Q3 2022 CVRx Inc Earnings Call

November 1, 2022

Good day, and thank you for standing by.

Welcome to the <unk> third quarter 2022 earnings conference call.

This time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

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Please be advised today's conference is being recorded.

I would now like to hand, the conference over to Mark Baum with C. D. Rx. Please do go ahead Mike.

Yeah.

Good afternoon. Thank you for joining us today for <unk> third quarter 2022 earnings conference call joining.

Joining me on today's call are the company's President and Chief Executive Officer at the EMEA right.

Financial Officer Jarrett Ocean.

The remarks today will contain forward looking statements, including statements about financial guidance.

These statements are based on our plans and expectations as of today, which may change over time.

In addition, actual results could differ materially due to a number of risks and uncertainties.

Including those identified in the earnings release issued prior to this call and in the company's SEC filings, including the upcoming Form 10-Q that will be filed with the SEC.

I'd now like to turn the call over to <unk>, President and Chief Executive Officer <unk> <unk>.

Mike.

Thanks to everyone for joining us today I'll begin today's call by providing an overview of our third quarter performance followed by an operational update and review of our financial results by our CFO <unk> <unk> and then I will conclude with our thoughts for the rest of 2022 before turning to questions and answers.

Starting with a review of the third quarter. Our total revenue was $6 $2 million, an increase of 82% over the third quarter of 2021.

These results were driven by the continued execution of our growth strategy in the United States and internationally.

In the U S. Our heart failure business generated $4 $9 million approximately doubling the third quarter of 2021.

This growth was due to positive impact of our commercial expansion strategy supported by an increase in marketing and awareness campaigns.

Now for an update on operational development during the third quarter to support greater adoption and use of better step our focus areas are one the continued expansion of commercial infrastructure to innovation of our product portfolio.

Three the expansion of the clinical body of evidence.

Starting with the continued expansion of our commercial infrastructure.

During the quarter, we added three new takeaways, bringing the total to 23.

We continue to expect adding on average three new territories per quarter targeting 2006 territories by year end.

We are gaining traction with several of our marketing programs, including our direct to consumer pilot the new branding campaign and expanded patient education programs. We will continue to prudently invest in new marketing initiatives assessing the ROI of each before rolling them out more aggressively.

Our second area of focus is innovation of our product portfolio.

During the quarter, we officially launched our new implantable pulse generator, which is smaller in size than the prior generation and has 20% longer battery life on average and our new programmer, which is a tablet form factor with an even simpler programming interface. We are excited about these upgrades as they highlight our commitment to bringing.

Innovation to our customers our third focus area is the expansion of our clinical body of evidence.

The beat <unk> clinical trial is designed to demonstrate that better still provides a mortality and morbidity benefit additional to the reduction of symptoms of heart failure in patients for their use ejection fraction.

I am pleased to report that we recently accrued the required 320th event in the trial.

We are now working to ensure that we have collected and monitored all events through that date. So we can then unblinded data and begin to analyze it which we believe will occur during the first half of 2023.

We want to remind everyone that the post market phase of the beat each F trial has one primary endpoint, which is a composite endpoint that includes cardiovascular mortality as that heart transplant in heart failure, hospitalizations, and multiple potentially meaningful secondary and ancillary endpoints and please.

Specified analysis.

Our desired outcome from this post market trial is an expansion of indication of barristan, we plan to submit to FDA. The totality of the evidence and our corresponding analysis when we unblinded data.

Based on our interpretation of the evidence and if it supports it we plan to submit at that time, our recommendation for an expansion of indications. However, the decision to modify the labeling is made by FDA based on their own analysis of the totality of the evidence and possibly by <unk>.

Something with a panel of independent experts.

As such at this stage it is near impossible to plan for a specific scenario is the totality of the evidence may provide a more nuanced outcome than a simple binary answer.

This is the reason why in our internal projections, we have relied on a conservative assumption that does not include any indication expansion based on the results of the trial and any of the potential positive outcomes, leading to indication expansion would be incremental to that model.

Let me repeat that this is not because we are pessimistic about the outcome, but rather it is our attempt to be conservative in setting expectations for long term growth.

We also believe that the current reimbursement levels for <unk> in the U S have been established based on the current indication of symptomatic treatment of heart failure.

