CVRX, INC. Overview
We are a commercial-stage medical device company focused on developing,
manufacturing and commercializing innovative and minimally invasive
neuromodulation solutions for patients with cardiovascular disease. Our
proprietary platform technology, BAROSTIM, is designed to leverage the power of
the brain and nervous system to address the imbalance of the Autonomic Nervous
System, which causes HF with reduced Ejection Fraction ("HFrEF") and other
cardiovascular diseases. Our second-generation product, BAROSTIM NEO, is the
first and only commercially available neuromodulation device indicated to
improve symptoms for patients with HFrEF. BAROSTIM NEO provides Baroreflex
Activation Therapy by sending imperceptible and persistent electrical pulses to
baroreceptors located in the wall of the carotid artery to signal the brain to
modulate cardiovascular function. BAROSTIM NEO is currently approved by the
Since our inception we have generated minimal revenue, as our activities have
consisted primarily of developing our BAROSTIM Therapy, conducting our BeAT-HF
pre-market and post-market pivotal studies in the
Our sales and marketing efforts are directed at electrophysiologists, HF
specialists, general cardiologists and vascular surgeons because they are the
primary users of our technology. However, we consider the hospitals, where the
procedures are performed primarily in an outpatient setting, to be our
customers, as they are the purchasing entities of our BAROSTIM NEO in the
The cost for the device and implantation procedure are reimbursed through
various third-party payors, such as government agencies and commercial payors.
In the
22
Table of Contents
We manage all aspects of manufacturing operations and product supply of our
BAROSTIM NEO, which includes final assembly, testing and packaging of our
implantable pulse generator ("IPG") and stimulation lead, at our headquarters in
From our inception until the IPO, we financed our operations primarily through preferred stock financings, and additionally, from sales of our BAROSTIM products and amounts borrowed under our current and past credit facilities. We have devoted substantially all of our resources to research and development activities related to our BAROSTIM Therapy, including clinical and regulatory initiatives to obtain marketing approval, and sales and marketing activities.
We intend to use a portion of the IPO proceeds to continue funding the expansion
of our direct sales force and commercial organization related to BAROSTIM NEO in
the
Recent developments
Since it was reported to have surfaced in
The COVID-19 pandemic has negatively impacted our business, financial condition
and results of operations by decreasing and delaying procedures performed to
implant our BAROSTIM NEO, and we expect the pandemic will continue to negatively
impact our business, financial condition and results of operations. Beginning in
In response to the COVID-19 pandemic, we have implemented a variety of measures intended to help us manage its impact while maintaining business continuity to support our customers and patients. These measures include:
? Establishing safety protocols, facility enhancements, and work-from-home
strategies to protect our employees;
? Ensuring that our manufacturing and supply chain operations remain intact and
operational;
23
Table of Contents
? Keeping our workforce intact, including our experienced and specialized
sales and clinical support team;
? Implementing virtual physician education programs to support opening new
accounts with minimal in person interaction; and
? Increasing our capital resources through the issuance of shares of Series G
Preferred Stock for net proceeds of
Our hospital customers in the
? Strong physician participation in our virtual educational events;
? Expansion into new accounts; and
? Hospitals accepting patients for elective procedures at closer to pre-pandemic
levels in the
Despite the encouraging signs of recovery of our business, we believe the challenges resulting from COVID-19 will likely continue for the duration of the pandemic. The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of COVID-19 and its variants and the actions to contain the spread of COVID-19 and its variants or treat its impact.
Factors affecting our performance
We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include:
? Growing and supporting our
? Promoting awareness among physicians, hospitals and patients to accelerate
adoption of our BAROSTIM NEO;
? Raising awareness among payors to build upon reimbursement for BAROSTIM NEO;
? Investing in research and development to foster innovation and further simplify
our BAROSTIM NEO procedure; and
? Leveraging our manufacturing capacity to further improve our gross margins.
