SHOCKWAVE MEDICAL, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth under "Special Note Regarding Forward-Looking Statements," in the "Risk Factors" section of this Quarterly Report on Form 10-Q and in the "Risk Factors" section of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , our actual results could differ materially from the results described in, or implied, by those forward-looking statements.
Overview
We are a medical device company focused on developing and commercializing
products intended to transform the way calcified cardiovascular disease is
treated. We aim to establish a new standard of care for medical device treatment
of atherosclerotic cardiovascular disease through our differentiated and
proprietary local delivery of sonic pressure waves for the treatment of
calcified plaque, which we refer to as intravascular lithotripsy ("IVL"). Our
IVL system (our "IVL System"), which leverages our IVL technology (our "IVL
Technology"), is a minimally invasive, easy-to-use, and safe way to
significantly improve patient outcomes. We are currently selling the following
products in a number of countries around the world where we have applicable
regulatory approvals:
Products for the Treatment of Peripheral Artery Disease ("PAD"):
•Our Shockwave M5 IVL catheter (the "M5 catheter") and M5+ IVL catheter ("M5+
catheter") are five-emitter catheters for use in our IVL System in "medium"
vessels for the treatment of above-the-knee PAD. The M5 catheter was CE-Marked
in April 2018 and cleared by the U.S. Food and Drug Administration ("FDA") in
July 2018 . The M5+ catheter was CE-Marked in November 2020 and cleared by the
FDA in April 2021 . In May 2022 , we obtained regulatory approval, through our
joint venture with Genesis MedTech International Private Limited ("Genesis"),
from the China National Medical Products Administration ("NMPA") to sell our M5
catheter in the People's Republic of China , excluding the Special Administrative
Regions of Hong Kong and Macau (the "PRC").
•Our Shockwave S4 IVL catheter ("S4 catheter") is a four-emitter catheter for
use in our IVL System in small vessels for the treatment of below-the-knee PAD.
The second version of our S4 catheter was cleared by the FDA in August 2019 and
accepted by our EU notified body in May 2020 for use in our IVL System. In May
2022 , we obtained regulatory approval, through our joint venture with Genesis,
from the NMPA to sell our S4 catheter in the PRC.
Product for the Treatment of Coronary Artery Disease ("CAD"):
•Our Shockwave C2 IVL catheter ("C2 catheter") is a two-emitter catheter for use
in our IVL System for the treatment of CAD. The C2 catheter was CE-Marked in
June 2018 . In August 2019 , we received the Breakthrough Device Designation from
the FDA for our C2 catheters using our IVL System for the treatment of CAD. In
August 2020 , we submitted an application to the FDA for U.S. pre-market approval
of our C2 catheters, which was approved by the FDA in February 2021 . In March
2021 , we submitted DISRUPT CAD III and DISRUPT CAD IV data to support our Shonin
submission in Japan for our C2 Catheters and received approval in March 2022 . In
May 2022 , we obtained regulatory approval, through our joint venture with
Genesis, from the NMPA to sell our C2 catheter in the PRC.
Our differentiated range of M5 and M5+ catheters, S4 catheters and C2 catheters
enables delivery of IVL therapy of diseased vasculature throughout the body for
calcium modification. Our IVL catheters resemble in form a standard balloon
angioplasty catheter, the device most commonly used by interventionalists. This
familiarity makes our IVL System easy to learn, adopt and use on a day-to-day
basis.
Since inception, we have focused on generating clinical data to demonstrate the
safety and effectiveness of our IVL Technology. These initial studies have
consistently shown low rates of complications regardless of which vessel was
being studied. In addition to gaining regulatory approvals or clearances, the
data from our clinical studies strengthen our ability to drive adoption of IVL
Technology across multiple therapies in existing and new market segments. Our
past studies have
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also guided optimal IVL procedure technique and informed the design of our IVL
System and future products in development. In addition, we also have ongoing
clinical programs across several products and indications, which, if successful,
will allow us to expand commercialization of our products into new geographies
and indications.
The first two indications we are targeting with our IVL System are PAD, the
narrowing or blockage of vessels that carry blood from the heart to the
extremities, and CAD, the narrowing or blockage of the arteries that supply
blood to the heart. In the future, we see significant opportunity in the
potential treatment of aortic stenosis, a condition where the heart's aortic
valve becomes increasingly calcified with age, causing it to narrow and obstruct
blood flow from the heart.
