CVRx Q3 2023 Earnings Call Transcript

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October 26, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to the CVRX Third 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Valle from ICR Westwick.

Speaker 1

Good afternoon. Thank you for joining us today for CVRX's Q3 2023 earnings conference call. Joining me on today's call are the company's President and Chief Executive Officer, Nadeem Yared and its Chief Financial Officer, Jared Oshun. The remarks today will contain forward looking statements, including statements about financial guidance. The statements are based on 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.

Speaker 1

I would now like to turn the call over to CVRX's President and Chief Executive Officer, Nadim Yarid.

Speaker 2

Thank you, Mike, and thanks to everyone for joining us. I'll begin today's call by providing an overview of our Q3 performance, followed by an operational update and a review of our financial results by our CFO, Jared Osheim. Then I will conclude with our thoughts for the rest of the year before turning to Q and A. We maintained positive momentum in the 3rd quarter, Building on the strengths we delivered during the first half of twenty twenty three, in particular, the performance within our U. S.

Speaker 2

Heart failure business Continued to surpass our expectations by growing by more than 90% in the quarter. This is a testament to our team's ability to accelerate adoption of Barastem through the increased scale of our commercial organization In our marketing and awareness efforts, Peristem therapy continues to gain traction and the feedback we receive from physicians and patients Is very positive. Now let's dive into the details of our performance. Starting with the review of the quarter, Worldwide revenue was $10,500,000 a 70% increase over the Q3 of 2022. This was a direct result of execution within our U.

Speaker 2

S. Heart failure business, which grew by 92% over the prior year. These results were achieved through the increased utilization of Peristem among our existing customer base, The continued addition of new active implanting centers, the measured expansion of new sales territories As a result of our sustained top line revenue growth stemming from our focused investments in high return on investment initiatives, In combination with the prudent management of our operating spend, we have seen a continued reduction in our cash burn rate. It is highly encouraging to see operating leverage within our business and we anticipate This trend to be sustainable as we move into 2024 and beyond. Turning to an update On our operational progress during the Q3.

Speaker 2

As a reminder, our focus areas Are the continued expansion of our commercial infrastructure and the expansion of our clinical body of evidence, Starting with the expansion of our commercial infrastructure. We've expanded our commercial reach, adding 3 new U. S. Sales territories As anticipated, bringing our total to 35. During the quarter, we also made progress with our marketing efforts, which included our direct to consumer and patient education programs.

Speaker 2

As we move forward, we will continue working to fine tune these initiatives To drive increased awareness of patients and healthcare providers. Moving to our second focus area, The expansion of our clinical body of evidence and in particular on the regulatory front. Our ongoing interaction with FDA regarding our potential label expansion following the post market BHF data continues to progress as We continue to anticipate a potential decision by year end. Now for an update on CMS and the proposed outpatient prospective payment system or OPPS for 2024. Earlier this year, we submitted a request to CMS to be assigned a new technology APC payment code as our transitional pass through payment expires at the end of 2023.

Speaker 2

In August, the company presented before a CMS advisory panel and received a 5-zero vote in favor of mapping to the higher paying code, APC-fifteen eighty, which reimburses approximately $45,000 While this is encouraging, it is important to note that this vote is non binding. If CMS instead decides to map Barastem to APC-five thousand four hundred and sixty five without the transitional path through payment for 2024, which is the basis for the company's plans, then the average reimbursement to hospitals will be approximately $30,000 The final outpatient payments rule is expected to be published in late November. We are pleased with the accomplishments of the Q3 and the overall progress throughout 2023. Our performance has been consistently strong, largely driven by exceptional growth In our U. S.

Speaker 2

Heart failure business, we have steadily expanded our commercial reach and made strides in marketing Our ongoing discussions with FDA and a positive vote from the CMS advisory panel in August Are encouraging, though our guidance does not hinge on these outcomes. We remain confident in our business to help bring I'll now turn the call over to Jared to review our financials. Jared?

