AXONICS, INC. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and the related notes thereto, and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , as filed with theSEC onMarch 1, 2022 .
Overview
We are a global medical technology company that is developing and commercializing novel products for adults with bladder and bowel dysfunction, including: (i) implantable rechargeable sacral neuromodulation (SNM)
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systems to treat urinary urge incontinence (UUI) and urinary urgency frequency (UUF), together referred to as overactive bladder (OAB), as well as fecal incontinence (FI), and non-obstructive urinary retention (UR); and (ii) a urethral bulking agent (Bulkamid) to treat female stress urinary incontinence (SUI).
OAB affects an estimated 87 million adults in
SNM therapy is an effective and durable treatment for UUI, UUF, UR and FI that has been widely used and reimbursed inEurope andthe United States for the past two decades. Bulkamid is also an effective and durable treatment for SUI. Bulkamid was approved by the FDA for use inthe United States in early 2020 and is widely reimbursed inthe United States and is a covered service in most international markets.
SNM is the only OAB treatment with proven clinical superiority to standard medical therapy and OAB patients who receive SNM report significantly higher quality of life than patients undergoing drug treatment.
We estimate theU.S. SNM market is now approximately$750 million and believe it is a growing market. Until we entered the market, it was serviced by Medtronic as a single participant. Our proprietary rechargeable SNM system, the first to be marketed worldwide, is designed to last 15 or more years in the human body, is only 5cc in volume, utilizes constant current stimulation, offers broad MRI access with 1.5T and 3.0T scanners, ease of use, intuitive programmers for both patients and providers, and the longest interval between recharging among rechargeable SNM systems. Our newly developed, long-lived, F15™ non-rechargeable SNM system utilizes a primary cell battery with an expected life of 15 years at typical stimulation parameters and over 20 years at low amplitude parameters. The non-rechargeable INS is approximately 10cc in volume, utilizes constant current stimulation, a recharge-free patient remote control, and also offers broad MRI access. We have marketing approvals inthe United States ,Europe ,Canada , andAustralia for all relevant clinical indications and initiated limited commercial efforts inEngland ,the Netherlands andCanada in late 2018 and subsequently inGermany andSwitzerland . SNM revenue during the nine months endedSeptember 30, 2022 from international operations inthe Netherlands ,England ,Canada ,Germany ,Switzerland , andDenmark was approximately$3.9 million . We are primarily focused on commercializing our products inthe United States , which accounts for the vast majority of sales worldwide. We have established a significant commercial infrastructure with approximately 330 sales and clinical support personnel inthe United States . We continue to make significant investments to build our commercial organization to market and support our products. When making hiring decisions for these roles, we prioritize individuals with strong sales backgrounds who also have existing relationships with urologists and urogynecologists. InFebruary 2021 , the FDA approved a third-generation INS for our r-SNM System under a PMA supplement. The third-generation INS upgrades the embedded software in the INS and the functionality of the patient remote control. These modifications give patients the ability to make broader stimulation parameter adjustments based on interoperative findings. We intend to continue to make investments in research and development efforts to develop enhancements to our r-SNM System. OnFebruary 25, 2021 , we acquiredContura Limited (Contura) and its Bulkamid product, a urethral bulking agent indicated for the treatment of female SUI. In consideration for the acquisition, we paid approximately$141.3 million in cash and issued 1,096,583 shares of our common stock. We may pay an additional$35 million in the event Bulkamid sales in any consecutive 12-month period exceed$50 million beforeDecember 31, 2024 . As part of the transaction, we entered into a supply agreement with Contura International A/S (Contura International ) to manufacture Bulkamid for us (Manufacturing and Supply Agreement). We have a right to a technology transfer afterJune 30, 2022 that would enable us to insource the manufacturing of Bulkamid. Bulkamid received a CE Mark in 2003 and a PMA from the FDA in 2020 and is sold through a combination of a direct sales force inthe United States and certain European countries and distributors in certain international markets. The acquisition of Contura has expanded our international operations.
