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spk09: Good day. Thank you for standing by. Welcome to Pulmonic's third quarter 2021 earnings conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Brian Johnston. Thank you. Please go ahead, sir.
spk06: Thanks, Operator. Good afternoon, and thank you all for participating in today's call. Joining me from Pulmonix are Glenn French, President and Chief Executive Officer, and Derek Sung, Chief Financial Officer. Earlier today, Pulmonix released financial results for the quarter ended September 30th, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, gross margin, and operating expenses, commercial expansion, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with the SEC on August 10th, 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 2nd, 2021. Belmonix Corporation disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Glenn.
spk03: Thanks, Brian. Good afternoon, everyone, and welcome to our third quarter 2021 earnings call. Here with me today is Derek Sung, our Chief Financial Officer. The third quarter of 2021 proved to be yet another demonstration of the resilience of our business as we navigated the unpredictable course of the pandemic. Despite significant and unexpected headwinds from the Delta variant, We generated $13.3 million in worldwide sales in the third quarter, our highest revenue results to date and another consecutive quarter of record sales. Our strong results were driven by accelerating performance in regions less impacted by COVID, highlighting the strong underlying demand for our Zephyr Valve procedure. In the United States, despite experiencing significant impact from the Delta variant, we were still able to grow third quarter sales sequentially over second quarter and set a new high of $6.9 million of U.S. revenue. We saw strong acceleration of Zephyr procedures in areas that were less affected by COVID, such as the Northeast and the Midwest. This contrasted with sales deceleration of similar magnitude in regions hard hit by COVID, such as the South, where we experienced prolonged procedure delays due to hospital capacity constraints. Outside the U.S., sales were strong in Europe as hospitals reopened to procedures with COVID cases receding across the quarter. Though procedure volumes were geographically mixed, we saw clear evidence of the growing demand amongst patients and physicians for our Zephyr Valve treatment. In the US, we added 18 new treating centers, an indication of the continued desire for new hospitals across the United States to bring our life-changing treatment to their patients. We now have a total of 198 treating centers in the U.S. and expect to easily surpass our target of establishing at least 200 Zephyr Valve Treating Centers in the U.S. by year end. We also saw continued patient interest in the procedure with sustained momentum in Stratix volumes across all our geographies and an increase of both patient calls directly into our US treatment centers and patient engagement via our website and social media channels. In terms of milestones, I'm pleased to say that this demand and growing awareness of Zephyr valves has translated into the treatment of over 25,000 patients worldwide. We've also cultivated a social media community of over 125,000 followers worldwide, enabling patients to share stories and experience of how Zephyr valves have transformed their lives. Turning to our commercial expansion plans, we have completed our planned Salesforce expansion for the year with 54 total territories now active across the U.S. and 34 active international sales territories. We expect to continue to expand our commercial team throughout next year and will provide greater detail on these plans during our next quarterly call. On the reimbursement front, we extended our string of policy wins with a major positive coverage decision from Anthem Blue Cross Blue Shield, the largest family of Blue Cross Blue Shield plans covering 34 million lives across multiple states. We also secured wins with Blue Cross Blue Shield of Michigan and Horizon Blue Cross Blue Shield of New Jersey, which together cover an additional 10 million lives. These policy wins continue to validate the clinical acceptance of our technology and reduce the prior authorization time for patients waiting to receive our Zephyr Valve treatment. Furthermore, outside the US, national treatment guidance documents in China, Spain, and Denmark were updated to recommend our procedure for patients with severe emphysema. These recommendations together with those already in place in the UK, Germany, and France will support our efforts to penetrate these markets further. Finally, our longer-term growth initiatives remain on track. We remain excited about AeroSeal, the solution that we are developing to treat severe emphysema patients who are not currently eligible for Zephyr valves due to collateral ventilation. Enrollment in our multicenter international clinical trial studying the use of AeroSeal to convert patients with collateral ventilation into Zephyr valve eligible patients has picked up as the impact of COVID on our European trial sites has waned. In addition, our efforts to introduce Zephyr valves into Japan continues to progress, and we expect to submit our application for regulatory approval to the Japanese authorities before the end of this year. All told, we remain confident in both the near and long-term prospects of our business, despite both the lingering impact of COVID and indications of increasing hospital staffing challenges. As we look ahead, we maintain our strong conviction in the underlying demand for Zephyr valves and believe we are building the foundation necessary to deliver sustained growth in the years ahead. With that, I will now turn the call over to Derek to provide a more detailed review of our third quarter results.
