 of our top plastic surgeon partners and they are all admitting that there's very little, if any impact that they're seeing number one in their scheduled procedures. And you have to understand that within the breast category this was pretty much down the middle between reconstruction and augmentation that there is more discretion on the augmentation side with much less discretion on the reconstruction side.I could give you a lot more information that involves the priorities that are existing within hospitals. And that's not just the U.S. but international as well. And as recently is as laid yesterday I'm continuing to get the signal that they're just not seeing any real impact in breast surgery on either side. And as you indicated, this is ramping very quickly. The story today is very different than it was 10 days ago, but even with that fast pace we're just not getting the kind of confirmation that it's impacting the breast product segment.

[Alex Nowak:]

Okay. Understood. And then, this thing on breast for the guidance, what are you assuming from a underlying market growth, are you assuming a flat market like last year when we had all the news around breast implants or would you expect that mark to actually grow a little bit this year? Irrespective without assuming coronavirus impact of course.

[Jeff Nugent:]

Without the impact of that, we were assuming that back to a single digit business. And as you know, Alex, our whole growth strategy is on taking share. So when the market was flat last year and we grew substantially, so we're assuming it was low single digits, even in 2020, before '19.So our base assumption continues to call for continued market share gains. And we're again watching this closely. And to Paul's point, the reconstruction segment has traditionally grown slightly higher than the augmentation side. But we're still trying to figure this out. And right now we just don't see a clear picture to adjust any of our expectations on the breast side.

[Operator:]

Thank you. Our next question comes from Margaret Kaczor with William Blair.

[Margaret Kaczor:]

Maybe just a follow up and ask it a slightly different way. When we compared the miraDry guidance relative to at least the assessments that we have and the street estimates, it seems like maybe it's $3 million to $5 million below what we had initially expected going into the quarter. So can you guys highlight how much of that is related specifically to COVID? And then give us a sense of how much of that change within that is U.S. versus OUS or systems versus consumables?

[Jeff Nugent:]

Thanks for the question, Margaret. What we're calling out now is, is what we're seeing today, we're not trying to anticipate the entire year. So, as half of our business is x-U.S. third of miraDry sits in Asia Pacific. We have better visibility two months into the quarter. So what we're really calling out is what we're seeing so far without trying to anticipate the entire year, if that makes sense. So, we're right now we're not breaking out the components. We believe what we're seeing that we [lead] [ph] everything that we're seeing that's impacting the guidance is related to coronavirus given where we ended so strong in the fourth quarter of last year, the momentum is very strong.We're also seeing, we've hooked up our freshConnect systems to the accounts, we have about 181 accounts now that we have active access to the states. And we're actually seeing an increase utilization from all the activities we did last year. So the first two months of this year, we are actually are seeing utilization, which implies that procedures are happening depending on what regardless of what might happen on the console sales. So I hope that -- does that help with the question?

[Margaret Kaczor:]

It does. It sounds like it's maybe a little bit more system side that's maybe the unpredictable bit of this where it's consumables and as the disposables you guys are continuing to see strong growth in. And hopefully we'll see that pass throughout the year. And so maybe I can follow up on that because the utilization increases, you guys referenced, you know, that first half of '19, second half '19 and then going into '20, especially in the U.S., how durable are you guys seeing those? Can you give us any metrics over a kind of the same-store sales within that i.e., you're continuing to see that progression with the accounts that have grown or continue to grow and should continue to grow and clear of this deferred system?

[Jeff Nugent:]

Thanks for the question. With the freshConnect, the 181 accounts we're seeing last year were 21% growth year-over-year for stores that were -- accounts that we are in within that time frame. So we're seeing a nice 20% growth, 21% growth for those. So again, I think what we're going to see here is now we're going to have a better chance for the first time is going to be always had tip sales is kind of a leading indicator. Now we have utilization of forgot what's really being pulled through. So that's giving our first view into what we actually are seeing this happening on a real-time at the account level.