In
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parameters and over 20 years at low amplitude parameters. The non-rechargeable INS is approximately 10cc in volume, utilizes constant current stimulation and a recharge-free patient remote control, and is MRI compatible with 1.5T and 3.0T scanners. Our ability to generate revenue and become profitable will depend on our ability to continue to successfully commercialize our products and any product enhancements we may advance in the future. We expect to derive future revenue by increasing patient and physician awareness of our products. If we are unable to accomplish any of these objectives, it could have a significant negative impact on our future revenue. If we fail to generate sufficient revenue in the future, our business, results of operations, financial condition, cash flows, and future prospects would be materially and adversely affected. Inthe United States , the cost required to treat each patient is reimbursed through various third-party payors, such as commercial payors and government agencies. Most large insurers have established coverage policies in place to cover SNM therapy. Certain commercial payors have a patient-by-patient prior authorization process that must be followed before they will provide reimbursement for SNM therapy. Outsidethe United States , reimbursement levels vary significantly by country, particularly if that country maintains a single-payor system. SNM therapy is eligible for reimbursement inCanada ,Australia , and certain countries inEurope , such asGermany and theUnited Kingdom . Annual healthcare budgets generally determine the number of SNM systems that will be paid for by the payor in these single-payor system countries. We are currently engaged in the manufacturing of a number of processes of our SNM systems and outsource the manufacture of certain implantable components of our SNM systems with contract manufacturers who all have quality systems established that meet FDA requirements and are all recognized in their field for their competency to manufacture the respective portions of our SNM systems. We believe the manufacturers we currently utilize have sufficient capacity to meet our requirements and are able to scale up their capacity relatively quickly with limited capital investment. Prior to obtaining our initial FDA approval, we devoted substantially all of our resources to research and development activities related to our r-SNM System, including clinical and regulatory initiatives to obtain marketing approvals. We spend a significant amount of our resources on sales and marketing activities to commercialize and market our line of SNM systems inthe United States . We incurred net losses of$60.4 million and$64.9 million for the nine months endedSeptember 30, 2022 and 2021, respectively, and had an accumulated deficit of$374.9 million as ofSeptember 30, 2022 compared to$314.6 million atDecember 31, 2021 . As ofSeptember 30, 2022 , we had available cash, cash equivalents, and short-term investments of approximately$350.0 million , current liabilities of approximately$60.8 million , and long-term liabilities of approximately$21.9 million .
OnMay 14, 2021 , we completed a follow-on offering by issuing 4,025,000 shares of common stock, at an offering price of$50.00 per share, inclusive of 525,000 shares of our common stock issued upon the exercise by the underwriters of their option to purchase additional shares. The gross proceeds to us from this follow-on offering were$201.3 million and the net proceeds were approximately$190.0 million , after deducting underwriting discounts, commissions and offering expenses payable by us.
OnAugust 5, 2022 , we completed a follow-on offering by issuing 2,012,500 shares of common stock, at an offering price of$63.85 per share, inclusive of 262,500 shares of our common stock issued upon the exercise by the underwriters of their option to purchase additional shares. The gross proceeds to us from this follow-on offering were$128.5 million and the net proceeds were approximately$128.3 million , after deducting offering expenses payable by us.
Impact of COVID-19
The COVID-19 pandemic negatively impacted our sales, starting in the second quarter of 2020, by significantly decreasing and delaying the number of procedures performed using our r-SNM System, and we expect that the pandemic could negatively impact our business, financial condition and results of operations. Similar to the general trend in elective and other surgical procedures, the number of procedures performed using our r-SNM
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System decreased significantly as healthcare organizations inthe United States and globally, including inEurope andCanada , have prioritized the treatment of patients with COVID-19 or have altered their operations to prepare for and respond to the pandemic. Specifically, substantially all of the procedures using our r-SNM System were postponed or cancelled from middle ofMarch 2020 throughMay 2020 , but order flow began a gradual recovery inMay 2020 and continued to improve in the second half of 2020 through the second quarter of 2021. During the second half of 2021 and through the second quarter of 2022, certain outpatient elective procedures were again postponed or cancelled related to the COVID-19 pandemic and specifically the Delta and Omicron variants, which adversely affected our business during the second half of 2021 and through the third quarter of 2022. To protect the health of our employees, their families, and our communities, we have restricted access to our offices to personnel who must perform critical activities that must be completed on-site, limited the number of such personnel that can be present at our facilities at any one time, requested that many of our employees work remotely, and implemented strict travel restrictions. These restrictions and precautionary measures have not adversely affected our operations. Even as efforts to contain the pandemic have made progress and some restrictions have relaxed, new variants of the virus may continue to cause additional outbreaks. The full extent of COVID-19's effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and additional protective measures implemented by the governmental authorities, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. However, if the pandemic continues to evolve into a long-term severe worldwide health crisis, there could be a material adverse effect on our business, results of operations, financial condition, and cash flows.
