CVRx, Inc. (CVRX) Earnings Call Transcript

Good day, and welcome to the CVRx Q4 2022 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mike Vallie. Please go ahead.

Good afternoon. Thank you for joining us today for CVRx's fourth quarter and full year 2022 earnings conference call. Joining me on today's call are the company's President and Chief Executive Officer Nadim Yared; and its Chief Financial Officer Jared Oasheim. The remarks today will contain forward-looking statements, including statements about financial guidance. The statements are based on 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-K that will be filed with the SEC. I would now like to turn the call over to CVRx's President and Chief Executive Officer, Nadim Yared.

Thank you, Mike, and thanks to everyone for joining us today. I'll begin today's call by providing an overview of our fourth quarter and full-year performance, followed by an operational update, a review of our financial results by our CFO Jared Oasheim and then I will conclude with our thoughts on 2023 before turning to questions and answers. We are very proud of everything that our team accomplished in 2022. It has been a great year for CVRx. We made progress towards all our strategic initiatives, resulting in the increased adoption and utilization of Barostim despite several macro disruptions throughout the year. This is demonstrated by the fact that our worldwide revenue increased by 72% over 2021, primarily driven by our U.S. Heart Failure business' 108% annual growth. And the year was capped by a strong fourth quarter. Our worldwide revenue for the fourth quarter was $7.2 million, an increase of 96% over the fourth quarter of 2021. Performance in the quarter was driven by the continued expansion of our U.S. sales force and contributions from our marketing initiatives, which led to an increase in U.S. active implanting centers. In the U.S., our Heart Failure business generated $6.0 million, an increase of more than 121% over the fourth quarter of 2021. The increase was primarily driven by continued growth and expansion into new sales territories, new accounts and increased physician and patient awareness. When we went public, in the summer of 2021, we were in the very early stages of our commercial launch in the U.S. At the time, we expected to consistently grow this business in line with the investment in our commercial organization. We are very pleased with how this has played out with the fourth quarter being our 10th consecutive quarter of increasing U.S. Heart Failure revenue with average quarterly sequential growth in excess of 20% since the IPO. Now for an update on operational developments during the fourth quarter to support greater adoption and use of Barostim. Our focus areas were: one, the continued expansion of commercial infrastructure; 2, innovation of our product portfolio; and 3, the expansion of the clinical body of evidence. Starting with the continued expansion of our commercial infrastructure. During the quarter, we added 3 new territories, bringing the total to 26. We are excited with the quality of sales talent we have been able to attract and look forward to continuing to build upon that quality in 2023. During the year, we generated momentum with several of our marketing programs, including our direct-to-consumer or DTC pilot program, our new branding campaign and patient irrigation programs. The DTC pilot program has been successful to date and has had a positive impact on our U.S. business. To date, we have made minimal investments in localized DTC campaigns, and we have seen more than 100 patients undergo a Barostim implant and have a robust pipeline of potential patients with interest in learning whether they are candidates for the therapy. We plan to continue to optimize these campaigns to make them more cost effective as we evaluate whether to roll them out more broadly. Our second area of focus is the innovation of our product portfolio. During the second half of 2022, we launched Barostim NEO2 IPG, the second generation device, which reduces the size of the IPG by 10% and extends battery life by 20%, reducing the frequency of device replacements for patients and their providers. It is remarkable how the NEO2 extends longevity while employing a smaller footprint and allows for a streamlining of the implantation procedure. Our third focus of area is the expansion of our clinical body of evidence. The BeAT-HF clinical trial was designed to demonstrate that Barostim provides a mortality and morbidity benefit in addition to a reduction of symptoms of heart failure in patients with reduced ejection fraction. As previously announced, we accrued the required 320th event in the trial and are working to collect and monitor all the data. As a reminder, the primary endpoint is a mortality and morbidity composite endpoint, and we have pre-specified a few potentially meaningful secondary and ancillary endpoints and analysis. These include a hierarchical win ratio analysis, a few COVID sensitivity analysis and ways to account for the severity of hospitalization. While we and the Steering Committee are still blinded to the results but also based on how the data collection is progressing, we now believe that we will be in a position to unblind and share the data before the end of the first quarter of 2023. Our goal for this post-market trial is to broaden Barostim's labeling. We plan to submit the totality of the evidence in our corresponding analysis to FDA when we outline the data. Please note that FDA is the ultimate decision-maker on whether to allow additional claims and new labeling for Barostim based on its own evaluation of all the available data. FDA may also seek advice from a panel of independent experts. At this point, it is difficult to plan for a specific scenario. The results may produce a conclusion that is more complex and nuanced than a straightforward binary answer. In addition, we continue to make progress with BATwire, our ultrasound guided implant toolkit. In 2022, we added more sites and more patients into the clinical trial. As a reminder, we expect to complete the trial in 2024. We announced in late September that we added a veteran medical device executive, Kevin Hykes, to our Board of Directors. Kevin brings his business acumen and his decades-long experience in the field of cardiovascular implantable devices. Additionally, with the promotion of 4 leaders to the executive team, we now have 8 out of 10 of our executives promoted internally, showcasing the strength and depth of our talent bench at CVRx. In summary, we had a fantastic 2022 as we considerably expanded the adoption and application of Barostim as seen by 10 consecutive quarters of strong growth in our U.S. Heart Failure business. The year was topped off with a successful fourth quarter, during which we continued to push the growth of active implanting facilities in the United States, highlighting once more the benefits that Barostim can provide to both health care professionals and patients with cardiovascular disease. I'll now turn the call over to Jared to review our financials. Jared?

