Q4 2023 CVRx Inc Earnings Call
Greetings and welcome to the C V Rx fourth quarter 2023 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce Mike Riley Investor Relations for CVR ex. Thank you you may begin.
Mike Riley: Good afternoon. Thank you for joining us today for <unk> fourth quarter 2023 earnings conference call.
Gerry <unk>: Joining me on today's call are the company's President and Chief Executive Officer, Jim yard and Chief Financial Officer Gerry <unk>.
Mike Riley: Our remarks today will contain forward looking statements, including statements about financial guidance.
Gerry <unk>: The statements are based on plans and expectations as of today, which may change over time.
Gerry <unk>: 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-K that will be filed with the SEC.
Gerry <unk>: I would now like to turn the call over to CVR, <unk>, President and Chief Executive Officer, Jimmy Alright.
Jimmy Alright: Thank you, Mike and thanks to everyone for joining us I'll begin today's call by providing an overview of our fourth quarter performance followed by our operational update and a review of our financial results by our CFO. John Adult time, then I will conclude with our thoughts for the rest of the year before turning to Q&A.
Jimmy Alright: We are immensely proud of the achievements of our team in 2023, it's been an important year for <unk> marked by significant progress in all our strategic initiatives, which have driven increased adoption and utilization of better step.
Jimmy Alright: This is reflected in our worldwide revenue, which has shown substantial growth primarily attributed to the impressive 97% annual expansion in our U S heart failure business.
Jimmy Alright: As we wrapped up 2023, we did so on a strong note showcasing consistent and effective execution across various aspects of our business in the fourth quarter. This underscores our team's skill in accelerating the adoption of better stim through our commercial and marketing efforts.
John Adult: Now, let's dive into the details of our performance starting with the review of the quarter worldwide revenue was $11 3 million dollar at 58% increase over the fourth quarter of 2022.
John Adult: This was primarily due to the execution within our U S heart failure business. The increase was primarily driven by continued growth as a result of the expansion into new sales territories, and new accounts as well as increased physician and patient awareness of Patterson.
Turning to an update on our operational progress during the fourth quarter as a reminder, our focus areas for 2023, what are the continued expansion of our commercial infrastructure and the expansion of our clinical body of evidence starting with expansion of our commercial infrastructure.
John Adult: We've grown our commercial reach by adding three new sales territories in the United States as expected, bringing our total to 38, we continue to add high caliber talent, which we believe is due to the enthusiasm around better stem in the markets.
Additionally.
John Adult: We've been making continuous and consistent headway with our marketing efforts, including our direct to consumer and patient education programs. As we press forward. We continue to expect refining these initiatives to drive awareness among both patients and healthcare providers.
John Adult: Shifting to our second focus area, which is the growth of our clinical evidence, which is live in both reimbursement and regulatory progress.
John Adult: In November the <unk>.
Center for Medicare and Medicaid services, CMS reassigned better stem to new technology, a P. C 1580, with an average payment of $45000, which went into effect on the first of January 'twenty 'twenty four is.
John Adult: As a reminder, in 2023 better stim was under the a P. C 5465 with an average pay rate of 29000 dollar plus the transitional pass through payment we.
John Adult: We believe that this reassignment to a P. C 1580, when you made the better stem therapy more accessible for Medicare patients dealing with heart failure by simplifying the reimbursement landscape and ensuring fair reimbursement for facilities offering the procedure.
John Adult: In late December the FDA approved expanded labeling for better standby revising the instructions for use for better stem and incorporating key long term clinical data from the beat H F randomized clinical trial.
John Adult: The new labeling includes the following conclusion in the clinical section.
John Adult: In both pre market and post market phases. The primary safety endpoint was met and confirmed the three markets face showed positive results across all effectiveness endpoint, indicating six month improvements in six minute Hall walk quality of life and Y J class in NT Pro BNP.
John Adult: The post market phase effectiveness endpoint of cardiovascular mortality and heart failure morbidity was not met but additional post market phase analysis, such as the win ratio and freedom from all cause mortality analysis suggested the favorable effect of Patterson therapy. The totality of 612, and 24 months data demonstrated symptomatic improvements.
John Adult: For heart failure patients all of this data is now included in the instructions for use and can be used by our sales team when educating physicians on our therapy.
John Adult: The updated indication statement in the instruction for use now specifies that better stem is indicated for patients what N Y J class III or class II with a recent history of class III. Despite treatment with guidelines acted medical therapies, who have a left ventricular ejection fraction of less than or equal to 35% and an empty pro BNP.