Components of results of operations
Revenue
We have derived primarily all of our historical revenue from the sale of our
BAROSTIM NEO to hospitals in
24
Table of Contents
Our
Cost of goods sold and gross margin
Cost of goods sold consists primarily of acquisition costs of the components and subassemblies of BAROSTIM NEO, allocated manufacturing overhead, and scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs. We expect cost of goods sold to increase in absolute dollars primarily as, and to the extent, our revenue grows. Gross margin may also vary based on regional differences in rebates and incentives negotiated with certain customers.
We calculate gross margin as revenue less cost of goods sold divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, but is primarily driven by the average sale price of our product, the percentage of products sold that include a full system (i.e., an IPG and a stimulation lead), as compared to individual IPG sales, and the allocated manufacturing overhead. Although we sell the majority of our devices directly to hospitals, the impact of the average selling price on gross margin is driven by the percentage of products we sold to distributors as compared to those sold directly to hospitals as our average selling price is typically higher on products we sell directly. The full system sales typically have a lower gross margin as they include the cost of an IPG and a stimulation lead whereas individual IPG sales only include the cost of an IPG. The manufacturing overhead costs of BAROSTIM NEO are directly aligned to our production volume and therefore the cost per product is reduced if production levels increase. While we expect our gross margin to be positively affected over time to the extent we are successful in selling more product through our direct sales force and by increasing our production volumes, it will likely fluctuate from period to period as we continue to introduce new products and adopt new manufacturing processes and technologies.
Research and development expenses
Research and development ("R&D") expenses consist primarily of personnel costs, including salaries, bonuses, employee benefits and stock-based compensation expenses for our R&D employees. R&D expenses also include costs associated with product design efforts, development prototypes, testing, clinical trial programs and regulatory activities, contractors and consultants, equipment and software to support our development, facilities and information technology. We expense research and development costs as they are incurred. We expect R&D expenses to increase in absolute dollars as we continue to develop enhancements to BAROSTIM NEO. Our R&D expenses may fluctuate from period to period due to the timing and extent of our product development and clinical trial expenses related to BAROSTIM NEO in HFrEF.
Selling, general and administrative expenses
Selling, general and administrative ("SG&A") expenses consist primarily of personnel costs, including base salaries, bonuses, employee benefits and stock-based compensation expense for our sales and marketing personnel, including sales commissions, and for administrative personnel that support our general operations such as executive management, financial accounting, information technology, and human resources personnel. SG&A expenses also include costs attributable to marketing, as well as travel, legal fees, financial audit fees, insurance, fees for other consulting services, depreciation and facilities. We expense commissions at the time of the sale.
25
Table of Contents
We expect SG&A expenses to increase in absolute dollars as we continue to expand
our direct sales force and commercial organization in the
Interest expense
Interest expense consists of interest on our debt and amortization of associated debt discount.
Other expense, net
Other expense, net consists primarily of the fair value adjustments related to our outstanding convertible preferred stock warrants, which are accounted for as a liability and marked-to-market at each reporting period. The final fair value adjustment of the warrant liability was recorded upon the closing of the IPO in connection with the conversion of the warrants to common stock warrants. Other items include gains (losses) on the extinguishment of debt, interest income earned on our cash and cash equivalents, and the effect of exchange rates on our foreign currency-denominated asset and liability balances. Translation adjustments are recorded as foreign currency gains (losses) in the condensed consolidated statements of operations and comprehensive loss.
Income tax expense
Income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business. We maintain a full valuation allowance for deferred tax assets including net operating loss carryforwards, research and development credits and other tax credits.
Results of operations
Consolidated results of operations for the three months ended
Three months ended
June 30, Change
(unaudited and in thousands) 2021 2020 $ %
Revenue $ 3,123 $ 1,250 $ 1,873 150 %
Cost of goods sold 913 345 568 165 %
Gross profit 2,210 905 1,305 144 %
Gross margin 71 % 72 %
Operating Expenses:
Research and development 2,255 2,131 124 6 %
Selling, general and administrative 5,627 1,834 3,793 207 %
Total operating expenses 7,882 3,965 3,917 99 %
Loss from operations (5,672) (3,060) (2,612) 85 %
Interest expense (608) (618) 10 (2) %
Other (expense) income, net (11,442) 33 (11,475) NM
Loss before income taxes (17,722) (3,645) (14,077) 386 %
Provision for income taxes (26) (22) (4) 18 %
Net loss $ (17,748) $ (3,667) $ (14,081) 384 %
NM - Not meaningful.