[Margaret Kaczor:]

Okay. That's helpful. And then, just kind of last one, and this one's maybe a little bit bigger picture, strategic, taking out the impact of COVID-19. Can you guys just kind of simply synopsize the impact of new product launches this year in the various product segments and maybe specify the new marketing or operations initiatives that you guys have internally? I guess the top three drivers of growth. Thanks.

[Jeff Nugent:]

Well, we're still on track and we've indicated that we've got a rather robust flow of new products including larger sizes and a number of things that have been available until we've been able to scale up our new manufacturing facility. So I think, like I said in my comment is that, that's speeding the flow of new products to market some of which we've been able to share with you and others that we'll elaborate on it in more detail as we get closer to launch dates. So, yes, I think and Margaret, we've talked about this before, we've been a bit hamstrung based on the capacity available at our facility, but it's another, clear example of the advantage of being able to own it now with a greater sense of urgency. These things are going to come off at a faster clip. So right now I've got to be careful exactly what I say, but we're happy to share more of that with you later.

[Margaret Kaczor:]

And that can occur throughout 2020 just to be clear. Thanks.

[Jeff Nugent:]

Yes. That's right.

[Operator:]

Thank you. Our next question comes from Kyle Rose with Canaccord.

[Kyle Rose:]

So I just wanted to, if we could talk about the breast side for a little bit here, just maybe help us understand, what your guidance for 2020 contemplates just with respect to new account additions versus going deeper into existing accounts. Just trying to understand, I mean obviously the low single digit market growth in '19 you delivered magnitudes of that. How do we think about share taking in 2020?

[Jeff Nugent:]

That's a good question. Yes, last year if you realize, we grew the breast business 25%, we grew the implant expander business 32% and it was a combination of both going deeper within accounts now that we have product and broader with new accounts, we picked up roughly 400 new implant customers back in 2019. It is going to be more of the same in 2020. Again it's -- we sold 2000 accounts in our peak, so now we're looking at maybe 1200 we're not even back to the 2000 accounts we used to sell to you back in '15. So we're going to continue to go after the new accounts, through our marketing programs, our product differentiations.And we're also two-pronged. We've got our reconstructive strategy, which is we've identified the [GPLs] [ph] and ideas that we're going after and the amount of efforts this team has been making. Some of these take six months to a year to actually get on board. But the augmentation reconstruction strategy are quite unique in what they're doing. And the recon strategy obviously is led by the contracting team, but it's led by the AlloX2 Pro and the dermaspan tissue expander, which gets us into the hospital, which gets us the carry over of the expander, sorry, of the implant. So when we get in there with the expanders, we're seeing a really nice pull through on the implant side of the business.So I'm going to say it's a little bit of more of the same this year, deeper and broader with obviously more initiatives on the marketing side, which we're going to try to experiment with this year and trying to actually drive patient acquisition to the doctor's practices, whether it's through digital marketing or other patient education as a doctor, we are going to try to drive patients to these doctor practice and some pilot programs. So we're going to up the marketing programs a bit this year in addition to just actually making it a sales only efforts.

[Paul Little:]

And part of that is, more aggressively introducing a loyalty program. both for our existing customers as well as new customers because at the end of the day we pay a lot of attention to our competition and we believe that there are vulnerabilities with both Allergan and Mentor that I think a loyalty program we've already demonstrated it's going to make a difference.One thing I want to add as well, and I think we covered it, but if we did not, I want to make sure that in spite of all of this price competition out there, we are holding our ASP constants and I think that's an indicator of the premium position and credibility that we have across the Sientra brand.

[Kyle Rose:]

Great. That's very helpful. And then, when I think about the guidance this year, does it contemplate any new OUS countries with the breast side? And then from a manufacturing perspective, and you talked about gives you more control over efficiencies and costs. Can you just help us understand where you were at for both from an inventory availability standpoint and just kind of that that efficiency program.