John Adult: Less than 1600 Picogram per milliliter.
John Adult: Tim delivers better reflects activation therapy to improve patient's heart failure functional status six minute hall walk and quality of life.
John Adult: As a result of these changes we estimate that the U S annual market opportunity for <unk> has increased to include patients considered by physicians based on this new long term safety and efficacy data as well as our commercial experience and to account for the new reimbursement assignment for barristan.
John Adult: We believe the U S market opportunity is now $2.2 billion or 76000, new patients annually as compared to our earlier estimate of $1 4 billion or 55000, new patients representing increases of approximately 60% and 38% respectively.
John Adult: I want to express my gratitude to all the patients investigators research teams the executive steering Committee and FDA personnel, who have supported our efforts in conducting the study over seven years.
Especially considering the challenges encountered during the COVID-19 pandemic.
John Adult: Looking back at 2023.
It was a great year for CBA attacks.
John Adult: Throughout the year, we continued to support the growth of better stem in the United States through our commercial and marketing efforts underscoring the benefits that <unk> can provide to health care professionals and patients dealing with cardiovascular disease.
John Adult: The year wrapped up in a positive note, including the expanded better stem labeling and Cms's decision to sign barrister him to a new a P C codes.
John Adult: Before turning the call over to Jared I want to address my decision to retire from CVR acts.
John Adult: While there is never a perfect time for a leadership transition.
Jared Kushner: The recent completion of beat H F. The expanded labeling and the recent reimbursement decision. There is a window that now exist before the company embarks on the next phase of growth.
Jared Kushner: I believe now is the right time to bring in a CEO, who can build on the achievements of the company and steered CVR acts to great success.
Jared Kushner: I'm confident in <unk> future, given the proven benefits of better stem therapy, our strong commercial traction.
Jared Kushner: And our all outstanding leadership team.
Jared Kushner: The board and I are committed to a seamless transition and I will continue in my current role until a new CEO is appointed.
Jared Kushner: The board has engaged a leading executive search firm to assist in this process.
I'll now turn the call over to Jared to review our financials Jared.
Jared Kushner: Thanks, Nadeem and the fourth quarter total revenue generated was $11 $3 million, representing an increase of $4.1 million or 58% compared to the same period last year revenue generated in the U S was $10 $3 million in the current quarter, reflecting growth of 72% over the same period last.
Jared Kushner: At year heart failure revenue in the U S totaled $10 $2 million in the current quarter on a total of 330 revenue units compared to $6 million in the fourth quarter of last year on 193 revenue units. The increase was primarily driven by continued growth as a result of the expansion into new sales territories and new accounts.
Jared Kushner: As well as increased physician and patient awareness of barrel stem.
Jared Kushner: At the end of the current quarter, we had a total of 178 active implanting centers compared to 106 on December 31, 2022, and 159 on September 30th 2023. We also had 38 sales territories in the U S. At the end of the current quarter compared to 26 on December 31, 2022 and Dirty.
Jared Kushner: Five on September 30th 2023.
Jared Kushner: Revenue generated in Europe was $1 million in the current quarter, representing a decrease of 15% compared to the same period last year total revenue units in Europe decreased from 68 in Q4 of 2022 to 52 in the current quarter.
Jared Kushner: The number of sales territories in Europe remained consistent at six for the three months ended December 31 2023.
Jared Kushner: Gross profit for the three months ended December 31, 2023 was $9 $6 million, an increase of $3 $9 million compared to the three months ended December 31, 2022 gross margin for the current quarter increased to 85% compared to 79% for the same period last year gross margin for the three months ended December 31 22.
Jared Kushner: <unk> three was higher due to a decrease in the cost per unit and an increase in the average selling price research and development expenses for the current quarter were $2 $2 million, reflecting a decrease of 26% compared to the same period last year. This change was primarily driven by a 0.7 million dollar decrease in clinical study expenses.
Jared Kushner: And is there a point $6 million decrease in consulting expenses, partially offset by a zero point $3 million increase in compensation expenses, mainly as a result of increased head count and a 0.1 million dollar increase in noncash stock based compensation expense SG&A expenses for the current quarter were $17 million represent.
Jared Kushner: An increase of 21% compared to the same period last year.
This change was driven by a $1.7 million increase in compensation expenses of zero point $7 million increase in marketing and advertising expenses of zero point $4 million increase in noncash stock based compensation expense and a 0.4 million dollar increase in consulting expenses, partially offset by a zero point $1 million.
