Sientra, Inc.
Q4 2016 Earnings Call Transcript

Published: 15 Mar 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Sientra Incorporated Q4 and Full Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Mr. Nick Laudico with The Ruth Group. Sir, you may begin.

[Nick Laudico:]

Thanks, operator. In our remarks today we will include statements that are considered forward-looking statements within the meaning of United States securities laws. 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 annual report on Form 10-K that the company will be filing today. Actual results may differ materially from those expressed in or implied by the forward-looking statements. The Company undertakes no obligation to update or review any estimate, projections or forward-looking statement. With that said, I’ll hand the call over to Jeffrey Nugent, Chairman and CEO of Sientra.

[Jeffrey Nugent:]

Thank you, Nick. Good afternoon, everyone and thank you for participating in today’s call, particularly considering the challenges of today’s whether unpredictability. Joining me are Patrick Williams, Chief Financial Officer, Senior Vice President and Treasurer, and Charlie Huiner, our Chief Operating Officer and Senior Vice President of Corporate Development and Strategy. During 2016, we accomplished a number of important objectives that we believe positions Sientra for a study evolution and to a leading global aesthetics company. I’m excited to outline these accomplishments as we believe they position us to build significant shareholder value beginning this year as we achieve our near-term goals including the establishment of a robust U.S. base supply chain. On today’s call, I’ll provide a review of these 2016 accomplishments as well as discuss our 2017 initiatives and long term strategic vision. We are very proud of our progress in 2016, which in many ways exceeded our internal expectations and set a clear path forward to regain growth and market share objectives. Since our commercial re-launch one year ago, we have; First, restarted commercial activities in the U.S. under our precession controlled launch strategy, which restored sales to the top tier of our previously active customers. This disciplined approach to market reentry successfully demonstrated our ability to execute to plan while maintaining our strong position relationships that Sientra is known for. Second, we strengthened our organization both with people and products throughout the year. We added key personnel to the organization who believe will be critical to our ongoing success and at the same time we diversified our product portfolio and deepened our value proposition with the acquisitions of best-in-class bioCorneum scar treatment line and we established breast tissue expander portfolio from Specialty Surgical Products, which includes the novel Allox2 dual port your platform. We also recently received FDA approval for over 150 new individual breast implant SKUs significantly increasing the range of that offering. Third, we advanced toward FDA approval of our PMA supplement to bring newly manufactured product to market by partnering with highly regarded medical device manufacturing partner Vesta, a subsidiary of Lubrizol which is a Berkshire Hathaway company. In order to ensure a long time stable manufacturing supply solution. And we took a very big step forward today, slightly ahead of schedule by submitting our meeting PMA supplement for approval of this new manufactured plan. This is something that we’ve been talking about as a key objective and focus of the company for some time and today we completed that submission. This is a significant milestone for Sientra’s breast implant resupply plans and I’m proud of the work and dedication of our organization, especially the regulatory and R&D teams that have worked tirelessly to get us to the significant milestone. Before providing more details on our recent accomplishments, I want to share with you our longer term strategic vision and put into context our initiatives for 2017 and beyond. We are positioning Sientra to become a leading diversified global aesthetics company. Breast implant products will continue to be at the core of Sientra’s portfolio and we are increasingly confident as in our goal of returning to our previous growth rate and driving our market share significantly higher. We believe we are well positioned to accomplish this goal and to move to our previous success levels as we benefit from a unique and valuable asset in our ownership of one of only three U.S. PMAs for silicone gel breast implants, which provides a wide competitive mode for us to take advantage of as we continue to expand our portfolio of surgical aesthetic products. In particular we have some key advantageous that support our strategic intent and growth objectives that include our differentiated implants supported by 10-year clinical study data and bench testing results which reflect the high-quality standards at surgeon's demand. Sientra's premium brand equity and our unique board certified plastic surgeon only and I repeat our unique board certified plastic surgeon only commitment that is only