We continue to believe strongly in this therapy and what is doing for patients.

We are looking forward to seeing the totality of the evidence gathered in the post market phase of this trial and sharing it with the treating physicians with their patients and with you.

Turning to an update on our <unk> trial.

With some of the macro disruptions experienced at hospitals during 2022 enrollment has been slightly slower than expected with.

We now expect to complete enrollment in 2024, rather than by the end of 2023, we remain enthusiastic about the prospects for this ultrasound guided implant toolkit that will make the procedure even less invasive.

We are pleased with the consistent commercial execution and expansion of Patterson.

Especially progress without heart failure business in the U S.

I want to express my gratitude to everyone at CVR acts for the outstanding work. They do every day.

I'll now turn the call over to Jared to review our financials Jarrett.

Thanks Nadeem.

Total revenue generated in the third quarter was $6 2 million, which is an increase of $2 $8 million or <unk>, 82% when compared to the same period last year.

Revenue generated in the U S was $5 million in the third quarter, which is an increase of 96% over the same period last year.

Failure revenue in the U S totaled $4 9 million in the third quarter on a total of 167 revenue units as compared to $2 5 million in the same period last year, an 84 revenue units. The increase was primarily driven by continued growth as a result of the expansion into new sales territories new account.

And increased physician and patient awareness of barrel stem.

At the end of the third quarter, we had a total of 91 active implanting centers as compared to 38 at the end of Q3 2021 and 71 at the end of Q2 2022 at.

At the end of the third quarter, we had a total of 23 sales territories in the U S compared to 11 at the end of Q3 2021 and 'twenty at the end of Q2 2022.

Revenue generated in Europe was $1 $1 million in the third quarter, which is an increase of 39% when compared to the same period last year total.

Total revenue units in Europe increased from 38 in Q3 2021 to 61 in Q3 2022. The increase in revenue was primarily due to the lessening impact of the COVID-19 pandemic in Germany, and our continued investments in the European commercial organization, partially offset by an unfavorable.

Currency impact on revenue gross profit was $4 8 million for the third quarter, an increase of $2 $3 million when compared to the same period last year.

Gross margin increased to 78% for the third quarter compared to 74% for the same period last year gross margin was higher due to a decrease in the cost per unit. This was partially offset by a decrease in the average selling price.

And due to a larger percentage of our revenue units coming from full systems versus battery replacements.

Research and development expenses were $2 3 million for the third quarter, which is an increase of 35% when compared to the same period last year. This change was primarily driven by increases in compensation expense due to increased head count.

SG&A expenses were $12 7 million for the third quarter, which is an increase of 56% when compared to the same period last year. This was primarily driven by increases in compensation expense due to increased head count and also due to increases in travel stock compensation and marketing and advertising expense.

As related to the investments associated with the commercialization of <unk> in the U S. Net.

Net loss was $9 8 million or <unk> 48 per share for the third quarter as compared to a net loss of $6 1 million or <unk> 30 per share for the same period last year.

Net loss per share was based on approximately 26 million weighted average shares outstanding for the third quarter and approximately $20 1 million weighted average shares outstanding for the same period last year at the end of the third quarter cash and cash equivalents were $110 million.

Net cash used in operating and investing activities was 11 4 million for the third quarter compared to $9 4 million in the same period last year now.

Now turning to guidance for the full year of 2022, we now expect total revenue between $21, eight and $22 $3 million gross margin between 76% and 77% and operating expenses between 58% and $60 million for the fourth quarter of 2000.

'twenty two we expect to report total revenue between $6 5 million and $7 million before I turn the call back over to Nadeem I want to discuss the term loan agreement, we disclosed earlier today and other financing matters.

We entered into a term loan agreement with Novartis capital partners affirmed with deep experience in life Science and technology investing the new loan provides us with up to $50 million of non dilutive capital with an interest rate equal to the greater of 815% or prime plus $2 six 5%.

And a final payment fee of four 5% of the funded loan amount.

The interest only period is five years, followed by a three month repayment period.

Facility includes three tranches, allowing us to manage our capital needs more precisely.

On the closing date, we borrowed the minimum amount of $7 $5 million, we have the option to draw down the remaining $7 $5 million of tranche a from the filing date of the 2022 10-K until September 32023.