Jared Kushner: Decrease in D&O insurance costs, and a 0.1 million dollar decrease in professional fees.
Interest expense increased zero point $4 million for the three months ended December 31, 2023 compared to the three months ended December 31, 2022. This increase was driven by the interest expense on borrowings under the loan agreement entered into on October 31 2022.
Jared Kushner: Other income net was $1 $1 million for each of the three months ended December 31, 2023, and 2022. Other income net consisted primarily of income on our interest bearing accounts net loss for the current quarter was $9 $2 million or <unk> 44 cents per share compared to a net loss of $10 $5 million or 51 cents per.
Jared Kushner: Per share for the same period last year net loss per share was based on 20.8 million weighted average shares outstanding for the fourth quarter of 2023, and 20.6 million weighted average shares outstanding for the fourth quarter of 2022 at.
Jared Kushner: At the end of the fourth quarter cash and cash equivalents were $96 million.
Net cash used in operating and investing activities was $39 $6 million in 2023.
Jared Kushner: This is compared to net cash used in operating and investing activities of $43 $4 million in 2022.
Jared Kushner: Now turning to guidance for the full year of 'twenty 'twenty four we expect total revenue between 53 and $57 million, we expect full year gross margin between 83% and 84% and we continue to expect operating expenses between $86 million and $90 million for the first quarter of 2024, we expect to reap.
Jared Kushner: <unk> total revenue between 11 and $12 million I would now like to turn the call back over to Nadeem.
Jared Kushner: Jared.
Jared Kushner: As we set our sights on 'twenty 'twenty four I am excited about the opportunities that lie ahead for <unk> and the continued expansion of better stim.
Nadeem: Our company is in a fantastic position to capitalize on the opportunities in front of US thanks to our outstanding leadership team and the consistent execution of our strategic initiatives over the last two years.
Nadeem: I believe <unk> is well prepared to continue to execute our strategic plans and drive sustained commercial growth.
Jared Kushner: Reflecting on my 17 years as CEO.
Jared Kushner: Has been an incredible experience and a true honor.
Jared Kushner: I am proud of what we've accomplished and believe the future for seabed ex holds immense promises.
Jared Kushner: And now I would like to open the line for questions operator.
Jared Kushner: Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
Jared Kushner: If you'd like to ask a question you May press star one on your telephone keypad.
Jared Kushner: A confirmation tone will indicate your line is in the question queue.
Jared Kushner: You May press Star two if you would like to remove your question from the queue.
Jared Kushner: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Jared Kushner: Our first question comes from the line of Margaret Anger, Andrew with William Blair. Please proceed with your question.
Margaret Anger: Hey, good afternoon, guys. Thanks for taking my question.
Margaret Anger: Dan.
Margaret Anger: You heard my comments with Jpmorgan, but I'll, just say publicly obviously, it's been a pleasure.
Margaret Anger: Glad to.
Margaret Anger: Sam CVR.
Margaret Anger: What it is today.
Margaret Anger: Maybe just to start out with you guys.
Margaret Anger: They are coming off.
Margaret Anger: That should all year at 70% plus growth overall, 95% of U S heart failure.
Margaret Anger: Yes heart failure.
Margaret Anger: And yet you know you kind of look at the first quarter and you're at $11 million to $12 million. So maybe just walk us through the assumptions within that.
Or are they conservative he says that you guys used to drive to that guidance range. Thank you.
Margaret Anger: Hi, Margaret this is Jared I'll I'll take that one maybe nadeem can add some color later, so when we put together our guidance. We're looking at how we've been growing the number of territories over the last few quarters and also how the additions for new active implanting centers have been coming on board and then also taken into consideration the utilization we have.
Jared Kushner: <unk> seen from those centers as they get more and more experience. So after taking all of that into consideration. We came out with the guidance for Q1 of $11 million to $12 million again seen a step up from what we delivered in the fourth quarter of 2023.
Jared Kushner: The other thing I'll, just talk about a little bit is seasonality, we it's not something that we've seen historically at CVR X, but we have seen other companies that have gone through a similar ramp that we have that start seen seasonality play a factor as you go into Q1 again I don't think we took that into consideration here for the first quarter guidance.
But rather just trying to set the bar at a level that we think we can go out and deliver.
Jared Kushner: In this first quarter when I think about the components of being able to hit the full year guidance to $53 million to $57 million that we had talked about.