[Paul Little:]

I will start. Thanks for the question. Internationally, there's no numbers right now contemplated in ours, although we know we're still, we filed October of '18 for Canada. You've got some very good feedback actually. So we're still anticipating approval sometime this year and at this point I built nothing into the model for that and we're working on some stuff outside of Asia Pacific, which we can now -- in Asia Pacific that we can announce once we're ready to announce it.Manufacturing, it's actually ahead of schedule on the integration. So in terms of the work we're doing to integrate that into our business, there has been zero disruptions in manufacturing from the day we took possession of that facility. In terms of our round implant supply backwards toward the end of last year for rounds. We're going into this year with a robust supply around shape as we're building up, as we focused on rounds most of last year. Now we're moving into the shape.We're going to be hesitant on how much shape we build until we really see how much of the shape market is there given it's textured, although we have a superior texture across their competitors. But our supply situation is, we shouldn't be what we talking about at this year, if that helps, on implants. We're very happy with where we are. We're very happy with the progress has been made at the Franklin facility.

[Operator:]

Thank you. Our next question comes from Richard Newitter with SVB Leerink.

[Richard Newitter:]

Hi. Thanks for taking the question. A couple of here, the COVID-19 commentary, I guess, can you parse out for us a little further what exactly you are not assuming in terms of impact in the U.S., in other words, are you right now mostly just assuming, OUS impact? And then from a timing standpoint, what -- are you assuming there is an impact, in the first quarter and second quarter or for the entire year. So if you could answer regionally and then timing wise, what is exactly factored in?

[Jeff Nugent:]

Well, Rich, I think you consumed at least as much of the media that we do. And that's a huge question that people are trying to figure out and it changes daily. What we're trying to do is share the information that we have and that we're not assuming best case, we're not assuming worst case, I don't want to overreact and I don't want to under react. But right now, we're looking at this certainly extending through the second quarter beyond that, we just don't know.And like I said, the primary impact is going to be on the international front and particularly on miraDry. And again, it's not a all or nothing proposition. What we're seeing is treatment procedures are continuing to progress. The PAN is a good indication of that. Systems sales are running into more resistance right now. We're beginning to see some minor impact, relatively minor impact in the U.S., but there's still no indication that breasts is going to be affected. I don't know how else to answer this because we've got a lot of very smart people and perhaps maybe some not so smart people who are trying to make a guess in terms of what to expect. We just don't know. But we're trying to be as transparent as we can be. And as we learn more, we're certainly going to update this as we learn it.

[Paul Little:]

We are anticipating it to be across both, I guess U.S. and non-U.S., the splits right now it's quite geared more toward the x-U.S. And then, again, as Jeff said, we're not anticipating that to continue for the entire year because we just don't know. So we're forecasting of what we see today given we're far enough into the quarter. But at that point, we're not anticipating and saying just dragging out the entire year. We have to see it the same as breast business.We like what we're seeing right now in the quarter, but at the same time we all have to think of it easy to drag out and what implications have progressed longer term, breast procedures are booked so far out. People are finishing up those procedures. We'll know on both in second quarter where the season starts, but we are just like breast, we're not seeing it today.

[Jeff Nugent:]

I'd like to reinforce that. That's true.

[Richard Newitter:]

Okay. So just to summarize a little bit more capital on the miraDry side, a little more on the miraDry side altogether, a little more capital within miraDry. And then, there is some U.S. impact factored in, but mostly it's an x-U.S. factor in your guidance at least. And then, with respect to timing, if not confined to 1Q, there is an impact that's assumed for 2Q, but beyond that you haven't necessarily gone and dialed anything in. Is that a fair summary?

[Jeff Nugent:]

Yes. That's a good summary.

