EXPLANATORY NOTE
In this report, unless the context indicates otherwise, the terms “Establishment Labs,” “Company,” “we”, “us” and “our” refer to Establishment Labs Holdings Inc., a British Virgin Islands entity, and its consolidated subsidiaries.
We own, or have rights to, trademarks and trade names that we use in connection with the operation of our business, including Establishment Labs and our logo as well as other brands such as Motiva Implants, SilkSurface/SmoothSilk, VelvetSurface, ProgressiveGel, TrueMonobloc, BluSeal, Divina, Ergonomix and MotivaImagine, among others. Other trademarks and trade names appearing in this report are the property of their respective owners. Solely for your convenience, some of the trademarks and trade names referred to in this report are listed without the ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks and trade names.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this report. Any statements that refer to projections of our future financial or operating performance, anticipated trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results, are forward-looking statements.
We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this report, or that we may make orally or in writing from time to time, are expressions of our beliefs and expectations based on currently available information at the time such statements are made. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results may differ from our expectations, and those differences may be material.
Factors that could cause or contribute to these differences include, among others, those risks and uncertainties discussed under the sections contained in this Form 10-K entitled Item 1A. “Risk Factors”; Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and Item 7A. “Quantitative and Qualitative Disclosure about Market Risk”, and our other filings with the Securities and Exchange Commission. The risks included in those documents are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
We are not undertaking any obligation to update any forward-looking statements. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on known results and trends at the time they are made, to anticipate future results or trends.
ITEM 1. BUSINESS
Overview
We are a medical technology company focused on improving patient safety and aesthetic outcomes, initially in the breast aesthetics and reconstruction market. We initially incorporated as Establishment Labs, S.A., a Sociedad Anónima in Costa Rica on January 18, 2004 and subsequently reorganized under a parent holding company in the British Virgin Islands on October 9, 2013. Our line of silicone gel-filled breast implants, branded as Motiva Implants, is the centerpiece of our MotivaImagine medical technology platform. Post-market surveillance data, which was not generated in connection with an FDA PMA approval study and was self-collected rather than collected at mandatory follow-ups, and published third-party data indicates that Motiva Implants show low rates of adverse events (including rupture, capsular contracture, and safety related reoperations) that we believe compare favorably with those of our competitors. We believe the proprietary technologies that differentiate our Motiva Implants enable improved safety and aesthetic outcomes and have helped drive our revenue growth. Our MotivaImagine platform enables surgical techniques that we promote as Motiva branded surgeries. We have developed other complementary products and services on our MotivaImagine platform, which are aimed at further enhancing patient outcomes.
To date, most of our revenues have been generated from sales of our Motiva Implants. We began selling Motiva Implants outside the United States in October 2010; since then, we have introduced four generations of Motiva Implants, and Motiva Implants are now sold in over 60 countries. We currently sell our products either via exclusive distributors or, in certain countries, our direct sales force. We received approval of an investigational device exemption, or IDE, from the FDA in March 2018 to initiate our Motiva Implants clinical trial in the United States and the first patient in the study was enrolled in April 2018. In March 2019, we filed our first annual report with the FDA, and our IDE study-defined enrollment targets for the aesthetic cohorts, which include primary augmentation and revision, have been reached with a total of 450 and 100 subjects, respectively. We are continuing to enroll subjects in the remaining cohorts and believe we are on track to meet all of the remaining enrollment targets in Q2 2019. We plan to enroll 800 patients in the study across 40 sites in the United States, Germany, Sweden and the United Kingdom. The results of the study are expected to support a pre-market approval, or PMA, submission to the FDA.
We have assembled a broad portfolio of intellectual property related to our medical device and aesthetics products. We believe this intellectual property, combined with proprietary manufacturing processes and the regulatory approvals we have successfully obtained outside of the United States, provides us with a strong market position. As of December 31, 2018, we own or have rights to five issued and 19 pending patents in the United States related to various aspects of our Motiva implants (such as implant barrier layers, surface texture technology, minimally invasive implant delivery systems, and our QInside Safety Technology radio frequency identification devices). In addition, we own or have rights to two issued and 38 pending foreign applications and one pending Patent Cooperation Treaty, or PCT, application. We intend to continue to expand our intellectual property portfolio and, combined with our Motiva Implants’ favorable safety profile, obtain FDA approval and drive Motiva’s adoption in the United States, which represents the largest breast augmentation market.
Our revenue for the year ended December 31, 2018 and 2017 was $61.2 million and $34.7 million, respectively, an increase of $26.5 million, or 76.5%. Net losses decreased to $21.1 million for the year ended December 31, 2018 from $34.9 million for the year ended December 31, 2017. As of December 31, 2018, we had an accumulated deficit of $89.0 million.
Our Market
Breast augmentation surgery remains the leading aesthetic surgical procedure by number of procedures globally. Approximately 1.68 million breast augmentations were performed worldwide in 2017, according to International Society of Aesthetic Plastic Surgery, or ISAPS. In addition, according to Markets and Markets’ Medical Aesthetics Market - Forecast to 2021 report of November 2016, the global breast implant market was estimated at approximately $1.15 billion in 2016 and is expected to grow at a compound annual growth rate of approximately 8.5% through 2021. The following table lists the top markets by country for total breast augmentations in 2017 according to ISAPS.
Total Breast Augmentation Procedures
Rank *
Country
Procedures
Percentage of World-Wide Total
1
United States
345,236
20.6%
2
Brazil
235,950
14.1%
3
Mexico
67,478
4.0%
4
Italy
54,045
3.2%
5
Germany
46,165
2.8%
6
Colombia
45,570
2.7%
7
Thailand
14,614
0.9%
8
Japan
7,751
0.5%
* Rankings are based solely on those countries from which a sufficient survey response was received and data were considered to be representative.
Traditional Breast Implants and Their Limitations
Despite the global demand for breast augmentation procedures, there has been relatively little innovation since the 1990s. In 1992, due to emerging safety concerns, the FDA placed a moratorium on sales of silicone breast implants in the United States that was lifted in 2006. This, combined with the ongoing FDA requirement for a PMA on all new breast implants, has discouraged breast implant innovation over the past 30 years. Current products have relatively high adverse event rates, and we believe many do not mimic natural breast tissue. The table below contains selected adverse event information from published data from the PMA clinical trials conducted by the only three companies currently approved to market silicone breast implants in the United States.
Sientra
5-Year
Allergan
6-Year
Mentor
6-Year
Number of Patients
N=1,788 Patients
N=455 Patients(1)
N=1,008 Patients
Ruptures(2)
1.8%
5.5%
3.7%
Capsular Contracture
9.0%
14.8%
13.4%
Reoperations
23.8%
28.0%
26.1%
Each of these prospective studies was conducted at multiple sites in the United States and submitted by each of these companies as their core study supporting approval, as that term is defined in the FDA Guidance on Breast Implants. Sientra, Inc., Mentor Worldwide LLC (a division of Johnson & Johnson), and Allergan plc studies commenced in 2002, 2000, and 1998, respectively, and the results described above were released in 2012, 2009, and 2007, respectively. Five-year and six-year data was chosen to increase comparability to our six-year data.
Kaplan-Meier risk rates were the primary method of analysis for the above data.
(1) Adverse events in the study were derived from the primary augmentation cohort. The overall patient population in the study was 715 patients.
(2) The total for Sientra is based on the total patient population in the study, and the totals for Allergan and Mentor are based on a substudy cohort of patients who underwent an MRI, which is lower than the overall number of patients participating in the study.