Jared Kushner: We had talked about at the JP Morgan conference was really towards the low end of that range, we're targeting adding about 14, new active implanting centers on a quarterly basis and at the high end targeting adding about 18, new active implanting centers on a quarterly basis, and then from an ASP perspective in 2020 three we were seeing.
Jared Kushner: Results of about $31000 offer an ESP in the U S heart failure side and as we go into 2024. The range. We're looking at is around 29% to $30000 thinking that as we continue to see more and more volume from our.
Jared Kushner: Implanting centers that we may see some pressure on pricing.
Jared Kushner: See the request for some bigger rebates.
Jared Kushner: And then from a territory perspective, we've been adding at about three per quarter since the IPO. We feel like that is a pretty good pace to continue on and that's what was factored into that $53 million to $57 million guidance for 2024.
Jared Kushner: Okay and so.
Jared Kushner: We take that into into complex I. Appreciate your comments on kind of the center.
Jared Kushner: So on but.
Jared Kushner: You guys are armed with both a better reimbursement rate as well as you know the new clinical data. So I know, it's early maybe there hasn't been a big clinical conference at this point in time, yet for you guys to start more actively presenting on that but.
Jared Kushner: Where are you I guess in terms of sales force training as well as putting together an education.
Jared Kushner: Education programs.
Jared Kushner: Yeah as it relates to the type of machine here lately.
Jared Kushner: Yeah, Michael I'll take this question.
Jared Kushner: Thank you for your previous comment I am going to Mr interactions for sure when I retired I'm not there yet.
Jared Kushner: We are committed to the types of Shannon hit as long as how long it takes.
Jared Kushner: I I I I used I used to have remember the diary centers. Some of the difficult question that you guys would ask me, but for the time I understood all the hardware that.
That you put into those into understanding our business.
Jared Kushner: And I I end up enjoying these interactions.
Jared Kushner: Yes, my questions. Yeah, now that we have in between Christmas and New year's Eve, we got the approval from FDA to be able to communicate all of our efforts right. Now in January has been about how do we get out and educate patients and physicians and we have our global sales meeting actually next week to make sure that all of our sales force is trained on it.
Jared Kushner: With all of these tools. So this is an ongoing process right now to get the word out to patients and providers and payors about the new data. We're very excited about this next phase.
Jared Kushner: Okay, Great and just one last question for me you know saw the $7 million burn neon.
Jared Kushner: On a cash rate this past quarter, how should we think about that going forward. How are you guys going to step on the gas pedal on in terms of expenses with the label and et cetera.
Jared Kushner: Or are you going to continue to try to maintain.
Jimmy Alright: We maintain that cash burn of around seven or better. Thank you.
Jimmy Alright: Yeah. Thanks for the question Yeah, we gave guidance around spend on Opex are seeing an increase there to get us up to about $86 million to $90 million.
Jimmy Alright: Vast majority of that growth in spend from 23 to 24 will go into the sales and marketing organization specifically in the U S. So we're going to continue to be opportunistic where we can to invest in the business to be able to help more and more patients gain access to this therapy and then I think it's a bit of a wait and see right, let's see how physicians.
Let's see how patients react to the new clinical data if the new payment code is a little bit easier for centers to come on board at a little bit of a faster rate than we will consider making some additional investments, but the guidance. We put out I think is being a little prudent in making sure that we're able to maintain that cash burn at or below the levels, we've seen historically.
<unk>.
Jimmy Alright: Overall, we believe the trend will continue where that burn will come down. So that we can use the cash we have on hand to get cash flow breakeven without needing to go out and raise more money.
Our next question comes comes from the line of Robbie Marcus with Jpmorgan. Please proceed with your question.
Jimmy Alright: Yeah.
Jimmy Alright: Our next question comes from the line of Matthew O'brien with Piper Sandler. Please proceed with your question.
Jimmy Alright: Afternoon can you guys hear me okay.
Jimmy Alright: Yes.
Jimmy Alright: Fantastic and Nadeem, yet best of luck to you.
Jimmy Alright: In the future hopefully it takes a long long time to find a replacement for your self.
Jimmy Alright: Firstly.
Jared Kushner: So just two questions here and I'll ask them. Both together they are a little bit you know, it's long winded. So forgive me, but just on the pricing side Jared are we assuming pricing essentially flat.
Jared Kushner: Versus 2023 or can you pick that up given how healthy that code is I guess I'm not sure why it would go down and the second piece is just on the you know as I look at the guidance that I look at where the stock is trading and the aftermarket down a little bit I think it's on the guide if they're sending a pretty meaningful slowdown in growth in terms of units sold.
