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The year 2007 marked the fifth year of U.S. sales and marketing experience with the Essure® system in permanent female birth control. At Conceptus, we have been making impressive and tangible progress in establishing Essure as the gold standard in this very large market, and we are proud to report a 54% increase in sales over the prior year. Our product continues to perform exceptionally well in the field. By the end of 2007, there were approximately 170,000 women worldwide relying on the Essure device for birth control, which represents an increase of 70,000 from the end of 2006. Patient and physician satisfaction continue to be high, as does product effectiveness—especially when compared with other forms of birth control. The Essure device has a two-year effectiveness rate of 99.95% and a four-year effectiveness rate of 99.8% approved by the U.S. Food and Drug Administration (FDA), and we still have no pregnancies reported in our ongoing monitoring of women in our Phase II and pivotal clinical trials followed for five and four years, respectively. We have managed a successful transition of the Essure procedure into the physician office where the procedure is performed under minimal anesthesia. We have long believed that the office is not only the most convenient and satisfying location for the patient, but it is where the physician is logistically and economically more efficient and represents the lowest cost site of service for the payer. Ultimately medical procedures move to the best location for everyone, and we are very satisfied with our ability to move hysteroscopy in general, and the Essure procedure in particular, to the office environment. The Essure procedure is redefining the standard for permanent birth control. The old standard, surgical tubal ligation, no longer represents the best in patient care. With a tubal ligation, not only are there the incisions and anesthesia from which a patient must recover, but there is also a meaningful possibility that over time the surgery could fail, allowing pregnancies to occur. The Essure procedure, by comparison, is quick, simple, safe and remains highly effective over time. However, one of the biggest challenges we continue to face is overcoming the reluctance of OB/GYN physicians to aggressively position Essure as the best permanent birth control option to their patients. While physicians trained on Essure agree on the numerous benefits of our technology, they believe that birth control is a personal decision for each patient and that the physician is responsible for offering a variety of options and should not necessarily recommend one over another. This attitude is different from that exhibited generally by other medical specialists, but it is understandable for this physician group given the high rates of medical malpractice claims associated with this particular practice. As a result our physicians believe that it is industry’s responsibility to provide patient education. In 2008 we plan to begin raising awareness of the extensive benefits of the Essure procedure among women directly. As a result of this campaign we expect women seeking permanent birth control will ask their physicians about Essure and, if necessary, seek a referral to a physician who performs the procedure. 2007—Transitioning to the Office
2008—Raising Patient Awareness of In-Office Sterilization In the current year we will continue to execute on a strategic vision established several years ago. In that vision, we anticipated the day when our efforts would shift from building physician awareness and penetration to building patient awareness. At that time, we identified a gap between the numbers of physicians who performed the Essure procedure in the office versus the hospital. With a growing number of 2,000 physicians representing 46% of revenues in the office channel, we are able and excited to begin focusing on building patient awareness. As the market leader, we are doing what one would expect—building the market and making women aware of this revolutionary technology. During 2008 we expect to spend more than $9 million on building patient awareness. The largest part of this expenditure will be a DTC program in eight cities, which is expected to reach a total of 16 million Americans. We estimate there are between 37,000 and 40,000 tubal ligations a year performed in these eight cities. Although we expect that it may take nine months or more to convert women in these cities to Essure, we do expect an attractive return on these expenditures. We also expect that this program will provide us with essential additional information to plan and budget advertising in 2009 and beyond. As we have repeatedly stated, it is our intention to take a balanced approach to DTC advertising so as not to negatively impact overall company financial performance, and we intend to remain focused on achieving profitability at the same time we are building patient awareness. In 2008 we are also positioned to benefit from several other programs on which we have been working for several years. First is the acquisition of Conceptus SAS, which we believe will bring a significant increase in international revenues as we now will record net sales at end-user prices instead of at distributor prices. Next, in the fourth quarter of 2007 we launched the third-generation Essure device, from which we believe we will see financial benefit in 2008. Lastly, we expect a long-awaited coverage decision from California Medicaid. This will provide us an open door to penetrate both the private and public markets in our home state. We are hopeful that this expected coverage decision in California could also encourage other states to cover Essure for in-office procedures or provide an increase to reimbursement amounts in states where a coverage decision has already been made. We believe that 2008 will be another very exciting and productive year for Conceptus, as we continue the missionary work of bringing a new medical technology to the standard of care. With physicians continuing to tell us the Essure procedure is easier to perform, and is much less risky and less expensive for the healthcare system than traditional incisional surgery, we remain confident that the Essure procedure will take its place as the gold standard for permanent birth control. We will continue to drive the paradigm shift towards the in-office environment where the Essure system stands heads and shoulders above the surgical alternative and where, most important of all, the patient experiences all of the benefits of our safe, effective and convenient procedure. As we look forward with optimism, I would like to thank our employees, customers, patients and shareholders for their support. Sincerely, Mark Sieczkarek President and Chief Executive Officer April, 2008 |
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