Sientra's which remains intact to swipe our recent supply challenges. I'm particularly proud of our commercial team and believe we have the most experienced and skilled sales force in the industry and I'm constantly reminder to this through the surgeon feedback I receive on a regular basis. Our growing reconstruction platform that opens up a larger addressable market than we have previously enjoyed, finally and importantly we have strong capitalization for the forcible future with a healthy cash position now boosted by the newly installed debt capacity announced today that further supports our organic and M&A growth needs. Beyond U.S. breast aesthetics we have set a goal and are beginning to put the pieces in place to expand our total addressable market opportunity and aggressively compete in adjacent markets that make the most sense given our capabilities and competitive position. Currently we participate in the roughly $360 million North American cosmetic or augmentation portion of the breast implant market where we focus exclusively on boards certified plastic surgeons and while we believe this commitment remains a responsible decision for the benefit of patients it does reduce the size of our total addressable U.S. breast implant market. As I mentioned earlier in the call we were busy in 2016 making some important tuck-in acquisitions to further expand our market opportunity. In November of '16, we purchased another line of breast tissue expanders from Specialty Surgical Products to better position us to compete in the approximately 300 million North American breast reconstruction market which includes both breast implants and breast tissue expanders. And with our bioCorneum product line we participate in the approximately $30 million scar management treatment market. Our SSP acquisition positions us to make a stronger play in the breast reconstruction market which we view as a natural logical adjacency to leverage our current calling points. And to that end we continue to look at other areas in the reconstruction space which include regenerated products such as Acellular Dermal Matrixes or ADMs and other adjacent product and technologies. We estimate that these regenerative products make up approximately 350 million to 400 million and the market in North America alone and it is logically extension to our growing breast reconstruction portfolio. Finally starting in 2017 we are no longer contractually prohibited from selling our breast products in international markets which approaches an estimated $500 million incremental addressable market. In total, we see a path towards EAM approaching $1.5 billion which is over four times our historical market focus. Our filter for additional portfolio expansion will be on those products that offer true innovation to address unmet surgical needs while also adding value to surgeon practices and incremental sales force leverage. We realized that we will face some headwinds to achieve the strategy and we will address these challenges in a focused and disciplined way. Most notably we must continue building out our broad product portfolio by improving and adding to our existing product set as well as by adding new and innovative solutions that improve the value provided to our professional customers and there are significant efforts already underway. Second, expanding our best-in-class commercial team and territory coverage to compete with larger organizations and thus making the necessary investments required to support our aggressive growth objectives. As we demonstrated throughout 2016, we have begun to address these head on by prioritizing and laying out clear execution objectives for the organization in total. In summary 2017 is a pivotal year for us since we prepare to emerge and through 2018 with our breast implant supply chain back in tech and establish the foundational origination and portfolio elements to compete aggressively and effectively in a significantly larger $1.5 billion global aesthetics addressable market. Let me turn to an update on our manufacturing supply timeline which remains Sientra's top priority in 2017 and beyond. And I know it's top of mind for all of our employees, our customers and our shareholders. As we've mentioned in the past, establishing high quality uninterrupted manufacturing supply has been the number one corporate objective for some time. The submission of our PMA supplement to the FDA ahead of plan puts us one step closer to final approval of the new commercial production and supply, that submission was made earlier today. We look forward to continued positive interactions with the agency and we'll continue to do our own vigorous internal mock inspections ahead of final agency manufacturing facility inspections as we drive towards approval by the end of this year. And I must say that we have some of the most experienced individuals in this category working very closely with us. As a reminder, the FDA has a statutory obligation to respond to our submission within 180 days following that submission. We continue to believe that we are on track for FDA approval by the end of 2017, which provides the