Jared Kushner: This year, it's actually it's actually about the same number of units at the midpoint of the range or the math that I have any way.
Jared Kushner: But it seems like you know expanded label in more centers and everything else like that the absolute number of units should go up this year versus what you did last year in terms of growing total number of units. So why would that why would that be the case why wouldn't it be even faster and why wouldn't growth you know in the U S. B, a little bit more healthy given all these tier ones that youre seeing.
Jared Kushner: Thank you.
Speaker Change: Yeah. He meant on the pricing piece and go into a little bit easier to cover first so we had talked about U S.
Speaker Change: Heart failure average selling prices being around 31000 in 2023 and setting expectations with this guidance to be around 29% to $30000.
Speaker Change: I will add we have also seen a list price increase in 2024, four barrel stim and so there are opportunities for the price to go up as we go into 'twenty 'twenty four from what we saw in 2023, but our assumption from the beginning was that as we continue to see more and more.
Volume, we are going to continue to see more and more pressure from our customers to see bigger discounts to the bigger rebates and so I think we're just being a little prudent on that price expectations at the beginning of the year to see how it actually plays out with this new code for four customers.
Speaker Change: Throughout 2024, so I'm sure we'll continue to monitor what that average is coming in at here in the first quarter and second quarter, and then be able to make some updates if is it necessary for the rest of the year.
Speaker Change: And then for the guide as.
Speaker Change: As far as pure units, yes, we will continue to see growth in the number of patients that are getting treated between you know from 23 to 24.
<unk> seen it.
Speaker Change: Said a slight down.
Speaker Change: Tick in that average selling price.
Speaker Change: When we come out at the beginning of the year with our guidance, we want to feel confident being able to go out and meet these numbers and so when we put together the model we were looking at productivity staying flat because we were able to achieve these levels of about two revenue units per active implanting center per quarter through.
Speaker Change: 2023, so that's a number that we've been able to achieve in the past and that's a number that we thought was pretty good to set for expectations as we move into 2024, and then same thing on the New center adds when building out the model we've been able to deliver about 18, New center adds on a quarterly basis throughout 2023.
Speaker Change: I think when you factor that in as a model that's towards the top end of that guidance for the U S as well.
Speaker Change: One thing I'd just like to address is why is Europe, where we've been seen a flat quarterly revenue of about $1 million for the last.
Speaker Change: Florida to six quarters.
Speaker Change: And so when you look at the overall growth rate for revenue worldwide.
Speaker Change: Does hinder us a little bit with expectations that there is no growth just hoping for a flat.
Speaker Change: Result from 23 to 24 with that European revenue.
Speaker Change: Hope that answers your question.
Understood. Thank you so much.
Our next question comes from the line of Robbie Marcus with Jpmorgan. Please proceed with your question.
Great.
Speaker Change: Thanks at this time all are all not hit the hang up button instead of the talk back.
Speaker Change: At first off.
Speaker Change: The deem will congratulations on the retirement, we'll Miss you.
Speaker Change:
Speaker Change: Further question you know I was wondering if you could just walk us through what the change if any and.
Speaker Change: And hospitals has been since the reimbursement has been finalized and of last year has it have you seen any easier.
Times getting into hospitals talking about reimbursement.
Speaker Change: Getting doctors excited initiation of a potential new programs at hospitals, just any change in the sentiment out there.
Speaker Change: That'd be thank you first for your nice words.
Speaker Change: Great question, the answer is going to be qualitative quantitative at this stage because the code just entered right January 1st than we ever had in a couple of weeks and we're not commenting on the results in January at this stage.
Speaker Change: But quantitatively, we expect it to help particularly with the site activation.
Speaker Change: Which would lead to the possibly in the future.
Speaker Change: You know the less delay between the first two patients they do out of site and patient number three for I don't know if you recall, but.
Speaker Change: Earlier when after we did the IPO, we try to explain that phenomenon that you are observing and we get a couple of surveys over the past couple of years, which is what our site becomes an actively implanting centers after doing that first one or two implants, we noticed a pause or three four months before they start considering patient number three four and five and that.
Speaker Change: Possible, it's driven by two elements one is seeing the effect of the device on their own patients, but second most importantly, and we did not understand the impact of that was understanding the payment level because the DPT.
John Adult: <unk> seen as an obscure way of getting payments.
John Adult: Hospitals, the calculation formula for TPG is very complicated and very few administrators that hospitals understand how the accounting work for that GPT. So after doing a couple of patients. They wanted to wait to see the payments coming back. So at least one of those two elements, we expect would be.