Tranche B allows us to draw up to $30 million less the tranche a funded amount between September one 2023 and December 15, 2023, if we achieve trailing three month revenue of $5 $75 million prior to June 32023.

Tranche C allows us to draw up to $20 million between September one 2024, and December 15, 2024, if we achieve trailing three month revenue of $9 million prior to June 32024.

Our performance Covenant takes effect at the earlier of September 32025, or the tranche C funding date, requiring we achieve 50% of the trailing 12 month revenue target set in the den approved board plan.

The term loans are secured by substantially all of <unk> assets.

Also since we have recently passed the one year anniversary of our IPO and are eligible to file a registration statement on form S. Three we expect to file a universal shelf registration statement to provide flexibility for us to access the capital markets in the future we.

We anticipate registering $150 million of securities of which $50 million will be reserved for an at the market or ATM facility.

We have no immediate plans to offer or sell any securities under this shelf registration statement, including under the ATM.

Given the amount of cash we have on the balance sheet I'd like to share how we're thinking about the shelf filing and this debt facility. We continue to believe the cash on our balance sheet is sufficient to drive us to cash flow breakeven based on the plans we laid out at the IPO.

However, we constantly evaluate incremental investments in the business that could accelerate long term growth and further strengthen our strategic position. This debt facility allows us the flexibility to fund these potential investments without the need to raise dilutive equity capital in particular.

If the morbidity and mortality data supports an expansion of our indication we may accelerate investment in our commercial organization.

We are also reviewing potential clinical trial designs that could allow for further indication expansion.

Now I'd like to turn the call back over to Nadeem. Thanks. Jared. This is an exciting time for <unk> and we are enthusiastic about the progress we expect to make in the final quarter of 2022.

We remain focused on the commercialization of <unk> and look forward to sharing more information on the mortality and morbidity data in the first half of 2023.

<unk> confidence that our incredible team will continue to drive the business forward.

And now I would like to open the line for questions.

Operator.

Thank you.

Tom will now conduct the question.

Awesome.

A reminder to ask a question you want me to Crestar one one.

The telephone please wait.

Amounts.

Let's go now.

However, some of our staff.

Our first question comes from the line Matthew O'brien.

So long as not all of them.

Great. Thanks for taking my questions.

Not sure. If this is for unit deem are you Jared.

Q3 performance on the topline was excellent.

Youre up about almost a $1 two sequentially versus Q2.

Typically a seasonally softer quarter in the guidance for Q4 kind of the midpoint is only up about.

$700000. So you had less than you did in Q3. It took the top end of the guidance range down.

Just kind of narrowed everything so is there something I don't know if I take U S. As.

We had a big bolus of patients by U S is going to be much lower in Q4 or is there something in the U S. Do you want to point out specifically just if you can give some commentary about the Q4 guidance specifically.

I appreciate that and then I do have one follow up.

Sure Matthew first thank you for joining us today I know this has been a very busy today, Dave for you on the news. So we do appreciate you taking the time this thing.

Regarding the guidance for Q4, and as you can imagine as we advanced through the year.

That cone of uncertainty for the full year stock that'll bring down.

Shifting its forward and while we have been tracking I would say slightly above the midpoint over the year.

This has translated similarly to being slightly above the midpoint in Q4, so by narrowing the cone.

The consequences of that is.

Visible reduction yet.

The top end of it but also a more of an increase the bottom end of it. So that's why the midpoint of Q4 has been raised versus.

Prior expectations.

We don't expect anything different in the business so far knock on wood it does not seem.

We don't seem to have a COVID-19 impact in Q4.

Let me rephrase, the COVID-19 impact seems to be more.

Milder than previous quarters or previous year to what we saw in Q4 last year, so knocking on wood here that the climate the macro.

Alignment stays the same as it was in Q2 Q3, So we continue performing based on the expectations.

Got it okay. So just a little bit of conservatism based on the macro environment.

That is this still a slight concern in Europe with the exchange rates, we've seen the euro dropped and we lost about 10% 15% of our topline just based on the exchange rate difference between the beginning of the year to now.

That is a concern but.

Due to the relative size of our business now in Europe compared to the U S.

Not believed that this would be dramatic in Q4.

Just to watch out I would say.

Okay, and I'll stick with two questions.