manufacturing timeline in order to ramp up and reach full scale inventory levels by the second half of 2018. We are delighted with the progress we have made with Vesta and to be partnering with a world-class well respected manufacturer of American made medical devices. To further drive our resupply initiatives and better support our supply chain and new product pipeline we recently announced the addition of an experienced medical device manufacturing executive which serves as our Vice President of Operations and Supply Chain. This individual is extremely qualified to help us move through the hurdles that we have in front of us and he is already beginning to make significant contributions. This will be the key role in building a scalable operations function that we will be intimately involved with to contribute significantly to our short-term and long-term growth objectives and product margin targets across our growing aesthetics portfolio. As we have previously stated we will continue with the precision controlled commercial activities the existing inventory in the near-term which by the way have proven to be extremely effective and until that full-scale supply capability is restored. As a reminder, the FDA has a statutory obligation to respond to our submission within a 180 day following the submission. We continue to believe that we are on track for FDA approval by the end of 2017 which provides the manufacturing time line in order to ramp up and reach full scale inventory levels by the second half of 2018. We are delighted with the progress we have made with the Vesta and to be partnering with a world class respected manufacturer. To fully take advantage of all of this we have expanded the organization significantly. From the commercialization perspective, we continue to manage inventory with a focus on key customer relationships while dedicating more time to physician education and ensuring we maintain the confidence of our surgeons much of this education has been focused on the introductory launch of our new reconstruction products to the market leveraging peer-to-peer events to demonstrate the clinical benefits of Allox2. For example, we recently hosted a round table events focused on industry trends, best practices and Sientra products with top surgeons in New York and Los Angeles to better acquaint industry leaders with the differentiation of Sientra's portfolio. Feedback from foreign certified plastic surgeon attendees has been outstanding and we look forward to hosting additional meetings on a regular basis. In addition to our educational initiatives we also plan to reenergize our market position with a comprehensive program allowing surgeons to sample our tissue expanded products both to gain experience and to support their use with their professional colleagues. Our team has made strong initial progress penetrating into the hospital channel leveraging existing relationships and using these events to educate new potential customers. Sales force and retention initiatives throughout 2016 and especially in recent months we have worked to implement recognition program for our sales force to reward their success and to reinforce our company wide commitment to delivering exemplary customer service. We've made meaningful progress to strengthen our high performance and reward culture by setting ambitious long-term sales expectations and incentivizing our sales force to deliver the robust growth rates that we expect. I have seen that our entire commercial organization is energized and I'm confident that we have appropriately realigned to effectively progress from our precision control launch to full scale commercial activity. Over the course of 2016 Sientra has been implementing what we called the operational and cultural plan designed to maintain the motivation of our entire organization including the sales force. In all we have seen a strength of that program which has been successful in retaining the top performers of our extremely high caliber sales force. Recent feedback from our team has been the most positive the organization as ever received, especially as it relates to new products, and we're excited on our ability to build on this necessary momentum. Last, I'd like to just take a moment to provide a legal update regarding the pending litigation with our former manufacturing partner before returning the call over to Patrick. But we can't comment on ongoing legal matters, we would like to reiterate our confidence in both our freedom-to-operate and the strength of our overall position. As a reminder our formal contract manufacturer has failed to fulfill his supply obligations being unable to supply us since third quarter of 2015 and our current supply agreement with the company expires in April 2017 next month. We remain laser-focused on advancing our supply chain with our new partner Vesta through the execution of our committed timeline. We plan to provide any material updates on this matter when they become appropriate. I'll now turn the call over to Patrick for his review of our financial results and return with closing remarks before opening the line for questions.