Speaker 3

Thanks, Nadim. In the 3rd quarter, total revenue generated was $10,500,000 representing an increase of $4,300,000 or 70% compared to the same period last year. Revenue generated in the U. S. Was 9.6 $1,000,000 in the current quarter, reflecting growth of 90% over the same period last year.

Speaker 3

Heart failure revenue in the U. S. Totaled $9,400,000 in current quarter on a total of 303 revenue units compared to $4,900,000 in the Q3 of last year on 167 revenue units. The increases were primarily driven by continued growth in the U. S.

Speaker 3

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 current quarter, we had a total of 100 and 59 active implanting centers compared to 91 on September 30, 2022 and 140 on June 30, 2023. We also had 35 sales territories in the U. S. At the end of the current quarter compared to 23 on September 30, 2022 And 32 on June 30, 2023.

Speaker 3

Revenue generated in Europe was $900,000 in the current quarter, representing a decrease of 19% compared to the same period last year. Total revenue units in Europe decreased from 61 in Q3 of 2022 47 in the current quarter. The number of sales territories in Europe remained consistent at 6 for the 3 months ended September 30, 2023. Gross profit for the 3 months ended September 30, 2023 was $8,800,000 an increase of $4,000,000 compared to the 3 months ended September 30, 2022. Gross margin for the current quarter increased to 84% compared to 78% for the same period last year.

Speaker 3

This increase was due primarily to a decrease in the cost per unit driven by an increase in the production volume. Research and development expenses for the current quarter were $2,700,000 reflecting an increase of 18% compared to the same period last year. This change was driven by a $300,000 increase in compensation expenses as a result of increased headcount $100,000 increase in non cash stock based compensation expense. SG and A expenses for the current quarter were $15,700,000 representing an increase of 23% compared to the same period last year. This change was A $500,000 increase in non cash stock based compensation expense, a $300,000 increase in marketing and expenses associated with the commercialization of Barostem in the U.

Speaker 3

S. And a $100,000 increase in travel Interest expense increased $500,000 for the 3 months ended September 30, 2023 compared to the 3 months ended September 30, 2022. This increase was driven by the interest expense on borrowings under the loan agreement entered into on October 31, 2022. Other income net was $1,100,000 in the current quarter compared to $300,000 for the same period last year. The income in the Q3 of 2023 was primarily driven by interest income on our interest bearing accounts.

Speaker 3

Net loss The current quarter was $9,000,000 or $0.43 per share compared to a net loss of $9,800,000 or $0.48 per share for the same period last year. Net loss per share was based on 20,800,000 weighted average shares outstanding for the Q3 of 2023 And 20,600,000 weighted average shares outstanding for the Q3 of 2022. At the end of the Q3, cash and cash equivalents were $83,000,000 Net cash used in operating and investing activities was $8,200,000 for the 3rd quarter. This is compared to net cash used and investing activities of $13,000,000 for the 3 months ended June 30, 2023, which included our annual premium for our directors' and insurance of approximately $2,000,000 The improvement in our cash burn has been driven by improved gross margins, increased productivity from our U. S.

Speaker 3

Sales team And a reduction in our R and D spend associated with the BHF trial. Now turning to guidance. For the full year of 2023, now expect total revenue between $38,500,000 $39,000,000 up from $37,000,000 to $38,500,000 We continue to expect full year gross margin between 83% 84%, and we now expect operating expenses between $77,000,000 78,000,000 Down from $78,000,000 to $80,000,000 For the Q4 of 2023, we expect to report total revenue between $10,500,000 $11,000,000 I would now like to turn the call back over to Nadim.

Speaker 2

Thanks, Jared. Our approach to advancing the adoption of Peristem While upholding our financial stability has yielded positive outcomes once again, Reflecting the effectiveness of our operational model, our operations are performing well with steady revenue growth, improved margins And a reduction in our cash burn, our solid performance in the Q3 has led us to make another upward adjustment to our revenue projection for the year. We're looking forward to carrying this momentum into this final quarter of 2023 beyond. And now, I would like to open the line for questions. Operator?