spk04: Thank you, Glenn, and good afternoon, everyone. Total worldwide revenue for the three months ended September 30th, 2021 was $13.3 million, a 25% increase from $10.6 million in the same period of the prior year, and an increase of 23% on a constant currency basis. United States revenue in the third quarter was $6.9 million, a 28% increase from $5.3 million during this prior year period. The record US sales reflects strong growth and continued commercial momentum of our business in regions less affected by COVID, offset by a slowdown due to procedure restrictions at hospitals in regions of the US that were significantly pressured by the Delta variant. International revenue in the third quarter of 2021 was $6.4 million, a 22% increase from $5.3 million during the same period last year. On a constant currency basis, international sales increased by 18% as hospital procedure volumes continued to recover in our European markets. Gross margin for the third quarter of 2021 was 73% compared to 70% in the prior year period. The year-over-year improvement in gross margin was driven by increased throughput and improved production efficiencies. Looking ahead, we expect gross margin to come in around 74% for the remainder of the year. Total operating expenses for the third quarter of 2021 were $19.5 million, a 52% increase from $12.8 million in the third quarter of 2020. Stock-based compensation expense was $2.8 million in the third quarter of 2021 and accounted for 34% of the increase in operating expenses from the prior year period. We continue to expect non-cash stock-based compensation to account for about $10 million of our total operating expenses for the full year 2021. We now expect operating expenses for the full year 2021 to fall between $83 and $85 million as we build out our commercial operations, invest in our research and development programs, and further scale our business. R&D expenses for the third quarter of 2021 were $2.8 million, compared to $2 million in the same period of the prior year. Aside from stock-based compensation, the increase was primarily due to an increase in personnel, clinical studies, and development-related expenses needed to support our product development and clinical research activities. Sales general and administrative expenses for the third quarter of 2021 were $16.7 million, compared to $10.8 million in the third quarter of 2020. Aside from stock-based compensation, the increase was attributable to an increase in sales and marketing expenses, as we expanded our commercial team and increased commercial activities, as well as public company expenses related to the scaling of our general and administrative infrastructure. Net loss for the third quarter of 2021 was $10.2 million, or a loss of 28 cents per share, as compared to a net loss of $3.9 million, or a loss of $1.37 per share for the same period of the prior year. An average weighted share count of 36.4 million shares was used to determine loss per share for the third quarter 2021. We ended September 30th, 2021 with $202.6 million in cash, cash equivalents, and marketable securities, a decrease of $8.9 million from June 30th, 2021. Finally, turning to our outlook for 2021. We continue to expect our full year 2021 revenue to fall within our previously communicated guidance of $49 to $51 million, albeit at the low end of this range due to additional pressures posed by COVID. This would represent at least 50% revenue growth over 2020. Our ability to maintain guidance in the face of persisting COVID headwinds reflects our confidence in the growing momentum of our business and in the underlying demand for Zephyr Valves. With that, I'd like to thank you all for your attention, and we will now open the call up for questions. Operator?
spk09: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw a question, press the pan key, and please stand by while we compile the Q&A roster. Your first question is from Larry Bill Gilson of Wells Fargo. Your line is open.
spk01: Good afternoon, guys. Thanks for taking the question and congrats on a nice quarter in an obviously very difficult environment. Glenn, can you hear me okay? Yes. Great. So I'd love to hear you talk about what you're seeing in geographies that are less impacted by COVID in terms of the growth and utilization. And if you think we'll see those types of growth rates and utilization rates in other geographies once COVID subsides and You know, in addition, can you talk about the strong screening volumes that you mentioned in the press release? And I have one follow-up.
spk03: Well, what we're seeing in the geographies that are less impacted is precisely what we expected. I mean, we're seeing a strong performance, strong revenue generation. We obviously, those were able to sort of overcome the The tougher areas that were shut down, we had certain geographies that were completely shut down for part of the quarter. We all read about those in the headlines across the southern part of the U.S. and in the southeast. And so those are the areas that we would expect that when COVID headwinds subside, that these things will continue to charge forward and we won't be sort of running along with one hand tied behind our back, so to speak. The second part of your question was related to?