26
Table of Contents
Revenue
Revenue by Geography
Three months ended
June 30, Change
(unaudited and in thousands) 2021 2020 $ %
United States $ 2,105 $ 197 $ 1,908 969 %
Europe 1,018 1,053 (35) (3) %
Total Revenue $ 3,123 $ 1,250 $ 1,873 150 %
Revenue increased by
Revenue generated in the
Revenue generated in
Cost of goods sold and gross margin
Cost of goods sold increased
Gross margin decreased to 71% for the three months ended
Research and development expenses
R&D expenses increased
27
Table of Contents
Selling, general and administrative expenses
SG&A expenses increased
Interest expense
Interest expense remained consistent at
Other income (expense), net
Other expense, net was
Income tax expense
Income tax expenses were nominal for the three months ended
Consolidated results of operations for the six months ended
Six months ended
June 30, Change
(unaudited and in thousands) 2021 2020 $ %
Revenue $ 5,983 $ 2,968 $ 3,015 102 %
Cost of goods sold 1,780 777 1,003 129 %
Gross profit 4,203 2,191 2,012 92 %
Gross margin 70 % 74 %
Operating Expenses:
Research and development 4,005 4,400 (395) (9) %
Selling, general and administrative 10,087 4,128 5,959 144 %
Total operating expenses 14,092 8,528 5,564 65 %
Loss from operations (9,889) (6,337) (3,552) 56 %
Interest expense (1,209) (1,235) 26 (2) %
Other (expense) income, net (15,234) 137 (15,371) NM
Loss before income taxes (26,332) (7,435) (18,897) 254 %
Provision for income taxes (43) (45) 2 (4) %
Net loss $ (26,375) $ (7,480) $ (18,895) 253 %
NM - Not meaningful.
Revenue
Revenue by Geography
Six months ended
June 30, Change
(unaudited and in thousands) 2021 2020 $ %
United States $ 3,717 $ 606 $ 3,111 513 %
Europe 2,266 2,362 (96) (4) %
Total Revenue $ 5,983 $ 2,968 $ 3,015 102 %
28
Table of Contents
Revenue increased by
Revenue generated in the
Revenue generated in
Cost of goods sold increased
Gross margin decreased to 70% for the six months ended
Research and development expenses
R&D expenses decreased
Selling, general and administrative expenses
SG&A expenses increased
Interest expense
Interest expense remained consistent at$1.2 million for the six months endedJune 30, 2021 and 2020. 29 Table of Contents Other income (expense), net
Other expense, net was
Income tax expense
Income tax expenses were nominal for the six months ended
Unaudited pro forma information
Upon the closing of the IPO, all outstanding shares of our convertible preferred
stock converted into an aggregate of 11,929,584 shares of common stock. The
unaudited pro forma basic and diluted net loss per share attributable to common
stockholders for the three and six months ended
The following table sets forth the computation of the unaudited pro forma basic
and diluted net loss per share attributable to common stockholders for the
periods presented:
Three months ended Six months ended
June 30, 2021 June 30, 2021
(unaudited) (unaudited)
Numerator:
Net loss used to compute pro forma net loss per
share, basic and diluted $ (17,748) $ (26,375)
Denominator:
Weighted-average common shares used to compute net loss per share, basic and diluted 366,066 363,397 Weighted-average shares of convertible preferred stock, as converted (unaudited) 11,929,584 11,929,584 Pro forma weighted-average common shares used to compute net loss per share, basic and diluted (unaudited) 12,295,650 12,292,981 Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) $ (1.44) $ (2.15)
Liquidity, capital resources and plan of operations
We have incurred significant operating losses and negative cash flows from
operations since our inception, and we anticipate that we will incur significant
losses for at least the next several years. As of
Prior to the IPO, our operations were financed primarily by aggregate net
proceeds from the sale of our convertible preferred stock of
30
Table of Contents
share, for net proceeds of
Our future liquidity and capital funding requirements will depend on numerous factors, including:
? our investment in our
? the degree and rate of market acceptance of BAROSTIM NEO and the ability for
our customers to obtain appropriate levels of reimbursement;
? the costs of commercialization activities, including product sales, marketing,
manufacturing and distribution;
? our R&D activities for product enhancements and to expand our indications;
? the costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights;
? our need to implement additional infrastructure and internal systems;
? our ability to hire additional personnel to support our operations as a public
company; and
? the emergence of competing technologies or other adverse market developments.