Thanks, Nadim. Total revenue generated in the fourth quarter was $7.2 million, which is an increase of $3.5 million or 96%, when compared to the same period last year. Revenue generated in the U.S. was $6 million for the fourth quarter, which is an increase of 109% over the same period last year. Heart Failure revenue in the U.S. totaled $6 million in the fourth quarter on a total of 193 revenue units, up 121% as compared to $2.7 million in the same period last year on 95 revenue units. The increase was primarily driven by continued growth in the U.S. Heart Failure business as a result of the expansion into new sales territories, new accounts and increased physician and patient awareness of Barostim. At the end of the fourth quarter, we had a total of 106 active implanting centers as compared to 46 at the end of Q4 2021 and 91 at the end of Q3 2022. At the end of the fourth quarter, we had a total of 26 territories in the U.S. compared to 14 at the end of Q4 2021 and 23 at the end of Q3 2022. Revenue generated in Europe was $1.2 million in the fourth quarter, which is an increase of 49% when compared to the same period last year. Total revenue units in Europe increased from 39 in Q4 2021 to 68 in Q4 2022. The revenue increase was primarily due to the lessening impact of the COVID-19 pandemic in Europe. The number of sales territories in Europe remained consistent at 6 during Q4 2022. Gross profit was $5.7 million for the fourth quarter, an increase of $3 million when compared to the same period last year. Gross margin increased to 79% for the fourth quarter compared to 73% for the same period last year. Gross margin for the 3 months ended December 31, 2022, was higher due to a decrease in the cost per unit and an increase in average selling price, partially offset by a larger percentage of our revenue units coming from full systems versus battery replacements. Research and development expenses were $3 million for the fourth quarter, which is an increase of 70% when compared to the same period last year. This change was primarily driven by increases in compensation expenses due to increased head count. SG&A expenses were $14.1 million for the fourth quarter, which is an increase of 46% when compared to the same period last year. This was primarily driven by an increase in marketing and advertising costs associated with the commercialization of Barostim as well as higher compensation costs from increased head count. Net loss was $10.5 million or $0.51 per share for the fourth quarter as compared to a net loss of $10.6 million or $0.52 per share for the same period last year. Net loss per share was based on approximately 20.6 million weighted average shares outstanding for the fourth quarter and approximately 20.4 million weighted average shares outstanding for the same period last year. At the end of the fourth quarter, cash and cash equivalents were $106.2 million. Net cash used in operating and investing activities was $10.9 million for the fourth quarter compared to $7.6 million for the same period last year. We continue to believe we have enough cash on hand to reach cash flow breakeven without needing to raise additional capital. Now turning to guidance. As announced in early January, for the full year of 2023, we expect total revenue between $35 million and $38 million, gross margin between 78% and 79% and operating expenses between $76 million and $80 million. For the first quarter of 2023, we expect to report total revenue between $7.1 million and $7.5 million. I would now like to turn the call back over to Nadim.