Alleviated by having a code with a simple code simple numbers just adjusted for the ZIP code, which is they understand how to how it works. So I cannot answer quantitatively yet at the stage it would be the answer will be on the quantitative Robby.
John Adult: Okay.
John Adult: Great.
John Adult: No that's helpful and maybe as you think about balancing you know as he talked about on prior questions balancing your cash burn with now you know the updated label and the finalized reimbursement how are you thinking about balancing opex spend to drive sales rather than just.
John Adult: Cash preservation.
John Adult: You know what goes into decisions in a why is the amount of Opex youre spending the right amount. If you spent double it do you think you'd be able to double your sales.
John Adult: Thanks, Yeah. Good good good question Ravi right I mean, the simple question is have we proven the model right and I think we have two more years of experience. After the IPO showing that we've been able to add three territories on a quarterly basis, while continuing to see that overall productivity per territory increase as that number continues to grow.
Ravi: And as we see more feedback from customers. After the new label from F. D E and after the New code has come out we're going to continue those conversations as we see the results of those conversations and reactions from physicians and patients through our DTC campaigns I think that's where we will continue to make some tests right and I think some of those.
Margaret Anger: Our investments are baked into the guidance that we gave of the $86 million to $90 million to start seen is there opportunities to continue to spend a little bit more because the goal at the end of the day for us is to help more and more patients.
Margaret Anger: If we can do that at a faster pace, while not diminishing our cash balance to quickly I think we will take advantage of it but that's something that we'll continue to work on throughout 2024.
Margaret Anger: Okay.
Margaret Anger: Thanks, a lot.
Margaret Anger: Yeah.
Margaret Anger: Our next question comes from the line of Bill <unk> with Canaccord. Please proceed with your question.
Margaret Anger: Great. Thanks, Good evening and thanks for taking my questions.
Bill <unk>: I'm going to start out with you mentioned.
Bill <unk>: The list price increase in 2024 I could just you know there's always a big difference between list price and the Asp's just kind of curious to what extent are the if you could quantify that for us and then just.
Bill <unk>: We're a bit surprised your R&D expenses come down a lot how should we think about the opex spend in 2024 relatively to 'twenty three as it relates to the SG&A versus the R&D like so in R&D are there any major new projects kicking off that we should think about or is this kind of the run rate for that going forward.
Bill <unk>: Yeah. Good good questions Bill things. Thanks for the question. So on the list price there was a 10% increase on the list price for the U S business. So you've seen an increase from $35000 list price up to 38500, So that's where all of the contracting discussions will start as we move into 2024 and then.
Bill <unk>: Going down to the Opex guide and the split between R&D and SG&A as I mentioned earlier, the vast majority of that increase is going into SG&A. As you can imagine we saw a bit of sunsetting of the beat H F. Clinical trial as we went throughout 2023 and so that's driving some of that.
Bill <unk>: Reduction as we March through 2023, and especially into the fourth quarter C&I trial closed down those expenses turn off and we're able to reduce the overall spend in research and development.
Bill <unk>: What we have going on right now you know, we'll have some smaller projects within research and development like our post market registry continuing to do some investigator initiated research programs with different sites that are proposing them through our program on our website.
Bill <unk>: And then we continue to do some early work with designing the next clinical trial Nadeem has talked about this before where we were admitted to an advisory program from FDA for one of our breakthrough device designation, specifically, our ejection fraction above 35% patient population and so we'll continue to look at that trial design.
Bill <unk>: And to see if we can get to a point, where we feel comfortable that we can win the trial and not spend too much money in decided at that point in time, whether or not we want to kick it off but at this point, that's not baked into the guidance in the spend for 2024.
Bill <unk>: Okay, and then if I could also ask since we're working the P&L here is just on the gross margin I'm trying to understand the guide on the gross margin is 83% to 84% you've been solidly at 84% or above for the past three quarters.
Nadeem: What what are the dynamics that would cause gross margin to go down next year, especially considering you're likely to have stable to increasing asp's and higher volumes.
Yeah. Good question. So as we said the guide for 2024, we're looking at the two different components right. The Asps and the cost first on the ESP as we've mentioned that the guide is assuming a reduction in that overall U S heart failure ESP from 31000 down to closer to that 29 and a half at the midpoint.
John Adult: So that can have an impact on the overall gross margin results for 24, and then the second component is the cost we've talked a lot about as we see the volume increase we should see an overall trend.