AMF License Agreement
OnOctober 1, 2013 , we entered into a license agreement (the License Agreement) with theAlfred E. Mann Foundation for Scientific Research (AMF), pursuant to which AMF licensed us certain patents and know-how (AMF IP ), relating to, in relevant part, an implantable pulse generator and related system components in development by AMF as of that date, in addition to any peripheral or auxiliary devices, including all components, that when assembled, comprise such device, excluding certain implantable pulse generators (AMF Licensed Products). Under the License Agreement, for each calendar year beginning in 2018, we are obligated to pay AMF a royalty on an AMF Licensed Product-by-AMF Licensed Product basis if one of the following conditions applies: (i) one or more valid claims within any of the patents licensed to us by AMF covers such AMF Licensed Products or the manufacture of such AMF Licensed Products or (ii) for a period of 12 years from the first commercial sale anywhere in the world of such AMF Licensed Product, in each case. The foregoing royalty is calculated as the greater of (a) 4% of all net revenue derived from the AMF Licensed Products, and (b) a minimum annual royalty (the Minimum Royalty), payable quarterly. The Minimum Royalty automatically increases each year, subject to a maximum amount of$200,000 per year. During the three and nine months endedSeptember 30, 2022 , we have recorded royalties of$0.6 million and$2.8 million , respectively. During the three and nine months endedSeptember 30, 2021 , we have recorded royalties of$1.6 million and$4.5 million , respectively. We have 60 days to pay AMF the royalty amount due under the License Agreement, and if we fail to pay AMF within such 60-day period, AMF may, at its election, convert the exclusive license to a non-exclusive license or terminate the License Agreement. 27
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Components of Our Results of Operations
Net Revenue
Revenue during the three and nine months endedSeptember 30, 2022 and 2021 are as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 SNM net revenue United States$ 55,610 $ 39,147 $ 147,793 $ 110,135 International markets 1,249 922 3,894 3,031$ 56,859 $ 40,069 $ 151,687 $ 113,166 Bulkamid net revenue(1) United States$ 11,045 $ 3,921 $ 27,837 $ 6,870 International markets 2,480 2,923 8,260 7,119$ 13,525 $ 6,844 $ 36,097 $ 13,989 Total net revenue$ 70,384 $ 46,913 $ 187,784 $ 127,155
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(1) The acquisition of Bulkamid was completed on
We expect our revenue to fluctuate from quarter to quarter due to a variety of factors, including seasonality. For example, the industry generally experiences lower revenues in the first and third quarters of the year and higher revenues in the fourth quarter. Our revenue has been impacted by these industry trends.
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of costs of the components of our r-SNM System, third-party contract labor costs, overhead costs, Bulkamid product costs, as well as distribution-related expenses such as logistics and shipping costs. The overhead costs include the cost of material procurement and operations supervision and management personnel. We expect overhead costs as a percentage of revenue to decrease as our sales volume increases. Cost of goods sold also include other expenses such as scrap and inventory obsolescence. We expect cost of goods sold to increase in absolute dollars primarily as, and to the extent, our revenue grows. We expect gross margin to vary based on manufacturing costs, regional differences in pricing, and discounts negotiated by customers. We calculate gross margin as gross profit divided by revenue. We expect future gross margin will be affected by a variety of factors, including manufacturing costs, the average selling price of our products, the implementation of cost-reduction strategies, inventory obsolescence costs, which may occur when new generations of our r-SNM System are introduced, and to a lesser extent, the sales mix betweenthe United States ,Canada ,Europe andAustralia as our average selling price inthe United States is expected to be higher than inCanada ,Europe andAustralia and foreign currency exchange rates. Our gross margin may increase over the long term to the extent our production volumes increase and we receive discounts on the costs charged by our contract manufacturers, thereby reducing our per unit costs. Additionally, our gross margin may fluctuate from quarter to quarter as we continue to introduce new products and adopt new manufacturing processes and technologies.