Thanks, Jared. Before opening the line for questions, I would like to discuss our key areas of focus for 2023 as we seek to drive the increased adoption and utilization of Barostim. First, the continued expansion of our commercial infrastructure, especially our direct sales force in the United States remains a top priority. We expect to continue hiring top talent throughout the year and are targeting a total of approximately 38 U.S. territories by the end of 2023 or on average, adding 3 new territories per quarter. In addition, we will continue to invest in marketing efforts to help drive increased awareness of Barostim. Outside of the U.S., we have added additional talent to our direct sales organization in Germany, and we continue to expect to add incremental head count in 2023 to support our commercial strategy in that region. Our second focus area is the expansion of our clinical body of evidence, both our post-market study of BeAT-HF and BATwire remain on track with our previous updates. In regard to BeAT-HF, we have been conducting this trial since early 2016. And here we are, 7 years later, we are looking forward to potentially unblinding the data and sharing the results with you before the end of this quarter. Looking ahead to 2023, we are very eager to accelerate the development of Barostim by utilizing the positive momentum we have built over the previous 2 years. While we are still very early in the commercial ramp and the market penetration, we are totally focused on the significant potential to provide treatment to as many patients as possible. And now I would like to open the line for questions. Operator?

[Operator Instructions] Our first question will come from the line of Robbie Marcus with JPMorgan.

Maybe first, the cash burn is going to be -- it looks maybe a bit higher than last year based on the sales and OpEx guidance. And you talk about a pathway to profitability without further capital raises. How important is a positive readout from BeAT-HF to getting to that target? And any timeframes in terms of revenue or years out that we could be thinking about cash flow profitability?

Yes, Robbie, thanks for the question. So one thing that we've been consistent on is the model that we've built is under the assumption that we get a neutral readout from the morbidity mortality trial. And that's not based on us being pessimistic about the results. It's just us taking a conservative approach. And so when we say that we think we still have enough cash on hand to reach cash flow breakeven, it comes with that assumption that morbidity mortality is neutral. We haven't yet drawn a line in the sand for when -- publicly, when we're going to reach that cash flow breakeven point from a run rate perspective. But we do expect this to be the year where we see that cash burn start to flatline, to be similar where -- to the burn that we saw in 2022. And then from there, starting to see the overall burn start to drop on a quarterly basis.

If I just want to dream big and say it is a positive trial. How important has -- or how big a barrier has not having a mortality benefit been to driving physician adoption? And if it does have a positive, do you think we should be thinking more like a rapid improvement in adoption following? Or is there still -- would it have to wait for FDA labeling, so maybe a little time afterwards?

Robbie, Nadim here. So thanks for the question, by the way. Listen, when we started this trial in 2017 [Technical Difficulty] it and 2016 started enrolling it, we powered it to win it, right? So we're still hopeful that the data will be [Technical Difficulty] a clear-cut simple yes answer to all of the questions below. That said, it's -- the certainty here is the time it takes to get the word out. First, we'll probably -- if there is a medical meeting, we'll do the announcement of the results during the medical meeting. But if there isn't one close by in terms of [ time ] where we have to sit on the data for too long. So we'd like to get it out as soon as possible. So we may end up doing basically [Technical Difficulty] event where we'll invite you and other people who wants to listen in and we'll present ourselves the data. But that does still get [Technical Difficulty]. So we'll have to wait for that medical meeting and do the presentation there via symposium or [Technical Difficulty]. After that, you also had heard those. One is the FDA labeling that would allow us to market the data. And the second is the publication of the [Technical Difficulty]. Surprisingly, FDA has been faster than most journals. The median time to publish a manuscript is in months. So those are the uncertain element that would make me hesitate to say, yes, we will see a pick up in 2023, [Technical Difficulty] backup in sales would happen in 2024. But based on your previous question, if the data is positive, we may decide to faster [Technical Difficulty] so paradoxically, we may burn cash a little bit faster earlier to follow that [Technical Difficulty].

Just last quick one for me. Is this something you're going to try and submit for a late breaker at ACC or do you think you'll miss the date there?

Yes. Thanks for the question. We don't know yet. Thank you. The [Technical Difficulty] if you're still listening, the ACC deadline for late vehicle was -- has passed. And that's why we don't know. We don't know if the data will be ready [Technical Difficulty] unblinded, number one. And if we are, if they would accept us even after the deadline. Thank you, Robbie.

And that will come from the line of Matthew O'Brien with Piper Sandler.

I don't know Nadim or Jared, which one of you this is for, but -- and I don't want to overstate this too much. But when I look at the unit number in Q4 versus the number of active centers that you had the last in Q3 and even in Q2, that productivity rate is down somewhat here in Q4. So can you just talk a little bit about why that's the case? And then the confidence in why those metrics improved so steadily, especially even in Q1 and all the way throughout 2023?