Wanted to ask a little bit more about the new center adds which are great in the quarter, but.

Just on the bead HFF side, something I hear a lot from investors is it is dynamic it is binary utilization will go down if it doesn't show a mortality or.

Benefit.

So can you just maybe put a little bit more color around the totality of the data of what data is going to fold into this decision from FDA. When are we going to see the BHF data is there a specific.

Conference you should be expecting and then and then just the process that will be involved with that as far as bundling. All this data together to put it in front of FDA for them to consider it.

Great question Matthew.

As you noted in your question.

<unk> is not binary yes or no answer.

Trying to simplify this first that is the safety components, alright, and now that you've had a lot of experience with our device and with the safety that we've seen when we did the blinding in 2019 for the symptomatic endpoint.

We feel very comfortable right now with the safety of the device.

And of course that our guardrails within the trial design itself that have not been triggered so hopefully all of this is looking good on the safety.

Perspective no.

On one end of the spectrum.

We could meet the primary endpoint and Thats, our goal right, but I try to being a trial, we don't know where that would be until we outlined the data and we are still blinded at this stage, but the best case scenario for US is we meet the primary endpoint is designed with the primary endpoint is designed as a number total number of events.

And we're looking at the binomial negative binomial difference between the two arms, so without going into too much detail is the difference between the total number of events between the treatment arm the patient services better stem versus the control arm patients who have not received that posted an event is either one.

Vascular mortality or the patients receiving a left ventricular assist device advice or receiving a heart transplant or having received a heart failure hospitalization. If we meet this endpoint that's the best case scenario.

But right short of this debt is a plethora of other outcomes that we will be looking at in terms of additional endpoint and additional analysis. Those are not primary endpoint of the trial, but those are very important as we annualize the totality of the evidence. So let me give few examples in here so.

I understand what you were talking about for example, I mentioned earlier heart failure hospitalization.

Word however in the statistical analysis plan, it's described into two pages.

And based on a discussion a recommendation from FDA after they've seen results from other strides, particularly guide HFF. They suggested we add an ancillary endpoints to look at the likely heart failure hospitalization thats a broader definition.

Just to account for the impact of Covid.

So there is a scenario, where we might not meet the primary endpoint, but we meet the likely hospital hospitalization what does this mean.

That's weird.

Having us looking at the totality of the evidence and having the FDA looked at the totality of the evidence will make the case for all of this there are others pre specified analysis that we looked at that we will be looking at that.

Abetted into the statistical analysis plan for example, the win ratio analysis, the data live and out of the hospital analysis. The severity of hospitalization analysis, how does the economic analysis long term symptoms analysis, and so forth and all of those will constitute the evidence and that's why this is not unfortunately, there's this is not going to be.

Simple, yes, or no answer and this is not a binary event when we unblinded data and I understand yet.

The consternation of some investors wanting to believe that the simple.

Binary events.

You can.

<unk> best Red or Black and then see where the board will fall that's not the case in this situation and the at the end of the day. If there is an incremental indications of use in the labeling it will be corresponded to the level of evidence that FDA would have seen in our data based on our recommendation, but also what they are.

And then we'd have accepted now I've also heard some investors telling me that the option will go down.

We do not meet the primary endpoint I disagree with this assumption.

The current <unk>.

Wave of adoption, we have right now is based on the claims and the indication for use that has been allowed by FDA, which is the improvement of symptoms in patients suffering from heart failure period.

It could go up if we show additional benefit it's an upside.

And I would say the same about reimbursement the reimbursement and the payment levels that we are receiving today are based on the product as approved by FDA period.

Don't see much upside I see it more of a I'm sorry, much downside I see it's more of an upside if.

The data is positive when we unblinded data now when is the exact data for Blind Inc.

We're still calling though the first half of next year there is still.

And you might ask why is that since we have a crude the 320 events.

But in the event that has happened that has not completed we have to keep tracking the patients until the events complete for example in the unfortunate situation, where a patient is admitted in the hospital for a heart failure hospitalization.

A month later, they pass away from it or they received an alpha.

Is that still one event and now this event becomes an LOI defend.

Or is that not a heart failure hospitalization or we'll have to wait until the events compete then we have to send the monitors to monitor all the source data.

And bless them and then we unblinded data.