spk01: Screening. You talked about in the press release, you know, strong screening volumes.
spk03: Yes, we have seen one of the strongest indicators of screening is Stratix scans. Depending on the geography, that happens either early on or later in the assessment process. And we saw an increase in Stratix scans in the U.S., low double digits in terms of percentage increase. And on the international front, most particularly the bulk of our businesses in Europe outside the United States, we saw a significantly stronger increase in Stratix scans when you look at the third quarter versus the second quarter, which makes complete sense to us given that the U.S. and the challenges that we're facing with COVID are challenges that the Europeans have already gotten through, at least on this last very large wave of COVID that hit around the world.
spk01: That's helpful. Just one follow-up for Derek. So, Derek, we understand Q3 was a challenging quarter, but you came in line with consensus. So, what are you seeing you know, that lead you to believe you'll be at the low end of the full year guidance. You know, historically, you guys have shared a metric with us about the number of percenters doing procedures. Anything you can share with us on how Q3 compared to Q2 and kind of what you're seeing now? Thanks for taking the questions.
spk04: Yeah, thanks for that question, Larry. So, you know, just in terms of what we saw in Q3 and what we're moving forward to in Q4, you know, in Q3 we saw coming out of Q2, you know, really strong sort of sales momentum there. building through the quarter and this built through into July. And so we saw, you know, strength in July across the board, across all our geographies. And then as the COVID, you know, Delta variant really began to impact the U.S., we saw we started to see deceleration in specific regions of the U.S. that were, you know, impacted by COVID. by COVID. So our Q3, our strength in Q3 really comes from strength in July across the board, across all geographies, and then continued strength and momentum in the regions both within the U.S. and outside the U.S. that were not as impacted by COVID through the remainder of the quarter. So as we look to Q4, you know, really kind of the dynamics that are at play here are really kind of the recovery in those regions that were impacted by the Delta variant. And, you know, what we're seeing is that that recovery, while we've clearly bottomed, and we seem to have bottomed in kind of late September or early October, you know, we expect that recovery to be gradual. And so given the strength of what we saw in the early part of Q2 in July and the, you know, increased impact of the Delta variant that we hadn't fully factored into our guidance when we provided it, Last quarter, that's what leads us to determine that we'll be likely falling at or near the low end of our guidance for the year, and that applies to Q4.
spk03: Just to put that in additional context around that, I think one of the things that's important to remember as you look across this quarter in particular is is that though sort of this bottoming out, if you will, that happened in September continued into October, we saw a strengthening in the back, an improvement in the back part of October. And as we look forward into November, we effectively lose nearly a week in November in the United States and the better part of two weeks in December. So this sort of flatness across the quarter, if you were to calculate it on an average daily sales basis, taking into account those challenges in November and December, I think that the curve's going to look pretty strong.
spk01: Thanks, Glenn and Derek.
spk09: Your next question is from Bob Hopkins of Bank of America. Your line is open.
spk07: Oh, I thank you, and good afternoon. Just to follow up on that. So are you saying, um, Glenn, that the guidance for Q4 contemplates on improvement throughout the course of the quarter in average daily, uh, you know, sales numbers? Um, just want to be sure I understood that is, you know, what you're assuming for the fourth quarter relative to how you kind of exited the third quarter.
spk03: Yeah. Well, so there's a couple of points there. One is the exiting of the third quarter. Um, was down. I mean, one of the metrics that we've looked at before is the active accounts. And the proportion of our U.S. accounts that were active went down across the third quarter and continued down, not further down, but sort of down at that bottom through October. But in the back part of October, we saw some real nice strengthening. So it wasn't a You know, we didn't have a great exit velocity coming out of the third quarter. What I was saying, so we strengthened in October. We put up an okay number in October, and we imagine that that number will be matched in November and December. But November and December are handicapped by fewer days. So if you divide by the number of selling days, a smaller number in November and an even smaller number in December, the average daily sales numbers will be strengthening in the back part of this quarter.
spk04: Got it. If I could just jump in and add a little color to that as well, Bob. I think if you look at it on a pure dollar number, based on the fact that there are fewer selling days in the Q4 than last, And in particular, as Glenn mentioned, you know, there aren't a lot of procedures in the U.S. that are done the week of Thanksgiving or the last couple weeks of the year. You know, from a pure dollar amount, we would expect the U.S. in Q4 to be, you know, relatively flat sequentially to Q3 from a dollar perspective.