We believe that our existing cash resources together with revenue will be sufficient to meet our forecasted requirements for operating liquidity, capital expenditures and debt services for at least the next 12 months. If these sources are insufficient to satisfy our liquidity requirements, however, we may seek to sell additional equity, increase the availability under the Horizon loan agreement or enter into an additional loan agreement. If we raise additional funds by issuing equity securities, our stockholders would 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 that we do not deem to be favorable. If we are unable to obtain additional financing when needed to satisfy our liquidity requirements, we may be required to delay the commercialization and marketing of our BAROSTIM NEO.
31
Table of Contents
Cash flows
The following table sets forth the primary sources and uses of cash for each of
the periods presented below:
Six months ended
June 30
(unaudited)
(in thousands) 2021 2020
Net cash (used in) provided by:
Operating activities $ (11,502) $ (6,855)
Investing activities (480) (92)
Financing activities 2 -
Effect of exchange rate changes on cash and cash equivalents (4) (21)
Net change in cash $ (11,984) $ (6,968) Cash used in operating activities
Net cash used in operating activities for the six months ended
Net cash used in operating activities for the six months ended
Cash used in investing activities:
Cash used in investing activities was
Cash provided by financing activities:
Net cash provided by financing activities were nominal for the six months ended
Indebtedness
In
32
Table of Contents
from the FDA for use of BAROSTIM NEO in certain other HF patients upon our
request for additional labeling based upon the results of the post-market stage
of our BeAT-HF pivotal trial; and various restrictive covenants, including a
restriction on the payment of dividends. We were in compliance with these
covenants as of
Contractual obligations and commitments
There have been no material changes to our contractual obligations as of
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements, as defined by applicable
regulations of the
Critical accounting policies and estimates
The preparation of condensed consolidated financial statements in conformity
with
While our significant accounting policies are more fully described in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Stock-based compensation
We maintain an equity incentive plan that was adopted in 2001 to provide long-term incentives for employees, consultants, and members of the Board of Directors. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors. In connection with the IPO, we adopted the 2021 Plan under which we may grant equity incentive awards to eligible employees (including our named executive officers), non-employee directors and consultants in order to enable us to obtain and retain services of these individuals, which we deem as essential to our long-term success.
We recognize equity-based compensation expense for awards of equity instruments to employees and non- employees based on the grant date fair value of those awards in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation ("ASC 718"). ASC 718 requires all equity-based compensation awards to employees and nonemployee directors, including grants of restricted shares and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the grant date fair value of stock options using the Black-Scholes option pricing model. We use an estimate of the value of our common stock, with the assistance of an independent appraiser, to determine the fair value of options.
33
Table of Contents
The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) fair value of common stock (ii) the expected share price volatility, (iii) the expected term of the award, (iv) the risk-free interest rate and (v) the expected dividend yield.