The data that we analyze it and then we submit the evidence to FTA that is a process.

I Hope I answered your question Matthew.

Yes that was an excellent answer exactly I was looking for thank you so much.

Thank you.

Thank you Manuel.

Next question.

Our next question.

Causal.

Go ahead. Your line is now open.

Hey, good afternoon, guys and I will take over from that question on the centers.

Well above our expectations now for at least the second quarter in a row.

Now more I think than we had anticipated for the full year. So I'll sort of ask the question of debt last year, which is how should we think about these new alright, sorry last quarter, how should we think about these new site ads.

Backlog of patients their ramp trajectory and what's driving these new centers that.

The growth in them as we look forward.

Okay.

Yes, Hi, guys. Thank you again for the question Great question listen the.

We're very happy.

With the activities that we've seen the results that we're seeing from our Tennessee.

Territory managers, particularly.

Newer add in here.

Those types of money managers that we've been adding here in the past few quarters.

Yes, you are correct that the number of added centers.

The real world.

I mean, obviously that you are using in here is actively planting center. So those are centers that not only we signed agreements with but they also implanted the first patient so that number exceeded yours and our expectations for the quarter, but this does not really translate into any mid yet.

FX and revenue in the same quarter.

I think I've mentioned this previously when a center stock.

And this could be unique to us therapy, or maybe not but when you're starting they implants, one or two patients.

Then we've noticed that they pause for a few months until they see and confirm the effect on their old patients. So they want to know this clinical data that they've readiness obligations do they see it themselves on their own patients and second and do they see the payments coming back, particularly from the center of Medicare and Medicaid services.

CMS.

Particularly that we have the transitional pass through and that is somehow a new thing for many of the centers. They want to know that this therapy is being paid as they expected. So we see a pause for a few months and then they restart and then they start growing incrementally what we've also noticed that the.

First 20 centers that started implanting better stem commercially that now have the longest experience are still going with a very high average utilization rates and were eager to get those additional the remaining now let's say the following 70 centers up that curve to get to the same level as the first two.

<unk> sites.

However.

I would say a secondary effect of that.

Slow down after doing one or two patients.

Is that those 20 centers we added.

In the last in this Q3 of this past quarter, we may not see an impact until middle of next year of those centers, yes, we see one at least one per site.

In this quarter, but to see the real impact of having two or three consistent implants per quarter that is going to be a few quarters away from us. So that's a great news for our business towards the second half of next year.

We're very happy with it no question about it.

Okay.

That's great.

That leads me into 'twenty, three I know, you're not providing guidance you provided guidance in the past.

Or at least from the IPO. So as we look at the numbers you are pulling forward the number of experienced centers relative to what we had in the past would you slow down New center adds to make sure that the ramp cycle of these new ads remains good.

Or is this truly.

Good symbol.

Your view of the adoption profile as we go into.

Into 'twenty three.

Yes, no absolutely not I guess, we will not slow down we're very happy with the activity level, we're seeing and we will continue on this.

Fulfilling our commitments, but also trying to maximize the impact that we can have now where we are.

<unk> Ltd, we were limited a little bit was with our cash burn.

Thats been very diligent on maintaining us into that cone that will allow us to reach cash flow breakeven within the money at eight but having now the access to this facility gives us a little bit more flexibility. So if we're seeing things are accelerating.

And the explanation could consume a little bit more of cash.

<unk> added that I can look at it and make the decision, but would not artificially throttling that go.

And Margaret this is Jared I'll, just chime in as well as far as expectations going forward, we're still guiding towards the high single digit ads per quarter going forward I know the last couple of quarters, we've been able to exceed those expectations by getting 15, new adds in the second quarter and 20 here in the third quarter, but the overall average for the last year I think has been low.

Teens or low double digits, and so we still run into the issues with hospital staffing shortages to get centers active and start treating patients and that's why we're still guiding towards that high single digit adds per quarter going forward.

Okay, Great no I appreciate that and then I wanted to also follow up on the VHF data as well.

For my follow up question.

Given some of the nuances that could come out of the data when should we see kind of the full dataset and as you think about that.

Packaging potential adoption curve is it going to be difficult to try to.

Explain this to questions or could you actually get.

More adoption because some of.

The high level numbers will be better even though you may or may not get the indication expansion. Thanks guys.