spk07: Okay. Okay. I think I got it. And one other question, just... I know it's early, but do you guys have any kind of early thoughts given how weird a year it's been and how long it might take for you guys to kind of get new accounts going again? Consensus is up at $77 million for next year, which is a super healthy growth rate. It might strike me that that's a little aggressive just given all the work that has to be done. Any preliminary thoughts on that or too early to comment?
spk03: I think it's probably too early to comment. We're looking forward to getting specific on that front in our next call. I will say that as it relates to COVID, I mean, we don't expect COVID is going to disappear. But what we have seen is that we, and probably more appropriately, the healthcare systems around the world have become increasingly adept at managing COVID. And as more and more people get vaccinated, there's fewer and fewer people that are heading to the hospital or into the intensive care units, which we're super sensitive about. And when I look at kind of a good example of how that's shown itself, you know, I think about our 2020 numbers being essentially a match to 2019. I mean, we were flat in 2020 because we were shut down for a good part of the year. Though the COVID impact on 2021 was at least as much as what we saw in 2020. You know, we're on track, as Derek had said and indicated, we're still tracking toward consensus or toward the target that we had provided, which represents about a 50%, a little bit better than a 50% increase year over year. So I think that that shows that everyone's getting a lot better at managing COVID. And I think as we look into next year, I would expect that COVID will not be gone, but that we will continue to move in the direction of, you know, everybody will be managing it much better.
spk07: Got it. Thank you.
spk09: Your next question is from Cecilia Furlong of Morgan Stanley. Your line is open.
spk10: Great. Thank you for taking the questions. Glenn and Derek, I wanted to start just on second straight quarter of very strong new account growth in the US. But just how you're thinking about going forward, the potential to continue to add at this kind of closer to 20 accounts per quarter rate. And then just alongside that, any other commentary you could provide from a physician training standpoint, what you've been able to do over the last several months, notwithstanding COVID headwinds?
spk03: Yeah, so the new accounts, you know, we feel fortunate. We were able to do 20 and then 18. But I do believe that in these COVID quarters, it's very tricky. And the fourth quarter is a COVID quarter. So I think that we would be very lucky to put up a number like we have in the last couple quarters. So I don't see that accelerating as it relates to this quarter. As it relates, so I think we've been saying that there would be more around 10 to 15 would be a number that would seem reasonable to us for the coming quarter. As far as doctor training goes, we got pretty good at training folks remotely during the height of COVID. We've started back up face-to-face training, which we think is better, and we have been executing at least one training class per month. Those have been oversubscribed. So there's a waiting list for each of these. And we are in the process of opening up an additional training center in another geography to help support that demand.
spk10: Okay, great. And I wanted to ask as well on the staffing shortage commentary that you touched on earlier just how much of a headwind that was in 3Q when you really started to see this evolve? And as you think about 4Q, just how much pressure you contemplated from that standpoint? Thank you.
spk03: That's a great question. We've definitely been hearing about it, and we experienced some of it in the third quarter. I would not – I mean, if I had to lay COVID next to staffing shortages in the third quarter, clearly COVID was a bigger impact. and staffing shortages. But what has happened is, and I'm sure you guys have heard this, and what I'm about to say is entirely my perspective on this, but a lot of people have gotten fatigued from COVID. There's a lot of reasons why people are stepping away that are related and unrelated to COVID, whether that be vaccination or just fatigue or what have you. But the... The availability of resources is being constrained and the competition between hospitals to secure those resources, particularly those that allow them to do procedures and so forth and generate revenue, has become truly extraordinary. And so there's a lot of demand and not only individuals but groups of people are getting attracted away from centers and there's this mad scramble. I think as I look ahead, I would imagine, I don't know how COVID and staffing will balance in the fourth quarter, but I'm quite certain that staffing will become a more pronounced theme in the fourth quarter than it was at least for us in the third quarter.
spk10: Great. Thank you for taking the questions.
spk03: Yep.
spk09: Your next question is from Rick Wise of Seifel. Your line is open.