[Patrick Williams:]

Thanks Jeff. Before I review our financial results, I'd like to provide you with some of my impression as I approach my first six months at Sientra and give some additional color on how I intend to focus my efforts moving forward. When I decided to join Sientra I recognized the significant growth opportunity for the company and that success in achieving their commercial and financial objectives is a question of when and not necessarily if. To that effect I see the company is clearly well positioned for future growth. Our management team and board of directors are well aligned on our strategic objectives and the conviction to achieve our goals to strong. I intend to strengthen the organization by instilling a culture of data-driven decision making and accountability while performing the necessary internal process assessments to ensure predictability and scalability as I have done at other high growth and highly innovative organizations. Importantly, I am focused on improving our strategic planning process that establishes specific and measurable steps to meet our ambitious revenue goals. I am confident that we will be able to overcome near term headwinds, grow our business and position ourselves strategically to grow our total addressable market to approximately $1.5 billion while optimizing our position to penetrate that market to deliver results for all of our stakeholders. With that I'd like to move into a more detailed look at our fourth quarter and full year 2016 results while offering some perspective on key metrics to help best align those stakeholders on expectations moving forward. Total net sales for the fourth quarter 2016 were $6.5 million compared to the total net sales of $1.5 million for the same period in 2015. Total sales for the full year 2016 were $20.7 million compared to total sales of $38.1 million for the full year 2015. As previously mentioned, the full year-over-year decrease was driven by our precision controlled launch, reentry designed to optimize the availability of implant inventory as we came off to voluntary hold between October 2015 and March 2016 on the sale and implanting of all Sientra breast implant devices and manufactured by our former manufacturing contractor. Breast Products accounted for 82% of our total net sales in Q4 2016 and 79% for the full-year 2016 and bioCorneum, our Scar Management Products, accounted for 17% of our total net sales in Q4 2016 and 18% for the full-year 2016. As a reminder I'd like to reiterate that we expect our breast product sales to remain steady and similar to 2016 levels through our precision controlled launch leading up to resupply. As Jeff mentioned, we anticipate having full scale inventory levels in the second half of 2018 following a manufacturing ramp up as we moved toward a return from more historical growth profile. Concurrently we expect sale of products from our tissue expanded portfolio to grow each quarter throughout 2017 as we ramp at manufacturing capacity and as our sales teams drive deeper into the reconstruction market. We see sales of our bioCorneum product growing at a steady rate quarterly throughout 2017 as we refine our sales strategy and as a growing number of surgeons sell the scar management product routinely following augmentation and reconstructive surgeries. As Jeff mentioned earlier we see 2017 as still another year of transition for the company given current inventory lower restrictions as we prepare for a more stable and robust growth following supply chain stabilization. Gross profit for the fourth quarter of 2016 was $3.9 million, or 61% of total sales, compared to gross profit of $1 million, or 64% of sales, for the same period in 2015. This decrease in gross margin percent was driven primarily by an incremental $900,000 inventory reserve related to our older tissue expander product line post our SSP acquisition, and we did see a slight favorable offset from lower fixed overhead as a percentage of total sales. Excluding this inventory reserve gross margins normalized in the fourth quarter of 2016 would have been approximately 75%. As we continue to sell through our existing inventory in 2017 we expect the gross margin to remain around 70%. Gross profit for the full-year of 2016 was $13.9 million, or 67% of sales, compared to gross profit of $27.5 million, or 72% of sales, for the full-year '15. This decrease in gross margin for the full-year 2016 was primarily due to the aforementioned incremental reserve for inventory. Operating expenses for the fourth quarter of 2016 were $12 million, a decrease of $17.2 million, compared to operating expenses of $29.2 million for the same period in 2015. The fourth quarter and full-year 2015 included a non-cash impairment charge of $14.3 million related to the write down of goodwill as a result of the significant stock price decline. Excluding this goodwill impairment operating expenses for the fourth quarter of 2016 was $2.9 million lower than the fourth quarter of 2015 primarily due to transition cost with certain former executives incurred during 2015. Operating expenses for the full-year of 2016 totaled $53.9 million, a decrease of $12.1 million, compared to operating expenses of $66 million for the full-year 2015. Once again this was due to the goodwill impairment charge of 14.3 million recorded in 2015 offset by the increase in legal expenses. Total net loss for the fourth quarter of 2016 was $8.1 million, compared to $28.3 million for the same period in 2015. And the net loss for the full-year 2016 was $40.2 million compared to $41.2 million for the same period in 2015. Net cash, cash and equivalents as of December 31, 2016 were $67.2 million compared to $79.3 million at the end of the third quarter 2016. We continue to maintain a healthy balance sheet and remained focused on maintaining a level of cash sufficient to both run our business during our precision controlled launch and to execute on our growth strategy. To that affect we have added a $15 million secured line of credit and a $5 million available secured credit facility from which we can draw upon as we look to grow our business. Additionally, as we towards accelerated revenue growth we will be providing an adjusted EBITDA metrics as we believe it is a better proxy for measuring the success of high growth organization that can experience fluctuations in working capital on quarter-to-quarter basis as well as providing a better metric to track profitability improvements. Given that we remain in a market precision control launch mode, and are still awaiting final FDA approval for our new manufacturing site, we will not be providing full revenue nor full profitability financial guidance at this time. That being said we will continue to make a dedicated effort to help ramp up investor awareness of our position in help to getting increasing number of new investors in the company oriented on our expectations as quickly as possible. I will now turn the call back over to Jeff for final closing remarks.