Fair value of common stock - Given the absence of a public trading market for
our common stock prior to the IPO, the fair value of our common stock was
determined by our Board of Directors with the assistance of an unrelated
third-party valuation firm. The valuation was determined in accordance with the
guidance provided by the
Practice Guide, Valuation of Privately-Held Company Equity Securities Issued as ? Compensation. For the valuation as of the date of pricing of the IPO, the fair
value of our common stock was determined by our Board of Directors to be the
public offering price of the shares of common stock issued in the IPO. For
valuations after the completion of the IPO, our Board of Directors will
determine the fair value of each share of common stock based on the closing
price of our common stock as reported on the date of grant. Future expense
amounts for any particular period could be affected by changes in our
assumptions or market conditions.
Expected share price volatility - Due to the lack of a public market for the
trading of our common stock and a lack of company-specific historical and
implied volatility data, we have based our estimate of expected volatility on ? the historical volatility of a group of similar (guideline) companies that are
publicly traded. The historical volatility is calculated based on a period of
time commensurate with the expected term assumption. The group of guideline
companies have characteristics similar to us, including stage of product
development and focus on the life science industry.
Expected term of an award - Determined based on our analysis of historical ? exercise behavior while taking into consideration various participant
demographics and option characteristics.
? Risk-free interest rate - Based on a treasury instrument whose term is
consistent with the expected term of the stock options.
Expected dividend yield - We assume an expected dividend yield of zero as we ? have never paid dividends and have no current plans to pay any dividends on our
common stock.
We estimate pre-vesting forfeitures at the time of grant by analyzing historical data and revise those estimates in subsequent periods if actual forfeitures differ from those estimates or if they are likely to change. We expense the fair value of our equity-based compensation awards granted to employees on a straight-line basis over the associated service period, which is generally the period in which the related services are received.
Freestanding preferred stock warrants
Warrants to purchase our preferred stock are classified as a liability on our condensed consolidated balance sheets. These warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized in other (expense) income, net. We will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants or when the warrants become exercisable to purchase our common stock at which time the liability will be reclassified to stockholders' equity (deficit).
The valuation of our warrants requires the input of certain subjective assumptions, including (i) IPO probability, (ii) the future fair value of common stock, (iii) the expected share price volatility, (iv) the expected term, (v) the risk-free interest rate and (vi) the expected dividend yield.
IPO probability - Management, along with the assistance of an unrelated ? third-party valuation firm, evaluated the likelihood and timing of an IPO and
applied these assumptions to the determination of the future fair value of the
common stock as well as the expected term assumption.
34
Table of Contents
Future fair value of common stock - Given the absence of a public trading
market for our common stock prior to the IPO, the fair value of our common
stock was determined by our Board of Directors with the assistance of an ? unrelated third-party valuation firm. The valuation was determined in
accordance with the guidance provided by the
Public Accountants Practice Guide, Valuation of Privately-Held Company Equity
Securities Issued as Compensation.
Expected share price volatility - Due to the lack of a public market for the
trading of our common stock and a lack of company-specific historical and
implied volatility data, we have based our estimate of expected volatility on ? the historical volatility of a group of similar (guideline) companies that are
publicly traded. The historical volatility is calculated based on a period of
time commensurate with the expected term assumption. The group of guideline
companies have characteristics similar to us, including stage of product
development and focus on the life science industry.
? Expected term - The expected term of the warrant is driven by the probability
and timing of an IPO.
? Risk-free interest rate - Based on a treasury instrument whose term is
consistent with the expected term of the stock options.
Expected dividend yield - We assume an expected dividend yield of zero as we ? have never paid dividends and have no current plans to pay any dividends on our
common stock. JOBS Act accounting election
The JOBS Act permits an "emerging growth company" such as us to take advantage
of an extended transition period to comply with new or revised accounting
standards applicable to public companies until those standards would otherwise
apply to private companies. We have elected to use this extended transition
period under the JOBS Act until the earlier of the date we (i) are no longer an
emerging growth company or (ii) affirmatively and irrevocably opt out of the
extended transition period provided in the JOBS Act. As a result, our financial
statements may not be comparable to the financial statements of issuers
Recent accounting pronouncements
A discussion of recent accounting pronouncements is included in Note 2 to our audited financial statements included elsewhere in this Quarterly Report on Form 10-Q.
© Edgar Online, source