John Adult: <unk> seen that cost come down so as we see production go up the costs should come down. However, if we continue to buy components for these devices were going to have to go out and negotiate new contracts with new vendors at different times and at those points in times, we may see a price increase for.
John Adult: The components themselves not necessarily as much focused on the labor and overhead pieces of that so both of those factored into our decision to guide us at the 83% to 84% for 24.
John Adult: Okay, great. Thanks for taking my questions.
John Adult: Our next question comes from the line of Alex Nowak with Craig Hallum. Please proceed with your question.
John Adult: Okay, great good afternoon, everyone.
John Adult: Now with beat HFF done FDA approval on hand, that's all wrapped up.
Alex Nowak: Holistically, we're embarrassed I'm Gonna go neck, and there's a ton of potential as you know in the barrel set their stimulation does it make sense to span clinical study dollars to go deeper into the left side of the indication you know the increase in the ejection fraction or change at the BMT requirements.
Alex Nowak: Or does it make more sense to really go after a completely new indication.
Alex Nowak: Excellent question so.
John Adult: So we spoke in the past that we believe from the mechanism of action in some previous experiment that the device could have applicability beyond heart failure, particularly we spoke about hypertension, chronic kidney disease and edit them yes.
John Adult: And in the past FDA has granted us based on previous clinical data that we submitted to FDA to device spray.
John Adult: Our breakthrough device designation bdd, one in heart failure with preserved ejection fraction and won and resistant hypertension. So when we consider both of those two indications does this have hypertension and half path.
John Adult: It was probably or likely that one of these two will be the second indication we go after and.
John Adult: And then when we.
John Adult: Got invited to be one of the 15 initial pilots that FDA started this year.
John Adult: With a new program called the top total lifecycle Advisory program T AP.
That was.
John Adult: Our limited only to breakthrough device designated indications for new products.
John Adult: We started working with FDA about the path indications. So this is the heart failure indication with ejection fraction above 35%.
John Adult: For us it would make more sense to go after this indications for multiple reasons one of them is the synergy and the sales and marketing efforts. The physicians will be the same the Cove point will be the same even some of the direct to consumer marketing campaign would it be the same most of the education would be the same and so forth.
John Adult: Is it a new indication I would say, yes, because those two diseases are different.
John Adult: And if we are approved and above.
John Adult: Above 35% that would significantly and substantially increase the total addressable market of our therapy. So while we are excited about this opportunity. We are in the early phase of the design of the study.
John Adult: Part of the tap program is the requirement to collect stakeholder input before we start the enrollment of the trial. So we need to collect it but not only from the regulators and physicians, but also from patients Payors guideline committees and so forth and we are in this process. We actually had a very constructive meeting last week during the heart failure collaboratively.
John Adult: With regulators payers patients and key opinion leaders.
John Adult: And medical societies, as well and one single meeting. So this is where we are right now the question of when do we start. This program. It's early to know how long it will take to design and finalize the design of the trial and then second question would it be the question of spending that John was talking about and therefore that the previous question that you got.
Margaret Anger: Okay. That's extremely helpful. Thank you so much and the theme obviously congrats on the retirement and getting the barest them, where it is today you obviously on the board.
Mike Riley: In your conversation with them about the transition that will take place here is there still a is there a plan for you to remain on the board any views you can kind of give there.
Alex Nowak: Alex Thanks for asking a question so listen at the end of the day I will do whatever is needed and he has to ensure that see Fedex has the best and smooth transition possible.
Alex Nowak: Between me and the next CEO, So, yes, I hope the board in terms of the search.
Alex Nowak: We meet with the search committee.
Alex Nowak: On a daily basis to identify it and look at all of the candidates internal and external.
And.
Alex Nowak: Whether I stay on the board or not is not the point. The question is what is the most effective way for me to be helpful. Not only during the transition but also after this transition depending on what the board and the newest Youll need from me.
Alex Nowak: This is my baby I've been here 17 years, I'm not going to drop it one day and forget about it. So it's in my best interest to ensure that I.
Alex Nowak: Dedicate the time needed and yet to ensure as smooth as possible transition span and whichever form that takes I would it is it a it's immaterial whatever the new CEO at the Boardwalk will do I will do.
Well that's good to hear and then maybe just a quick question for Jared.
Alex Nowak: Whenever we get a new code hospitals always go through a transition process, though the Q1 guidance can we assume that there's a little bit of conservatism built in for hospitals going through that transition where they might be a little more hesitant to buy just because they've got to figure out the reimbursement dynamics again.