Research and Development Expenses
Research and development expenses consist primarily of employee compensation,
including stock-based compensation, product development, including testing and
engineering, royalty expense, and clinical studies to develop and support our
r-SNM System, including clinical study and registry management and monitoring,
payments to clinical investigators, and data management. Other research and
development expenses include
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consulting and advisory fees, royalty expense, travel expenses, and equipment-related expenses and other miscellaneous office and facilities expenses related to research and development programs. Research and development costs are expensed as incurred. We expect to continue incurring research and development expenses in the future as we develop next generation versions of our r-SNM System and expand to new markets. We expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts and new clinical development activities. The following table summarizes our research and development expenses by functional area for the three and nine months endedSeptember 30, 2022 and 2021 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Personnel related$ 4,479 $ 4,604 $ 13,638 $ 14,338 Clinical development 333 287 871 613
Contract R&D and manufacturing 2,328 1,877
8,220 6,892
Royalty expense 541 1,607 2,776 4,520
Other R&D expenses 255 273 802 752
Total R&D expenses $ 7,936 $ 8,648 $ 26,307 $ 27,115 General and Administrative Expenses
General and administrative expenses consist primarily of employee compensation, including stock-based compensation, and spending related to finance, information technology, human resource functions, consulting, legal, and professional service fees. Other general and administrative expenses include director and officer insurance premiums, investor relations costs, office-related expenses, facilities and equipment rentals, bad debt expense, travel expenses, and impairment expenses. We expect our general and administrative expenses will significantly increase in absolute dollars as we increase our headcount and expand administrative personnel to support our growth and operations as a public company including finance personnel and information technology services. Additionally, we anticipate increased legal expenses associated with our patent infringement litigation with Medtronic. We expect general and administrative expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows. Sales and Marketing Expenses Sales and marketing expenses consist primarily of employee compensation, including sales personnel commissions and stock-based compensation, trade shows, booth exhibition costs, and the related travel for these events. Other sales and marketing expenses include direct-to-consumer promotional programs, consulting, and advisory fees. We expect sales and marketing expenses to continue to increase in absolute dollars as we continue to expand our commercial infrastructure to both drive and support our expected growth in revenue. However, we expect sales and marketing expenses to decrease as a percentage of revenue in the long term primarily as, and to the extent, our revenue grows.
Amortization of Intangible Assets
Amortization of intangible assets consist primarily of amortization expense on patent license asset, manufacturing license asset, technology, and customer relationships. We amortize finite lived intangible assets over the period of estimated benefit using the straight-line method. Indefinite lived intangible assets are tested for impairment annually or whenever events or circumstances indicate that the carrying amount of the asset (asset group) may not be recoverable. If impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset. Fair value is generally determined using a discounted future cash flow analysis. Acquisition-Related Costs
Acquisition-related costs consist of expenses incurred and changes in contingent consideration related to the Contura acquisition.
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Other Income (Expense), Net
Other income (expense), net consists primarily of interest expense payable under the Loan and Security Agreement withSilicon Valley Bank and other debt arrangements, gains and losses on foreign currency transactions, net of interest income earned on cash equivalents and short-term investments.
Income Tax Expense (Benefit)
Income tax expense (benefit) primarily consists of losses benefited in certain foreign jurisdictions. We maintain a full valuation allowance for deferred tax assets in our domestic operations, including net operating loss carryforwards and research and development credits.