Matt, this is Jared. I can take that one. So as we look to the productivity for the accounts that we saw throughout 2022, part of this was driven by the success on the addition of new accounts driving the overall average productivity down. We've said early on that the -- right when an account starts, we see them treat 1 or 2 patients and then they push pause for a period of 3, 4, 5 or 6 months. They check out the results from a reimbursement perspective, but then also as to how the therapy is going with -- or doing with their patients. After they see that, then they start to pick up the pace on their own productivity. So the longer they're with us, on average, the more patients they are treating. So we still have confidence that the longer these accounts stay with CVRx, they're going to treat more and more patients based on the data that we've seen and collected over the last 3 years. But I think the challenge we're facing over the last couple of quarters is that we've exceeded expectations on the number of accounts we were expecting to add, which just drives that overall productivity rate down because of the newness of those new accounts.

So just to put a finer point on it, just because you were up 15 to 20 active centers in Q2 and Q3, respectively, that's the reason why that metric is down a little bit. And you're not seeing any change from trend line as far as utilization among those accounts as we're kind of exiting that 6-month window.

Yes, that's correct. Yes. We're still seeing the centers that have been with us for a couple of years, doing more than the centers that have been with us between 1 and 2 years, and they're doing more than the centers that have been with us less than 12 months.

And then we can get into margins and all the other stuff, which are positive updates, I guess, later. But the other question I did have was really on the DTC campaign. It seems like there's a lot of patients out there. And I know it's just a pilot study, but what are you seeing as far as running some of those studies getting in front of patients that could be good candidates for this and then transitioning them all the way through to potentially getting an implant.

Matt, this is Nadim. Thanks for the question [Technical Difficulty] impact our DTC pilot and why we kept it as a pilot still for a little bit longer is to understand exactly those questions that you're asking. [Technical Difficulty] need to have no idea what form of heart failure they have. If they have an ICD or a CRT they think they have a pacemaker. And I am over generalizing because it's a disease that's harder to characterize. And when you look at our incidence rates that we calculated, you may have [ 1,000 ] new patients every year, that's about 4% to 5% of the heart failure patients overall. So it's a small percent of standard base -- it's a game of numbers, and we track every single click, every single patient when they provide us the information we try to get as much as possible medical condition as much as we are allowed to know. And if they are seeing their own physicians versus seeing a hospital [Technical Difficulty] to past diverge and if the hospital specialist they're seeing happen to be on a site, where we are already activated, as well as there [Technical Difficulty] and then it will go much faster on the other hand, much slower. So it's all of those uncertainties, Matt, that keeps us for the time being as a very [Technical Difficulty] nationwide across all centers.

Our next question -- and that will come from the line of Margaret Kaczor with William Blair.

Just because BeAT-HF obviously is going to the short-term catalyst. I was just curious if you can walk us through any commercial or marketing changes that you would make based on, let's call it, 3 scenarios where the first is positive on morbidity, mortality or on all events, maybe in more gray area of numerical improvement in mortality, but not on events and then third is maybe a less good morbidity outcome or whatever gray area that would be less good that you would look at. How would that change your behavior, I guess, relative to the guidance that you have?

Thank you, Margaret. Thanks for the question. Listen, of the 3 scenarios that you mentioned, let's start from the most negative to the most positive. The most negative, the data is neutral, there is no data [Technical Difficulty] what we're doing. Our plan is built on that scenario. As Jared just mentioned earlier, it's not that we don't believe that we will win. It's just -- you know what [Technical Difficulty] but I would like to establish a baseline that is conservative and consider all of the positive news as upside. If it's the positive trending positive, but not meeting the endpoint itself, then probably there'll be no change in our marketing [Technical Difficulty] sales strategy. Now if it's a clear cut partner where we met the mortality morbidity endpoint and that [Technical Difficulty] that FDA will give us the labeling that this device improves heart failures outcome, then [Technical Difficulty] that Jared and I, with the approval of our Board, we may decide to accelerate the [Technical Difficulty] in our sales and marketing efforts in the United States. And when that would happen, it will take time. You don't see [Technical Difficulty] us adding territories, you have to identify the talent, hire them, train them and so forth. So that trend will accelerate, but you will not see it overnight. [Technical Difficulty] answered your question?