[Richard Newitter:]

Okay. If I can follow up on gross margin. The two questions on gross margin that I have are, just in light of some of the comments you just made on mixed shift, right? If there's a little bit more of a potential kind of U.S. buyers and revenue and potentially more within miraDry to the consumable piece, if it's capital that might be seeing bearing a little more of the brunt of the COVID-19 impact, what could that mean for the gross margin trend in 2020?And the second factor there of course is the manufacturing component. So just remind us what we should have been thinking about before COVID-19 with respect to your manufacturing impact on gross margin and how the new mix shift dynamics might impact the trend. Thanks.

[Paul Little:]

All right. Now on margins, I would assume that the same for '19 in the '20. I mean, again, it's the overall business, miraDry depending on the mix I would, if you have your models out there, I would assume it's relatively flat year-over-year.

[Richard Newitter:]

Okay. So gross margin looks similar in 2020 based on your current forecast situation as you did in '19?

[Paul Little:]

I had said it'd be about 60, 61% for the full company consolidated basis. Nothing has changed on that right now what I see.

[Richard Newitter:]

Okay. Thank you. And maybe one last one here. Just from a macro standpoint, can you just remind us how breast implant industry generally has fared in prior macro economic downturns? I know it's too premature to say we're headed to one, but just remind us how that business holds up when growth and the macro outlook slows. Thank you.

[Paul Little:]

If you go back to '07, if you look at between the injectables, the toxins, the fillers and implants; implants are the first and last out, toxins were the last in the first out and everything else in between. So it wasn't like a capital equipment company that I think felt a lot of the pain, but doctors only bought what they need. In this business, they're not stocking anyway. It's obviously the procedure growth from the patient. And lot of people kept their appointments but it felt, it felt it before the other non invasive procedures of aesthetics. Does that help?

[Richard Newitter:]

Yes. Thank you.

[Jeff Nugent:]

And Rich, just one other point to that and that is, we need to understand the split between augmentation and reconstruction. The increase in the reconstruction category much less discretionary and that is historically maintained a healthy total volume that I would expect to continue. But at the end of the day, it's a mathematical equation in terms of how that mix splits. So yeah, it, it's not a straight forward answer. I apologize.

[Paul Little:]

But we're 50

[Jeff Nugent:]

Certainly compared to four or five years ago.

[Operator:]

Thank you. Our next question comes from John Block with Stifel.

[John Block:]

Couple of financial questions, and then, maybe one bigger picture. Paul on the OpEx, so really good progress on the quarter, your highest revenue quarter for '19, your lowest OpEx quarter for '19. So when I look forward, is that 10 million OPEX opportunity on the restructuring, how do we think about that? In other words, is it off the full year, 140 million-ish OpEx number or off the 130 run rate that arguably you exited?

[Paul Little:]

I think the best way to look at it, if you look at it, we don't give all the details. If you look at the consensus right now, almost everyone has this at about $135 million in 2020 coming off $140 million this year. The $10 million in savings, that's really gear. It's really a more biased of course two, three and four because we still have a lot of it's integration work where people are still on-premise still working, doing their jobs, but it's more biased. So I look at it at 32 and say it's probably a little under, just given the timing, we're not going to do 32 in the first quarter, but it's not far off what the average will be for all 2020.

[John Block:]

Maybe just a follow up in an important one just to maybe we're all sort of level set correctly. The cadence to the guidance, in other words, when I look at 2019 about 21% of your full year revenue was derived in the first quarter, roughly. I'm guessing we should expect it to be lower this year due to the COVID impact being what we -- I think all hope is most acute, in 1Q '20 is there anything Paul that you want to lay out in terms of the gating or the cadence to 2020 reps?

[Paul Little:]

Not yet. I mean obviously the first quarter is always weaker lower. Lower for the miraDry side and console, since you have a big number in fourth quarter console. It's not one of your big quarters, obviously quarter two is the biggest picture. So in terms of mix, it's probably going to be very similar of a mix in terms of percentage. Quarter two across the board is still traditionally your biggest quarter and then a small by quarter four. I would assume our cadence, yes.