Results of Operations
The following table shows our results of operations for the three and nine
months ended
Period to Period Period to Period
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2022 2021 2022 2021
Net revenue $ 70,384 $ 46,913 $ 23,471 $ 187,784 $ 127,155 $ 60,629
Cost of goods sold 19,124 15,719 3,405 53,086 46,828 6,258
Gross profit 51,260 31,194 20,066 134,698 80,327 54,371
Gross Margin 72.8 % 66.5 % 71.7 % 63.2 %
Operating expenses
Research and development 7,936 8,648 (712) 26,307 27,115 (808)
General and administrative 9,389 7,443 1,946 29,974 22,104 7,870
Sales and marketing 39,751 28,112 11,639 112,195 74,451 37,744
Amortization of intangible assets 2,317 2,216 101 7,112 5,094 2,018
Acquisition-related costs 8,242 1,277 6,965 20,447 5,691 14,756
Total operating expenses 67,635 47,696 19,939 196,035 134,455 61,580
Loss from operations (16,375) (16,502) 127 (61,337) (54,128) (7,209)
Other income (expense)
Interest income 1,501 9 1,492 1,904 24 1,880
Interest and other expense (1,898) (229) (1,669) (3,026) (7,528) 4,502
Other expense, net (397) (220) (177) (1,122) (7,504) 6,382
Loss before income tax (benefit) expense (16,772) (16,722) (50) (62,459) (61,632) (827)
Income tax (benefit) expense (520) 528 (1,048) (2,096) 3,269 (5,365)
Net loss (16,252) (17,250) 998 (60,363) (64,901) 4,538
Foreign currency translation adjustment (12,057) (5,138) (6,919) (29,625) (6,481) (23,144)
Comprehensive loss $ (28,309) $ (22,388) $ (5,921) $ (89,988) $ (71,382) $ (18,606)
Comparison of the Three Months Ended
Net Revenue
Net revenue was$70.4 million for the three months endedSeptember 30, 2022 , an increase of$23.5 million , or 50.0%, compared to$46.9 million for the three months endedSeptember 30, 2021 . Net revenues are derived from the sale of our products to customers inthe United States and certain international markets. The increase in net revenue is primarily due to increased sales of our products as we expanded our customer base in theU.S. and increased sales with our existing customer base. 30
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Cost of Goods Sold and Gross Margin
We incurred$19.1 million of cost of goods sold for the three months endedSeptember 30, 2022 . We incurred$15.7 million of cost of goods sold for the three months of the prior year period. Gross margin was 72.8% in the three months endedSeptember 30, 2022 , compared to 66.5% for the three months endedSeptember 30, 2021 . The increase in gross margin is primarily due to higher sales volumes and product mix, partially offset by decreased inventory production and overhead absorption rates related to certain supply chain and labor constraints.
Research and Development Expenses
Research and development expenses decreased$0.7 million , or 8.2%, to$7.9 million in the three months endedSeptember 30, 2022 , compared to$8.6 million in the three months endedSeptember 30, 2021 . The decrease in research and development expenses was primarily attributable to a decrease of$1.1 million in royalty expense, partially offset by an increase of$0.4 million in contract R&D and manufacturing costs.
General and Administrative Expenses
General and administrative expenses increased$1.9 million , or 26.1%, to$9.4 million in the three months endedSeptember 30, 2022 , compared to$7.4 million in the three months endedSeptember 30, 2021 , primarily as a result of an increase of$0.5 million in legal costs, an increase of$0.4 million in consulting and other professional service fees, an increase of$0.3 million in personnel costs including salaries and wages, stock-based compensation and other employee-related benefits, an increase of$0.3 million related to impairment of an intangible asset, and an increase of$0.2 million in facilities and equipment costs. Sales and Marketing Expenses Sales and marketing expenses increased$11.6 million , or 41.4%, to$39.8 million in the three months endedSeptember 30, 2022 , compared to$28.1 million in the three months endedSeptember 30, 2021 . The increase in sales and marketing expenses was attributed to an increase of$7.8 million related to personnel costs including salaries, wages, sales personnel commissions, stock-based compensation and other employee-related benefits and an increase of$3.4 million related to advertising expenses.
Amortization of Intangible Assets
Amortization of intangible assets was$2.3 million in the three months endedSeptember 30, 2022 , compared to$2.2 million in the three months endedSeptember 30, 2021 . Amortization of intangible assets consisted primarily of technology and customer relationships acquired related to the Contura acquisition.
Acquisition-Related Costs
Acquisition-related costs were$8.2 million for the three months endedSeptember 30, 2022 , compared to$1.3 million for the three months endedSeptember 30, 2021 related to the change in fair value of contingent consideration.
Other Expense, Net
Other expense, net was$0.4 million in the three months endedSeptember 30, 2022 consisting primarily of losses on foreign currency transactions, partially offset by interest income on cash equivalents and short-term investments. Other expense, net was$0.2 million in the three months endedSeptember 30, 2021 consisting primarily of losses on foreign currency transactions.
Income Tax (Benefit) Expense
Income tax benefit was$0.5 million for the three months endedSeptember 30, 2022 primarily related to losses in certain foreign jurisdictions. Income tax expense was$0.5 million for the three months endedSeptember 30, 2021 primarily related to the change in deferred tax liabilities generated in our foreign operations related to the Contura acquisition. 31
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Comparison of the Nine Months Ended
Net Revenue
Net revenue was$187.8 million for the nine months endedSeptember 30, 2022 , an increase of$60.6 million , or 47.7%, compared to$127.2 million for the nine months endedSeptember 30, 2021 . Net revenues are primarily derived from the sale of our products to customers inthe United States and certain international markets. The increase in net revenue is primarily due to increased sales of our products as we expanded our customer base in theU.S. and increased sales with our existing customer base.