[Jeffrey Nugent:]

Thanks Patrick. As you can hear we have a lot to be excited about Sientra and our focus in 2017 will be on the following. First, meet our manufacturing timeline with Vesta to achieve resupply by the end of Q4 2017. We remain confident in our ability to meet this timeline. Second, continue executing the first phase of our strategic growth plan starting with driving deeper penetration of our reconstructive products. Next, build upon our already strong corporate culture through education, retention and organizational development initiatives. And last, continue to evaluate attractive adjacent assets. We remain confident on our ability to achieve these objectives as we look forward to getting back to our previous market share position in the U.S. breast implant market while expanding our total addressable market worldwide, underpinning all of this remains our commitment to steadily increase total shareholder value. With that I'd like to turn this call over now for Q&A.

[Operator:]

[Operator Instructions] Our first question comes from Margaret Kaczor from William Blaim. Your line is now open.

[Margaret Kaczor:]

First one from me is on the core augmentation business, how are you guys doing on inventory of different SKUs at this point? And can you give us any commentary or data from your plastic surgery customers over the course of the last year or whether there are any chances in reordering whether you seeing any changes in demand has gone higher as you maybe been on the market for a little bit longer or if there is been any kind of a chance in the complete response?

[Jeffrey Nugent:]

Well I can give you the update that we've been keeping an eye on, and the bottom-line Margaret is that demand exceeds supply. And that we are taking a lot more time to put together a more disciplined business plan based on what that increased demand translates to in terms of our rollout once we get the new supply approved. So I can't give you specific numbers other than the fact that we know that we have significant upside just based on the loyal surgeons that we retain very close contact with. I think that's the major premise that it gives us the confidence that we will be able to continue to increase or return to the level of competitiveness that we had prior to the unfortunate events. And that's a function of actually opening up the Vesta supply chain.

[Patrick Williams:]

Yes, I would -- just like -- this is Patrick, Margaret. I think Jeff hit on the head the demand is certainly there for us and so as we ramp up our supply, in terms of your question on certain SKUs and stuff like that I mean we are in our second year of our precision controlled launch, you never know as we move throughout the year we're making assumptions based on our current bell curve and our historical usage, we could see some maybe some challenges there towards the end of 2017, but at this point we are working through all of that and have had communications with our sales force and customers as needed, but today was a big step and moving towards that resupply in getting the approval. So I think as you know and as Jeff has talked about in the past, we've talked about as we move through the next 180 days or more with the FDA will be looking to start building some finished good products even prior to the FDA approval, so hopefully we can get that and that will certainly satisfy at least some of these issues it could have towards the backend on more popular SKUs.

[Margaret Kaczor:]

Patrick that's great. Jeff that's great. And part of what I'm trying to get at is, you talked about maybe not having full scale inventories until the second half of 2018. So what is kind of the likely launch of that on a -- one you actually do retain larger relaunch, and how conservative are you really on that outlook?

[Jeffrey Nugent:]

We’ve built in quite a conservative base assumption with an upside that these things as you know don’t happen immediately. So we are focusing on run rates which I've always paid a lot of attention to and to Patrick's point building a significant inventory prior to final approval and again as we have high level of confidence on, is going to be able to allow us to enter 2018 assuming we've got the approval and begin to take on primarily first tier customers and beyond to the next level and as we've said we'll have full complement of inventory by the second half of 2018 and that's when we expect to ramp even more aggressively. So you are going to see ramp in increase revenue both first half and second half, but like anything this is going to take some time to be able to penetrate to the levels that we previously had. Does that help?

[Patrick Williams:]

Margaret, its Patrick. I think just sort of, what exactly what Jeff just said, and to give a little bit of perspective especially as me being new to this space, I did not have a full appreciation and I certainly do now, of the level of inventory and working capital needs in order to go to market and so for instance if you do a bilateral, you are going to have implants the physician will generally say what I'd like to get a third one just in case one become non-sterile. And then what they'll say many times is, I'd like to go up one size and down one size. So to do revenue implants you are talking about nine and inventory that you want to shift out for that surgeries. And so you've got this constant kind of working capital or inventory flow that's happening and I think for Sientra as we look at ourselves and we're looking to go back to market and certainly with some of the hurdles we've had in the past with supply and intangibly disappointing some customers, we want to make sure that doesn’t happen. So I think we're probably being a little conservative as Jeff said but we want to make sure we also have a bullet of inventory as we go back to market which is why we're talking about that second half of really being able to hopefully open up the flood gates. And then it conjuncts with everything Jeff said right. It's a ramping up with new manufacturing sites and it's just getting everything in a row for us.