Speaker 2

Thank

Operator

And our first question comes from the line of Robbie Marcus with JPMorgan. Please proceed.

Speaker 4

Hi, this is Alan on for Ravi. Congrats on a good quarter. I just had one quick question to start on your forward looking guidance. You've been able to pretty consistently guide and beat the guide several quarters in a row now. And when I look at your implied guidance for Q4, given the really strong planting center adds you had in Q3, it looks like the benchmark Should watch it looks like kind of a very achievable floor once again.

Speaker 4

So what kind of dynamics are you seeing so

Speaker 3

So yes, we've continued to exceed expectations on our quarterly growth throughout 2023. That includes the number of active implanting centers, but then also being able to exceed the top end of the guidance that we've given over the last few quarters. So we've been pretty happy with the growth that we've seen throughout 2023. I'd say the one thing to consider here for Q3 results as we march into Q4 was What we saw in Europe, Europe has continued to be flat roughly around that $1,000,000 mark on a quarterly basis. But again, most of our focus is in the U.

Speaker 3

S. And we're seeing really, really good results on that side of it. One thing to call out, and Nadim mentioned it earlier was around the OPPS Final ruling coming out in November. And we did mention that there's the non binding vote that went our direction. So it was 5.0 in our favor.

Speaker 3

And our base case is assuming that we don't get mapped to the new tech APC That maybe have had complicated add on payment calculations in the past could delay procedures from December into January, So that they could potentially benefit from that more predictable payment code APC-fifteen eighty and that approximate reimbursement of $45,000 So I think taking all of that into consideration, we've seen good results in the U. S, kind of steady results in Europe And then the unknown related to that payment code coming out in November, just kind of all came together for the guidance that we put out for the 4th But again, we're really happy to be able to push that full year guidance number up.

Speaker 4

And then just a quick follow-up. I know the base case right now is that you don't get Mapped to 1580 and then you do stay on 5,465. But if you do get mapped to 1580, will you essentially be able to hold ASPs

Speaker 3

Yes, it's a good question. So I think we've seen ASPs north of that $30,000 I think as we march into 2024 without going into detailed guidance there, I think it'd be hard to say that you could maintain those ASPs at that level Longer term, but you could be approaching those numbers, right? So maybe not exactly the $30,000 or $31,000 but maybe high-20s would

Operator

Our next question comes from the line of Matthew O'Brien with Piper Sandler. Please proceed.

Speaker 5

Good afternoon. Thanks for taking the questions. Just to maybe follow-up a little bit on the last question about the unanimous vote. And I know Nadeem and Jared, You're data driven, but there's no guarantees. I get all that.

Speaker 5

But, I'm sure you've looked at this. How often will CMS look at something That has a unanimous vote and then say, no, we're going to do something different. And then how often will they look at something like that and say, yes, it makes sense. We're going

Speaker 2

to go

Speaker 5

with Any kind of framework you can provide on that?

Speaker 2

Good evening, Matt. And by the way, thank you for joining us. I know it's been a busy week for Listen, no, actually we have not looked at statistics of the past in here to be exact. I don't have a percentage, But the vote is non binding. This is a panel very similar to the FDA panel.

Speaker 2

FDA can follow the recommendation and they can just ignore it. We do not have any indications to believe it's going to go one way or the other, except to note that the chances of getting it have increased. That's all I can say right now, Matt.

Speaker 5

Okay. That makes total sense. And then the follow-up is just on the label expansion. Just Talk to me a little bit about where you're at with that process and then maybe when we can get an update there? Thank you.