Cost of Goods Sold and Gross Margin
We incurred$53.1 million of cost of goods sold for the nine months endedSeptember 30, 2022 . We incurred$46.8 million of cost of goods sold for the nine months endedSeptember 30, 2021 . Gross margin was 71.7% in the nine months endedSeptember 30, 2022 , compared to 63.2% for the nine months endedSeptember 30, 2021 . The increase in gross margin is primarily due to higher sales volumes and product mix, partially offset by decreased inventory production and overhead absorption rates related to certain supply chain and labor constraints.
Research and Development Expenses
Research and development expenses decreased$0.8 million , or 3.0%, to$26.3 million in the nine months endedSeptember 30, 2022 , compared to$27.1 million in the nine months endedSeptember 30, 2021 . The decrease in research and development expenses was primarily attributable to a decrease of$1.7 million in royalty expense and a decrease of$0.7 million in personnel costs including salaries and wages, stock-based compensation and other employee-related benefits, partially offset by an increase of$1.3 million in contract R&D and manufacturing costs.
General and Administrative Expenses
General and administrative expenses increased$7.9 million , or 35.6%, to$30.0 million in the nine months endedSeptember 30, 2022 , compared to$22.1 million in the nine months endedSeptember 30, 2021 , primarily as a result of an increase of$4.5 million in legal costs and an increase of$1.1 million in personnel costs including salaries and wages, stock-based compensation and other employee-related benefits, an increase of$0.9 million in facilities and equipment costs, and an increase of$0.8 million in consulting and other professional service fees.
Sales and Marketing Expenses
Sales and marketing expenses increased$37.7 million , or 50.7%, to$112.2 million in the nine months endedSeptember 30, 2022 , compared to$74.5 million in the nine months endedSeptember 30, 2021 . The increase in sales and marketing expenses was primarily due to an increase of$23.3 million related to personnel costs including salaries, wages, sales personnel commissions, stock-based compensation and other employee-related benefits, an increase of$10.0 million related to advertising expenses, and an increase of$3.6 million related to travel expenses.
Amortization of Intangible Assets
Amortization of intangible assets was$7.1 million in the nine months endedSeptember 30, 2022 , compared to$5.1 million in the nine months endedSeptember 30, 2021 . The increase in amortization of intangible assets was primarily due to an increase of technology and customer relationships acquired related to the Contura acquisition. Acquisition-Related Costs Acquisition-related costs were$20.4 million for the nine months endedSeptember 30, 2022 related to the change in fair value of contingent consideration. Acquisition-related costs were$5.7 million in the nine months endedSeptember 30, 2021 related to the Contura acquisition.
Other Expense, Net
Other expense, net was$1.1 million in the nine months endedSeptember 30, 2022 consisting primarily of losses on foreign currency transactions, partially offset by interest income on cash equivalents and short-term investments. Other expense, net was$7.5 million in the nine months endedSeptember 30, 2021 consisting primarily of interest expense incurred related to the Loan and Security Agreement withSilicon Valley Bank . The decrease in 32
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other expense, net primarily relates to interest on higher outstanding debt
balances during the nine months ended
Income Tax (Benefit) Expense
Income tax benefit was$2.1 million for the nine months endedSeptember 30, 2022 primarily related to losses in certain foreign jurisdictions. Income tax expense was$3.3 million for the nine months endedSeptember 30, 2021 primarily related to the remeasurement of ourU.K. deferred tax liabilities due to an increase in theU.K. income tax rate from 19% to 25%, which was enacted during the second quarter of 2021 and effectiveApril 1, 2023 , net of losses in certain foreign jurisdictions..
Liquidity and Capital Resources
We only began full-scale commercialization of our r-SNM System in late 2019. We have expended significant resources on research and development activities, growing our operations organization and building and training our sales organization.