[Margaret Kaczor:]

Great and then if I speak one more in, the process on Allox2 seems to be going pretty well, you're seeing your customers, you're meeting with Allox and so on. What can you give us that you've done to date, when did you officially launch with Sientra with Allox2? Have to gone to GPOs have you gain new hospital contracts. And I don't think it impacted Q4 results, but could we see those newer comps and tax in Q1.

[Jeffrey Nugent:]

The answer is yes, and we've added that expertise to the organization. I don't know if we previously reported that, but that's one of the organization improvements that we've made relatively recently, but we've already made some good progress, but as you know these are things that are going to take some time as well. So there is not an instant change, there is not a switch that's turned on once we bring on these products and the relationships because it's a heavy relationship based business. So without getting into specific guidance, we're confident that we're going to be able to find opportunities to establish a strong position, we realized moves that Allox recently made, but we believe that we have the capability and the relationship particularly with the new hires to be able to make this a shorter process than it would be otherwise.

[Patrick Williams:]

And just to follow Margaret we sort of learned our lessons last time, we've launched particularly in the case of Allox2. The last time we launched a more technical and novel solution and that I'm referring to the double chamber tissue expander that we launched 4.5 years back our at our initial commercialization. And what we learned is, while these solutions do solve unmet needs they require a good amount of training both of our sales force as well as of surgeons. So this time around what we've decided to do is really look at the first half of this year, call it first six months of the commercialization as a period to really almost over train our people as well as the surgeons to make sure that the results of the implantation of that device go well and we provide the foundation for future growth. So if you think about the first half of the year, we're really calling and the introductory launch period of our expanders. We're ramping up production with our supplier out of Montana which is another subsidiary of Lubrizol. So we're ramping up production of the supply as well as to Jeff's point putting in place a contracting specialist which we just did. So really we're excited about the feedback, there is no shortage of surgeons as we mentioned on the prepared remarks. There is no shortage of surgeons looking at this as potentially a game changing device. We just want to launch at the right way and we're being a little conservative as we launch this product and really looking towards the back half of the year to really launch this in a bigger way.

[Jeffrey Nugent:]

And Margaret I don't think we answered one of your questions and that was the feedback that we've gotten from our in-depth advisory panels, Huston West Coast. And it really supports Charlie's comment that we're excited about the level of enthusiasm that we've been getting to get primarily from the some of the top reconstructive surgeons in the country. So all of our inputs to date give us the confidence that this is something that is going to create a solid position, but it is going to take time like everything else.

[Margaret Kaczor:]

Okay, Thank you guys.

[Operator:]

Thank you. And our next question comes from Jon Block with Stifel. Your line is now open.

[Jon Block:]

You guys have been as transparent as possible throughout the submission process and congrats on getting it done. I think I may know the answer to this, but just curious and want to run it by you, what are the data points, if any, between now being a submission and the approval? I guess what I'm asking is do you sort of have to go dark with the street until you had approval in hand or can we get any sort of data point along the way for example, when the FDA schedules their site visit, when it occurred and et cetera?

[Jeffrey Nugent:]

We are watching this -- well first of all, John, thanks for the question. And we've been asked this before. And while the process of final validation and the inspection by the FDA is rigorously organized there are relatively few inflection points that you pass at the stage and enter into another one. We know in great detail what all those pieces are that they'll be looking at but this is going to primarily end up with a collective over view of the entire findings and what I can tell you at this point is that, and I got to be careful here because there is a variability considering that it is driven by the FDA, but our direct communications with them have been extremely positive and I don’t want to take a long winded way to your answer your question, but as things developed through this process that are material, that we will certainly continue to be transparent and share those with you. But everything that we've seen to date and I can't count on this being the warm knife through butter and having it completed in a 180 day which would translate to a third quarter approval. We've committed conservatively that this is something that we believe will happen in the fourth quarter and if we beat that, that's terrific and we also have conservative contingencies built-in that if for some reason this does take longer, which is in our opinion extremely unlikely, that we have planned our 2017 forecast accordingly to take that into account.