Speaker 2

Yes. So under the MDUFA, the Medical Device User Fee Agreement 5, which is the current agreement in place that we are among those 95% is where FDA will meet the 180 days clock. When we do the count of All of the stoppage days that happen during this interactive session between FDA give us feedback and we respond to the feedback, When we add all of those stoppage, we still have time to get to the 180 days in this year before end of December. But again, it's no guarantee that we fit within the 95% committed numbers of PMA supplement that FDA commits to do within 180 days.

Speaker 1

Understood. Thanks so much.

Speaker 2

Thank you, Matt. The

Operator

The next question comes from the line of Margaret Kaczor Andrew with William Blair. Please proceed.

Speaker 6

Hey, good afternoon guys. Thanks for taking the questions. I wanted to maybe start on utilization. I know you guys have been pretty vocal about new center utilization, maybe do I have one Two patients upfront and waiting for a few months and maybe progressing until they get to 24 months plus. But you've added quite a few of these Maybe there's a bigger cohort within that 6 to 12 months.

Speaker 6

Any trends that you guys can walk us through? Or Is it a pretty large scatterplot within that group?

Speaker 3

Hi, Margaret. Thanks for the question. Yes, I think the trends have continued to be what we We've seen in the past where we saw a lot of those centers coming on board, treating a handful of patients and then waiting for the results, Both for the reimbursement because of the complexity of the add on payment that TPT, but then also wanting to see the impact on their patients themselves. No matter how much Clinical data there is, they still want to see how it works in their patients. And then after about 6, 7 months So waiting to see what those answers are, then they start treating more and more patients over time.

Speaker 3

And the trend has continued where the longer an account is active, the more patients they're Reading on average. And so we've seen that trend continue here into the Q3.

Speaker 6

Okay. That's helpful. And then you also referenced Previously in quarters that you did see kind of this high level of interest at your booths following some of the data presentations earlier this year. Has that continued? Has there been follow through and not only follow through of continued interest, but maybe making it their way through The hospital processes to get Verastem on board.

Speaker 2

Hey, Margaret. Yes, thank you for the question. Actually, we had recently another Scientific meeting, the Heart Failure Society of America, where in my opinion and opinion of our team, this has been by far the best Scientific meaning that C. Varex has ever been participant to. We were the darling here of that Congress.

Speaker 2

And there was another A couple of opportunities during that scientific session to have the CBRx data presented again To heart failure specialists. So that is increasing the exposure of this data through those scientific meetings to centers. Questions so far, I can't comment on it specifically 1 by 1, but we have not seen any negative impact. And all I can point out is to the results here, the addition of centers to say that if there was an impact so far it has been positive net debt.

Speaker 6

Okay, fantastic. Thank you, guys. Appreciate it.

Speaker 2

Thank you.

Operator

And our next question comes from the line of Alex Nowak with Craig Hallum. Please proceed.

Speaker 7

Okay, great. Good afternoon, everyone. Congrats on the Really nice results here. I want to ask on GLP-one, it's obviously all the talk out right now in medtech. There's been some talk about what it can do around heart failure symptoms in obese patients.

Speaker 7

There's some studies that are ongoing right now about assessing it in the preserved ejection Heart failure side of it, how do you think about GFE-1s changing the potential patient pool for Barostim longer term?

Speaker 2

Hey, Alex, again. Thank you for joining. I know it's a busy week for you too. Listen, regarding GLP-one, we're excited about the Positive impact of stat therapy on obesity and Type 2 diabetes. Clearly, patients needed some solution and this is Earlier results from that drug in heart failure was to note that the heart rate unfortunately increases with this drug.

Speaker 2

And we all know that in heart failure with reduced ejection fraction, an increased heart rate is considered a safety concern. So we've seen some publications, particularly more recent one by Doctor. Murray among others and Doctor. Butler highlighting this fact and raising the question whether this drug can be studied Safely in the HFRAF patient population. The other thing I would like to note is paradoxically when a patient has a heart failure with a reduced ejection fraction, Heavier weight is not necessarily a negative outcome as compared to lesser weight, I.