[John Block:]

Jeff you mentioned you guys are holding price with your breast products division? Just maybe, how is the competition trying to fight back? You're taking share, is it strictly price on their end. Is it bundling? Is there anything notable to call out between one of your competitors versus out of the other? Thanks for your time guys.

[Jeff Nugent:]

Yes. John, the best way to answer that is that the normal pricing aggressiveness is continuing, but what we're seeing is that Mentor continues to be at the very low end and we continue to take market share away from them. Allergan has given more importance to be able to gain back market share with whatever it takes. And as you know, a major advantage they have is this bundling. So what we're seeing is increased price reductions either implemented through increase advantages in bundling or straight outright implant pricing. But in spite of that, you step back and look at the share that we're taking mid 30% share growth and that we're keeping our ASP constant which is a significant message all by itself, but they're just getting more aggressive and we know that and they've got issues that they're dealing with that we've discussed before.

[Operator:]

Thank you. Our next question comes from Anthony Vendetti with Maxim Group.

[Anthony Vendetti:]

I just wanted to talk a little bit about the R&D, you're spending about 3 million to 4 million a quarter. You mentioned some of the new -- you have some new products coming out, but can you tell us kind of where most of that R&D is focused? Is it mostly focused on extensions in the breast products segment or are you looking for improvement in the miraDry system or something to compliment that?

[Paul Little:]

Yes. I'd say most of the -- in terms of peer development, most of the spinning right now at this point is on the breast business side. Also the R&D, we have our regulatory and there was as opposed to approval study, which we've increased the spend on last year to get better retention rates on the patient's side. So it's kind of -- again, it was R&D development in there and some clinical and there was the clinical still be the post approval studies. There is some obviously some minor work being done on miraDry on new indications. But as we mentioned last year, a lot of efforts right now on the miraDry side is to execute against underarm sweat. That's where the market is right now. And that's where most of the efforts.And then, in the breast side, we've talked about a few of them for larger sizes, gel sizers, and a few other elements that we can talk about once they get launched. But most development today is in breast implants.

[Anthony Vendetti:]

Okay. And then, just based on completing the acquisition of the OPUS manufacturing operation, are we going to see most of that impact in 2020 and what should that impact look like? Is that a margin impact or how should we look at that?

[Paul Little:]

I mean there is two ways to look at it. One is from, actually operational efficiency standpoint, but we are not putting in purchase orders and having to manage it at a 90 to 120 day term, we can decide -- and our decision when we shuffled around between our product line. So the speed is actually develop and make what we want is at our discretion, speed to market for some of our R&D work we can get there.Just a pure flexibility standpoint from not going to a third-party to actually do it ourselves, it's hard to quantify, but it makes a database life easier even just from managing working capital levels better. In terms from a cost standpoint, I was clear last year, the first year of this thing, it's the cost we're going to be impacted overall on consolidated Sientra, that's why we called the margin impacted about 200 to 300 basis point impact which I think most of it will be dealt into their models this year. We believe by 2021 the cost structure on the cash basis, we will get back to what we are paying, but when we sit on 10 and 11-month inventory, I will be selling through of that end of 2021.So, the real impact on margins, I think most people have anticipated is 2022 going forward with the benefits from owning it are real today, flexibility, speed to market and just managing our destiny which we really couldn't truly do especially when you are seeing our 600 SKUs, you didn't have that flexibility working with our third-party manufacturing partner.

[Operator:]

Thank you. Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to our management for any further remarks.

[Jeff Nugent:]

Yes. Thank you, operator. We appreciate everyone's attention and interest in Sientra. We are very pleased with the results that we shared with you today. We understand that there are some headwinds that we believe that we are particularly qualified to deal with. And that our commitment to you is to give you updates as transparently as we possibly can. So, with that, thank you all very much and have a great rest of the day. Thank you.

[Paul Little:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.