spk08: Good afternoon to you both. Maybe, Glenn, we could start with the really solid international performance. Is it the recovery from COVID? I know you added a couple of new international sales territories. I'm not sure. In the second quarter, you had ended up at 30. I'm not sure whether that expanded again. Maybe I missed that. Maybe you could talk about that. And sort of where from here? I mean, you outperformed my international numbers Is another strong quarter expected as well in the fourth quarter?
spk03: Yeah. So what's happened in some of these markets, and of course we're in about 25 different markets around the world. Most of our international sales come from Europe. And I think one of the things that was pretty remarkable for us was probably the biggest concern country that reawoke was the United Kingdom. And the United Kingdom is the nation in Europe that has the least capacity to withstand any kind of an insult. I mean, it's not uncommon in the last six years. There were several occasions where our business was down for a month here or there because of a tough flu season. So to get the U.K. back and running was a real plus for us, and it made a nice contribution, and we're our third largest international market in the last quarter. Germany also came back. France came back strong. These are all major markets for us. So that's where our strength was. As far as number of territories, it did go up. It wasn't material. It's sort of just filling – taking advantage of opportunities and geographies that weren't optimally covered. We added somebody in Western Switzerland that we didn't have before. We picked up a resource in Italy. So there's a number of different – one in China. So there's a number of different folks. We ended the quarter with 34, so – I wouldn't look at that and say it's more than – I mean, it is more than a 10% expansion of the size, but it didn't really drive revenue per se. But it does put us in – we're very opportunistic. We have a low threshold for adding reps where it makes sense. We saw an opportunity, and we took it.
spk08: Great. And just as part of that, to make sure I'm thinking about it correctly, I think the U.S. revenues per procedure is something like $11,000, if I remember correctly. Please correct me if I'm wrong. Is it the same internationally, less or more? Just a quick reminder.
spk03: Just a little bit less. We talk about $10,000 as the sort of global average revenue per procedure, and our number in the U.S. is about 11. Great.
spk08: And if I could finish up with a couple of guidance questions, just to make sure, Derek, I'm understanding some of your comments. The commentary about the fourth quarter revenue reduction, not unlike the third, if I'm adding up correctly here and I bump you up, let's say, more in the 13.5 range for the fourth quarter, that would be a little over $48 million, slightly below your range. When you say at the low end of the range, does that incorporate a little below? I'm not trying to get too cute, Derek, but I just want to make sure I'm hearing you correctly. Okay.
spk04: Yeah, thanks for the opportunity to clarify. So when I was referring to relatively flat, I was speaking about the U.S. specifically. So we do expect a sequential increase in OUS revenue. So to get to kind of the bottom end of our guidance of $49 million, another way to look at it would be to say, you know, roughly we might expect kind of a 50-50 or so mix between OUS the U.S. and OUS in Q4. But the relatively flatness on an aggregate dollar value is the U.S., and we would expect a modest increase sequentially outside the U.S. in revenue dollars.
spk08: Gotcha. Gotcha. I'm glad I asked. And two more P&L questions, if I could. You said that gross margin, you said 74 – if I heard your words correctly, 74% quote for the rest of the year. Does that mean – For the full year or for the fourth quarter? Just wondered what you intended there just to make sure.
spk04: For the fourth quarter, we expect gross margin to be back up to 74% in Q4.
spk08: And that's because even on roughly similar equal volumes, roughly –
spk04: Right. Exactly. So we've averaged a gross margin of about 73% through the first nine months of this year. That's been primarily driven by increased production throughput, leading to increased overhead absorption, as well as some other cost reduction initiatives that we have in place. We continue to expect those... initiatives to, as well as overhead absorption, to continue to step our gross margin out from where we are today. In Q3, in particular, this quarter, we had a little bit of higher scrap costs that are one time in nature, so we feel comfortable that we'll be back up to 74% next quarter. And then moving forward, gradually, we continue to expect that we'll be moving up from 74% over time due to these continued initiatives that I mentioned.
spk08: Gotcha. And one last one, if I could. OpEx, again, if I'm understanding correctly, I think your prior guide was 85 to 90. Now you're saying 83 to 85. Can you help us? I mean, that's excellent. Good. Can you help us appreciate what's happening there? Thanks so much.