Speaker 2

E. Patients who have more or larger weight actually have better outcome in HFREF Then patients who are super lightweight or supercent, it's a paradox, Yannis. This is one of those disease areas where A way to reducing drug might not necessarily be beneficial. Now with all that said, we don't know until they run So we will keep a watchful eye on all of these developments. But no matter what, we do not Expect any material impact to our business.

Speaker 7

Okay. Makes total sense. Thank you. And I might have missed this in the prepared remarks, the pullback in OpEx Spend even in mid to new rep hires. The R and D side makes sense, but G and A, sales and marketing, Why some of the cost reductions there?

Speaker 7

What happened? And is that pretty sustainable? Those is, I guess, a good cost basis to continue For 2024 on your path to cash flow breakeven?

Speaker 3

Yes. Hi, Alex. I'll take that one. Yes, I wouldn't call it necessarily a pullback in our spend, but more pointing towards seasonality in the Q2. We often see some additional spend related to trade shows in our sales and marketing line.

Speaker 3

So Seeing us move into the Q3 with more revenue and a little bit less in overall sales and marketing isn't a surprise necessarily. So I do think that the leverage we're seeing in this model on the sales and marketing side is definitely sustainable as we move forward, continue to grow and see more of that Total coming down to the bottom line to help us out and reduce that cash burn number. On the R and D side of the house, this is planned, right? So we expected BeatHF Spend to start slowing down after we left the Q2. So seeing that reduction in research and development was in line with expectations for us.

Speaker 7

Excellent. I appreciate the update. Thank you.

Operator

And our final question comes from the line of Frank Tannen with Lake Street Capital Markets. Please proceed.

Speaker 8

Hey, great. Thanks for taking the questions. I wanted to start with one related to the initial FDA feedback you spoke to, Nadim. I'm assuming you can't go into great detail, but my assumption being, you've remained in the 180 day window within 2023. It's fair to assume that some of the interaction is less impactful or we can say maybe non crucial to A probability or maybe it was more streamlined.

Speaker 8

Can you comment on that at all or if there was any significant questions that they presented to you?

Speaker 2

Hey, Frank. How are you? A super smart question. Yes, I would you are correct. I prefer not To negotiate with FDA in the public eyes in the air.

Speaker 2

That said, you are correct on one thing. When FDA submit a Question? Irrespective of the difficulty of the question, the clock is stopped, right? And then we have to answer the question and provide the data that we feel comfortable That this additional data or additional analysis answer the question of FDA. And here, kudos to our team and the steering committee With whom we're working to be able to get these questions, analyze the data, write the answer and submit the answers to the FDA in a timely fashion that Whereby all of the clock stoppage when added together, they still allow us to hit the 180 days in this year.

Speaker 2

But I let me be clear to one thing. You cannot infer from that any element The severity of the question or the nature of the question, the fact that our team has done a fantastic job to respond very quickly.

Speaker 8

Got it. Fair enough. Makes sense. And then wanted to theorize a little bit into 2024, assuming some of these Items end up in your favor, understanding you guys are assuming base case, but assuming some end up in your favor, can you maybe talk about if there would be any material commercial changes,

Speaker 3

Frank, I love the question, but at this point, I think we're going to pass on providing any additional color on 2024. I think We're feeling really positive based on the results we've seen so far in 2023 and pretty hopeful based on the non binding vote that we got Commit any additional adds or additional spend until we actually see the real results come out here from The letter in later November.

Speaker 8

Got it. Fair enough. I'll stop there. Thanks for taking the questions.

Speaker 2

Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question and answer session. I'd like to turn the call back to Nadim Yarid for closing remarks.

Speaker 2

Thank you, operator, and thanks again to everyone for joining us For our Q3 earnings call, we appreciate your ongoing support and we look forward to updating you on our progress on our next update.

Operator

Thank you. This concludes today's conference. You may now disconnect your lines at this time. Have a good day.

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