Yes excellent question Margaret so.

We have not yet defined.

And how we will communicate the data, but as you mentioned it is in the <unk>.

We need to spend here at the time and effort to make sure that the message is well understood that said that message initially will be to investors.

Is the message to physicians and healthcare providers have to be limited with the indication of few is that FDA will allow us to use.

So thats, where the limitation is that we have to wait for the.

The FDA processes, whether they will invite a panel of experts.

The independent panel of experts could add three months to the schedule or not.

And if they decide to move without a panel of experts.

We've seen them do it in some instances in the past.

Then this could go faster and before we communicate to physicians.

Claims we have to wait for this.

The claim data sorry, the claim labeling from FDA to be approved we cannot do anything else. So I would urge everybody not to expect an uptick in sales same or the first day, we announce the results.

Okay. Thanks, Scott.

Thank you one moment please.

Next question.

Our next question will come from Bill welcome.

With Canaccord.

Your line is now open.

Great. Thanks, Good evening, thanks for taking my questions.

<unk>.

First off.

Is the U S business continues to evolve.

<unk> had this conversation but.

Where do you believe you are in terms of a reproducible repeatable business and it.

Simply.

Is it still more of a figuring it out thing or is this just dollars at the problem to expand sales and kind of grow it how would you characterize where you are today.

Yes, Hello, Bill I know, you've been busy and John I think in a conference as well.

So thank you for joining us.

On this call listen Great question I believe we're still at the beginning of it.

There are so many unknowns that we're trying to understand in terms of adoption physicians training, but all the way down to sales Rep selection sales training and so forth I think we've done great strides on all of these drugs in the past year.

But I would not be arrogant to say that we have figure that out and you can throw more money on it and it's going to grow.

So.

We'll keep you Nick we keep you on it.

Okay and then.

I'm just trying to understand you have three years of cash on hand.

Yes.

I understand putting the shelf up I mean, that's just standard practice, but with the debt and bringing the debt down, especially when it's running at.

12%, all in or 13% OLED I'm kind of curious why now like you can I mean, thats something that could have been held off for another 12 to 24 months. Given you have three years of cash why would you put that in place now.

Hi, Bill this is Jeremy thanks for that.

I think as we were looking at the options in front of us.

Just wanted to have access to non dilutive.

The capital so that we could have some optionality as we look towards more strategic investments in the future.

We mentioned it.

In the earlier part of the call, where if we do see a positive readout from morbidity and mortality and want to accelerate the investment in the commercial organization, having access to this debt facility can allow us to do that right and same thing as we look at other trial designs.

Potential.

Indication expansion we.

So look at that and say if there is a cheap way to go and expand the indication go after another patient population using this debt facility to do so would be.

Good way to me.

Manage the business going forward.

All that being said nothing is set in stone. We just wanted the ability to have options in front of us to make additional investments in strategic areas as we move forward.

Okay.

Okay, and then just on the wire you've pushed that out a little.

Just is there is there something with the product or are you going back to redesign.

Why is this kind of taking so much longer than originally expected.

Okay.

No nothing goes wrong with the product.

But yes.

We have been disappointed with the rate of enrollment maybe you have been a little bit aggressive assuming that now.

Now that's better stem is approved this would grow faster than traditional cardiovascular clinical trials.

And at the end of the day.

You know very well.

That's not for the sake of heart doing clinical trials in cardiovascular space, particularly in this day and age with hospital staff shortages and previously with Covid disruptions. So thats, what we are paying the price for more than anything else.

Yeah.

Great. Thanks for taking my questions. Thank.

Thank you Bill.

Thank you one moment please.

Our next question.

Our next question comes from the line of Alex.

<unk> with Craig Hallum.

Hum.

Great. Good afternoon, everyone I just wanted to follow up to Bill's question there around the capital needs. When would you make a decision to go after an indication expansion.

When the eminent study readout ramping our sales force I think thats, a pretty easy decision, but I guess, how and when would you make a decision to go after another indication.

Another form of heart failure, and COPD hypertension, one does that timeframe or is it more or less.

To be determined.

Hey, Alex Thank you again for joining us today.

Listen it is going to be based on intrinsic and extrinsic parameters. So the intrinsic one.

Q3 2022 CVRx Inc Earnings Call

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