[Patrick Williams:]

The one thing, John, I would add is that and I answer probably a long question on the resupply and kind of moving through the first half of '18 and into the back half of 2018 is whether or not we get FDA approval on December 31st of 2017 or let's do a 180 day cost from today whatever that map is in the middle of September, that's not going to change the supply picture for us dramatically related to sort of the cadence and revenue and how that's stuff is going to come in. We're still dealing with obviously ramping up the manufacturing and everything else and from my prior comments wanting to make sure that we really hit the ground with a nice level of inventory across all of our product lines when we get back to market here.

[Jon Block:]

Okay, perfect very helpful. And Patrick while I've got just maybe just a quick one on sort the OpEx trajectory, when we think about the run-rate it has been sitting closer to $15 million for the June-September quarter, it's a step down nicely for the December quarter closer to $12 million. So I don’t mean to split hairs but obviously when you extrapolate out for the year it could be about $10 million swing. So how should we think about the OpEx trajectory into '17 for to use that last datapoint of the $12 million that we saw in 4Q or should we learn a little bit closer to what we saw throughout the Spring and summer?

[Patrick Williams:]

Yeah, I mean we're trying -- what I think the run-rate that you have is probably around $13 million or something like that $12 million to $13 million across the area. I think it's really -- it's going to be somewhat dictated on how things go this year and the transition and we're trying to be as flexible as we can when it comes to investing in the organization. I think there is no doubt that we've been fairly acquisitive in 2016 with bioCorneum and SSP and then we just outlined a $1.5 billion sort of market opportunity. So we might go a little bit higher right and might poke up that $15 million run-rate a quarter, but some of that is obviously non-cash and everything else. So I'd like to answer your question, so let me get through a couple of more quarters here and I think what's you're going to see is something that I know both you and other folks are familiar with, is really moving to that adjusted EBITDA and starting to focus the company on what I would call really a cash proxy, which I think is very important for us, especially the fact that we just -- for us its really get adding the $20 million of access to debt here that can help us to get to these working capital needs that we have as we going into relaunch.

[Jon Block:]

Got it perfect. And last one from me and if I'll get you guys offline, but Jeff in your prepared remarks you threw out possible international initiatives and that was in that $1.5 billion TAM that you threw out. And so I get it, the clearer the focuses in the near term in the U.S. and obtaining the FDA approval in the supplement. But there does seem to be bigger U.S. opportunity and the ability to leverage invest in the manufacturing and you've got settlement on the sidelines. So just curious on how aggressive that timeline maybe internationally, especially with few constraints around the balance sheet with the lot of credit. Thanks guys.

[Jeffrey Nugent:]

Well there are a couple of ways to address that; one is, there is a significant opportunity Ex-U.S. and is of that $1.5 billion addressable market $500 million of that is in international. I don't want to send conflicting messages here John. Because it's important that we keep the organization focused on the things that we need to focus on short term. But I will say that we have already spent a considerable amount of time identifying those selective international markets and as a distinct difference from a global position, I've been through this before. I do not want a global position, I want and we've identified the most attractive international markets and it's really going to be driven by how quickly we can move through these domestic objectives. But there is a significant business opportunity profit opportunity and value creation opportunity by going at international frankly more intelligently than anybody else, that's what we're trying to do. And that's going to take time. I don't want to give you a specific date at which we're going to switch over to that, but we've already done a quite a bit work. We know where the gold is.

[Jon Block:]

Hey perfect guys. Thanks for your time.

[Jeffrey Nugent:]

Great thank you.

[Operator:]

And at this time I'm showing no further questions.

[Jeffrey Nugent:]

Well terrific, I want to thank you all for participating on this and we're pleased to be able to share what we think is a very positive story, we're delighted with the progress we've made in overcoming the obstacles that we inherited just over a year-ago. So, thank you again and have a great evening.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.