We incurred net losses of$60.4 million and$64.9 million for the nine months endedSeptember 30, 2022 and 2021, respectively, and had an accumulated deficit of$374.9 million as ofSeptember 30, 2022 compared to$314.6 million atDecember 31, 2021 . We expect to continue to spend a significant amount of our existing resources on sales and marketing activities as we continue to commercialize and market our products inthe United States and internationally. As ofSeptember 30, 2022 , we had cash, cash equivalents, and short-term investments of$350.0 million compared to$220.9 million atDecember 31, 2021 . We expect that our cash, cash equivalents, and short-term investments on hand will be sufficient to fund our operations through at least the next 12 months. We fund our operations through a combination of proceeds from public offerings of our common stock and cash receipts from sales of our products. As ofSeptember 30, 2022 , we had no outstanding borrowings. Beyond the next 12 months, our cash requirements will depend primarily on the amount of continued cash receipts from sales of our products, as well as our ability to develop or acquire new products, enter new markets, and compete effectively. We cannot accurately predict our long-term cash requirements at this time. We may need to raise additional financing in the future to facilitate our business operations. If we raise additional funds by issuing equity securities, our stockholders could experience dilution. Debt financing, if available, may involve covenants further restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing when needed to satisfy our liquidity requirements, we may be required to scale back our operations.
Contractual Obligations and Cash Requirements
There have been no material changes to our contractual obligations or material cash requirements from those described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
Cash Flows
The following table presents a summary of our cash flow for the periods
indicated (in thousands):
Nine Months Ended
September 30,
2022 2021Net cash provided by (used in)
Operating activities$ (6,162) $ (40,530) Investing activities (110,324) (141,918) Financing activities 133,807 170,311
Effect of exchange rate changes on cash and cash equivalents 3,132
(247)
Net increase (decrease) in cash and cash equivalents$ 20,453
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Net cash used in operating activities
Net cash used in operating activities was$6.2 million for the nine months endedSeptember 30, 2022 and consisted primarily of a net loss of$60.4 million , partially offset by non-cash charges of$50.5 million and an increase from changes in net operating assets of$3.7 million . Net operating assets consisted primarily of inventory and accounts receivable due to the commercial growth of our r-SNM System inthe United States and the addition of Bulkamid sales. Non-cash charges consisted primarily of stock-based compensation and change in fair value of contingent consideration. Net cash used in operating activities was$40.5 million for the nine months endedSeptember 30, 2021 and consisted primarily of a net loss of$64.9 million and a decrease from changes in net operating assets of$10.3 million , partially offset by non-cash charges of$34.7 million . Net operating assets consisted primarily of inventory and accounts receivable due to the commercial growth of our r-SNM System inthe United States and the addition of Bulkamid sales. Non-cash charges consisted primarily of stock-based compensation and depreciation and amortization.
Net cash used in investing activities
Net cash used in investing activities was$110.3 million for the nine months endedSeptember 30, 2022 and consisted of purchases of short-term investments, partially offset by sales and maturities of short-term investments. Net cash used in investing activities was$141.9 million for the nine months endedSeptember 30, 2021 and consisted primarily of the$140.7 million paid for the acquisition of Contura.
Net cash provided by financing activities
Net cash provided by financing activities was
Net cash provided by financing activities was$170.3 million for the nine months endedSeptember 30, 2021 and consisted primarily of$190.0 million in net proceeds received in theMay 2021 follow-on offering, partially offset by a net debt repayment of$26.0 million .
Indebtedness
InJune 2021 , the principal amount, accrued interest, accrued loan fees, and prepayment fees related to the term loan under the Loan and Security Agreement withSilicon Valley Bank entered into inFebruary 2021 , were paid in full. The unamortized debt issuance costs of$4.4 million were expensed and recognized as interest expense. InJanuary 2021 , the principal amount, accrued interest, accrued loan fees, and prepayment fees related to the term loan under the Loan and Security Agreement withSilicon Valley Bank entered into inFebruary 2018 , were paid in full. The unamortized debt issuance costs of$0.4 million were expensed and recognized as interest expense.
We have no further indebtedness arrangements.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , as filed with theSEC onMarch 1, 2022 . We have reviewed and determined that those critical accounting policies and estimates remain our critical accounting policies and estimates as of and for the nine months endedSeptember 30, 2022 .
Recent Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other
than as disclosed in Note 1 to our unaudited condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q, such
standards will not have a significant impact on our unaudited condensed
consolidated financial statements or do not otherwise apply to our operations.
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