spk04: Sure, Rick. So on the OpEx side, you know, we continue, of course, to focus on expense management, and certainly we were happy to see this drive some incremental leverage across our P&L, you know, throughout the first nine months of the year. So that's one piece to it. The other piece is timing-related. It's simply timing-related in that there's some spend on the R&D side, particularly on the clinical research side related to aerosol that has been impacted by COVID, so some of that clinical spend we expect to be pushed out a little bit into Q4 and maybe into next year. So those, I'd say, are the two drivers of the OPEX, our expectation of OPEX coming in slightly lower than the range that we had originally set out for 2021. I will say that in Q4, though, we do expect a, you know, meaningful step up of a few million as our guidance implies from Q3 to Q4. And, again, we expect that to be coming from clinical spend and AeroSeal on the R&D side and continued investments in SDNA as well as some, you know, sort of typical year-end increase in professional services that we'll see on the SDNA side.
spk08: Thanks for all the details.
spk09: Your next question is from Bill Flavanick of Canaccord. Your line is open.
spk00: Great. Thanks for taking my question. Really, you know, COVID obviously masks a lot of things. So what I'm trying to get a feel for is, you know, in the areas, at least the geographies in the U.S. that weren't impacted, I was wondering if you could give us any color granularity on what the penetration of an account looks like, a mature account, and kind of what volumes you might be getting to and whether that be your top 10% of your accounts that weren't impacted in the quarter or you've had them for two years, the longest mature accounts. Just trying to get a feeling for what a top account looks like that maybe didn't have a significant impact from COVID.
spk03: Yeah. Well, nobody's been untouched by COVID. So this is just kind of this last wave and it's a relative thing. So everybody got hit to some extent, some way more than others. And nobody has avoided getting hit very hard some number of times in the past. And so we, we have no, when you talk about like a two year horizon or something, there's nobody who hasn't been down for months through that time point. So, you know, the good news is we had 200 accounts in the United States roughly. And so when these things, it is always moved along in, never really knocking down everybody at once, but moving across the geography. And I would say good is, you know, what people are striving toward is to get to a place where they're, you know, sort of running at $500,000 to $1 million kind of run rate on an annualized basis. That's what good looked like in the pre-COVID phase. That's what good looks like today. And, you know, I think that we saw, Real nice growth in these unimpacted areas. You can figure it out. The kind of growth that we delivered was, I think, solid sequential growth in the face of the headwinds that we saw. If you look over the growth over the prior year's quarter, it was also very strong and it was largely driven by not only by these sites, but had to counteract the downside that we experienced in places like Texas and across the South through Florida in particular, which are Texas and Florida are some of our bigger markets.
spk00: Okay. Thanks for taking my question.
spk09: Your next question is from Joanne Winch of Citibank. Your line is open.
spk02: Good evening or afternoon, and thanks for taking the question. I have two. I'll put them out at the same time. The first has to do with covered lives. You added quite a number in the quarter, and I'm curious. I don't want to say how many more, but what significant pockets are still open? And my second question is for outside the United States. Could you remind us of what the opportunity in Japan looks like? Thank you.
spk03: Got it. Okay. So as far as covered lives go, just to be clear, 75% of our business is paid for by the government, 25 by commercial payers. But of that government business, about a third, 25% of the whole, is managed Medicare. So those patients go for for prior authorization through commercial payers. And so that's why we're focused on just trying to reduce the timeline. And at Blue's plans, most particularly at Michigan, Blue Cross Blue Shield Michigan, and at Anthem, it was taken a long time, like 90 days and sometimes even longer to get prior authorization to go ahead and do the procedure. So getting those plans to the right place shortens that timeline. Better than 95% of the time when we seek prior authorization, we get it. So it's not a question of whether that patient can get treated. It's just a question of how efficiently we can move through things. Now, one way to think about kind of where we are is that we pretty much have all the big players. I don't think there's, you know, we had said that there certainly aren't many that are left that are the size of Michigan or Horizon that we just recently flipped. So the way I think about it is Blue Cross Blue Shield Association is the only big payer that's negative. And before Anthem flipped, we had about a third of Blue Cross Blue Shield Association affiliates that had flipped. Anthem represents another third, so we're about two-thirds through. And then the other third is something like 30 or 40 little We feel like we're chopping down the tree, the tree being Blue Cross Blue Shield Association, by taking the limbs down. And there's really no big limbs left. So that's where we are on that front. And all the other ones are neutral or positive. And from a reimbursement preauthorization perspective, it really doesn't matter so long as they're not negative. So this was a really big period for us to get those 44 million lives. From a Japan perspective, we sized that at about 20% the size of the U.S. opportunity, which makes it arguably our second largest opportunity on a national basis, so we're very excited about moving forward in Japan. So it's a good-sized opportunity for us, a very, very good-sized opportunity for us. And we're moving ahead there. We expect to have the submission in by the end of this year. We're going to go ahead and expect that by the end of next year we'll have approval, and then it goes through about a six-month reimbursement process, and we see ourselves potentially commercial in 2023, probably in the latter part of that year.