Yeah, Yeah. Good good question.
Whenever we put out guidance, we're looking at a lot of different factors right. We're always being prudent to make sure that we can put out guidance that we're able to go out and achieve and so I think we take all of those points into consideration when we put that guide together up $11 million to $12 million for the first quarter.
Jimmy Alright: Alright excellent thanks for the update.
Jimmy Alright: Thank you.
Jimmy Alright: Our final question comes from the line of Frank <unk> with Lake Street. Please proceed with your question.
Jimmy Alright: Okay.
Jimmy Alright: Great. Thanks for taking the questions and I'll Echo everybody else's comments related to your succession plans Madame.
Margaret Anger: Maybe following up on the question string related to balancing growth aspirations and cash burn I think there was a comment at the end of that stream related to if we elect to grow more aggressively we'll think about the strategy to do so at that time can you maybe walk through some of the different areas. You would think about prioritizing if you did elect to.
Madame: Address it more aggressively invest is it faster head count growth more aggressive on here I see activation direct to consumer. So if you think about that or help us think about the prioritization. If you did grow faster or attempt to grow faster.
Yeah, Hi, Frank and just to reiterate I think our plans are always to try and treat as many patients as possible and we have a lot of people out in the field today with our current number of territories to be able to go out and help more and more of those patients and so we think we're going to continue to see growth just from the team that we have out there today.
Madame: Where could we invest faster right. If we had an open checkbook theres plenty of opportunities and Nadeem talked in depth about the new indications and how this is a platform technology, where if we were able to go out and run clinical trials and get approvals from FDA. It opens the door to a whole bunch of new patients that could benefit from this therapy.
Frank: In the more immediate term yeah, I mean, it's all of those areas right. It's do you invest more in.
Frank: More sales reps out in the field do you invest more in DTC in the key thing for US is doing it in a thoughtful way right. We don't want to just throw money at things and hope that it works, we're being very prudent on how we're utilizing our cash to make sure that we there is no need to go raise more money. We can do this on our own without having to go.
Nadeem: Do another financing and if there is a decision to ever raise more money in the future. It's us being opportunistic because we've been able to prove out some of those additional tests that we run as a business.
Nadeem: Okay. That's helpful. And then maybe just one more sticking with the commercial organization.
John Adult: Company's progress progress through this model, there's always a initial IND.
John Adult: Flux of Onboarding, new centers that are implanting, the technology and then as utilization.
John Adult: Catches up sometimes you see a shift to incentivizing the sales force to more aggressively go after.
John Adult: Proving utilization just given the leverage effects of doing that once you have a large network active implanting centers. My assumption is you're still focused probably more on the activation of implanting centers, but maybe talk to how you think about that progression versus new centers versus eventually being more aggressive on.
John Adult: Pulling their utilization lever.
John Adult: I can have Frank asked that question. So in our case, it's a little bit.
John Adult: A little bit different because when we activate a center that's the implanting centers.
Frank Smith: Further network is all around that center. So yes, we need to ensure that our sales force is focused on training and educating cardiologists in the community to send their patients to that implanting centers. That's part of the market development that we do so I'm not going to go into detail about incentive plans as we have the <unk>.
Margaret Anger: Mobile sales meeting next week and I'll say it doesn't no there says that incentive plan, yet but I.
Frank Smith: I think I've given you enough hints about it it's a it's all about not only activating.
Frank Smith: The implanting centers, but also building that he has got a network around that so this is after we activate a center. They do their first few implant than the key here is the name of the game is get as many referring cardiologist around the hospital to send their patients to the hospital.
Frank Smith: Yeah, and Frank I'll, just chime in too as I mentioned with the guidance. The expectation is to continue to add new centers on a quarterly basis as well at a similar pace to what we had seen historically so we're going to we expect to continue to see growth from both aspects number one seen new centers come onboard number to see in those centers get more and more experience in.
Frank Smith: History has told us the more experience they get the more patients they are treating on average so seeing higher productivity.
Frank Smith: That's helpful. Thanks for taking the questions.
Frank Smith: That concludes our question and answer session I would like to hand, it back to you Nadeem yard for closing remarks.
Nadeem Yard: Oh, yes, thank you operator, and thanks again to everyone for joining us for our fourth quarter earnings call. We appreciate your ongoing support and we look forward to updating you on our next progress on our next update actually next slides.
Nadeem Yard: Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have.
Nadeem Yard: Have a wonderful day.