spk02: Thank you very much.
spk09: Once again, to ask a question, please press star 1 on your telephone. Your next question is from Jason Bednar of Piper Sandler. Your line is open.
spk05: Hey, good afternoon. Thanks for taking the questions here. I did want to ask about the recovery here in business trends that you spoke to kind of coming out of the latest COVID wave. You know, Derek, I think you alluded to business coming back in a gradual fashion here for the fourth quarter. But I think in the past you've talked about business coming back maybe in more of a quick fashion following past COVID waves. So I guess was this wave a bit different in how it's impacted you? Are you factoring in additional conservatism? Is it the staffing dynamic that's maybe holding back the normal post-COVID wave surge? Any additional color there would be appreciated.
spk03: Jason, I'm going to go ahead and jump on that one. As we look forward, this year-end thing is very interesting, and we are seeing a dynamic where I think because of some of the staffing challenges that there are some folks who are saying we're going to just get restarted in the new year. So that's a non-trivial theme that we've heard. And so I think that staffing, as I sort of earlier alluded to, is going to impact us as we move through the fourth quarter. But we factored that in and we're pressing forward. COVID is we're still pulling out of COVID on a number of fronts in a number of geographies. And in some cases, I think we're all looking at the same data. COVID is not done with certain geographies. So I think that's all sort of factored in. As it relates to the normal kind of bolus that we get across one or two months coming out, you're exactly right. We've seen that a couple times in the past. We don't expect to see it here, and I think it has to do with the dynamic that I just talked about. I think some of it is coming toward the end of the year and people saying, why don't we just do this in the new year? But we're scheduling a bunch of cases. There's a lot of activity going on. But I expect that to the extent that there is what would normally be a bolus that would be spread across two months, I think it will be spread more broadly because of the end-of-the-year impact and for the reasons that I just described.
spk05: Okay. That makes sense. That's really good. And then I guess, Glenn, you and I have talked about this in the past, but maybe hoping here you can provide some color just really how the approach is playing out and having those assessment centers that you've got on your site, you know, just serving as a feeder network into your training centers. You know, is this something that you're looking to expand further as we think out to 2022 or, you know, any learnings from that experience and having those assessment centers that you can use here going forward? Thanks.
spk03: Yeah, as we talked about earlier, the last time we spoke on this subject. There aren't many of these assessment centers, and I think most of them are flipping to being treating centers. I think the concept is that we're trying to explore a multitude of ways to sort of enrich the profile of the patients that are arriving at treating centers. And so that was the original concept behind assessment centers. where you might have an assessment center in Missoula, Montana, that would send people into wherever, Spokane or wherever the folks in that area would go to. And I think what's happening is there's a certain amount of work that has to go into that process, and the trickiest or the most challenging part of delivering our treatment is not the procedure itself. So I think the physicians that are there are saying, well, maybe we ought to just become a treating center, which works out fine for us. But this idea of coming up with tools to help the clinical coordinators at treating centers move patients efficiently through the workup process, decentralizing or distributing the assessment process out to referring doctors or referring centers, is something that we have been working on in a pilot fashion. And it's all just a way to try to increase flow through the tube as it relates to moving patients toward treatment.
spk05: All right, great. Very helpful.
spk03: Thanks so much.
spk09: At this time, I would like to turn the conference back to the presenters for any further comments.
spk03: Well, thank you very much. I'd just like to close by saying that we are very pleased with having delivered another record quarter. This was largely driven by performance of sort of the less COVID-impacted geographies. The fundamentals related to our business, specifically patient engagement, Stratix scans, case volumes, remain strong and strengthening. Thus, we remain quite optimistic about what's ahead for us, and we thank you all for your time and your ongoing interest in pulmonics.
spk09: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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