We have adapted the use of lithotripsy to the cardiovascular field with the aim
of creating what we believe can become the safest, most effective means of
addressing the growing challenge of cardiovascular calcification. Lithotripsy
has been used to successfully treat kidney stones (deposits of hardened calcium)
for over 30 years. By integrating lithotripsy into a device that resembles a
standard balloon catheter, physicians can prepare, deliver, and treat calcified
lesions using a familiar form factor, without disruption to their standard
procedural workflow. Our differentiated IVL System works by delivering
shockwaves through the entire depth of the artery wall, modifying calcium in the
medial layer of the artery, not just at the superficial most intimal layer. The
shockwaves crack this calcium and enable the stenotic artery to expand at low
pressures, thereby minimizing complications inherent to traditional balloon
dilations, such as dissections or tears. Preparing the vessel with IVL
facilitates optimal outcomes with other therapies, including stents and
drug-eluting technologies. Using IVL also avoids complications associated with
atherectomy devices such as dissection, perforation, and embolism. When followed
by an anti-proliferative therapy such as drug-coated balloons or drug-eluting
stents, the micro-fractures may enable better drug penetration into the arterial
wall and improve drug uptake, thereby improving the effectiveness of the
combination treatment.
We market our products to hospitals whose interventional cardiologists, vascular
surgeons, and interventional radiologists treat patients with PAD and CAD. We
have dedicated meaningful resources to establish a direct sales capability in
the United States , Germany , Austria , Switzerland , France , Ireland , and the
United Kingdom , and we are working to build out our direct sales team in Japan
in anticipation of the launch of our C2 catheters, for which we received
Japanese regulatory approval in March 2022 . We have complemented our direct
sales capability with distributors actively selling our products in over 50
countries in North and South America , Europe , the Middle East , Asia , Africa , and
Australia /New Zealand . We are actively expanding our international field
presence through new distributors, as well as additional sales and clinical
personnel. In addition, we are continuing to add new U.S. sales territories.
For the three months ended June 30, 2022 and 2021, we generated product revenue
of $120.7 million and $55.9 million , respectively, and income from operations of
$29.6 million and a loss from operations of $0.2 million , respectively. For the
three months ended June 30, 2022 and 2021, 17% and 23%, respectively, of our
product revenue was generated from customers located outside of the United
States .
For the six months ended June 30, 2022 and 2021, we generated product revenue of
$214.4 million and $87.8 million , respectively, and income from operations of
$44.9 million and a loss from operations of $17.7 million , respectively. For the
six months ended June 30, 2022 and 2021, 17% and 27%, respectively, of our
product revenue was generated from customers located outside of the United
States .
Since inception, we have incurred significant net losses. Although we had
positive net income for the quarter ended June 30, 2022 , we had a net loss for
the year ended December 31, 2021 . We may continue to incur losses in the future,
which may vary significantly from period to period. We expect to continue to
incur significant expenses as we (i) expand our marketing efforts to increase
adoption of our products, (ii) expand existing relationships with our customers,
(iii) obtain regulatory clearances or approvals for our planned or future
products, (iv) conduct clinical trials on our existing and planned or future
products, and (v) develop new products or add new features to our existing
products. We will need to continue to generate significant revenue in order to
sustain profitability as we continue to grow our business. Even if we achieve
profitability for any period, we cannot be sure that we will remain profitable
for any substantial period of time.
To date, our principal sources of liquidity have been the net proceeds we
received through the sale of our common stock in our public offerings, private
sales of equity securities and payments received from customers using our
products. As of June 30, 2022 , we had $224.9 million in cash, cash equivalents
and short-term investments and an accumulated deficit of $212.7 million .
Impact of the COVID-19 pandemic
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The global COVID-19 pandemic presents significant risks to us and has had, and
continues to have, impacts on our business, operations, and financial results
and condition, directly and indirectly. Access to many hospitals and other
customer sites may be or may periodically be, depending on the current COVID-19
infection rates in the applicable location, restricted to essential personnel,
which negatively impacts our ability to promote the use of our products with
physicians. Additionally, many hospitals and other therapeutic centers have in
the past suspended, and may suspend or continue to suspend in the future, many
elective procedures, resulting in a reduced volume of procedures using our
products. Our customer behavior is impacted by the prevalence of COVID-19 and
changes in the infection rates in the locations where our customers are located.
Quarantines, shelter-in-place and similar government orders have also impacted
and may continue to impact, our third-party manufacturers and suppliers, and
could in turn adversely impact the availability or cost of materials. We have
recently seen some disruptions in the operations of certain of our third-party
suppliers, resulting in increased lead-times, higher component costs and lower
allocations for our purchase of some components. In certain cases, this has
resulted in us being required to procure materials from alternate suppliers or
incur higher logistical expenses. We are continuing to work closely with our
manufacturing partners and suppliers to enable us to source key components and
maintain appropriate inventory levels to meet customer demand. We, however, have
not experienced material disruptions in our supply chain to date.
We have taken a variety of steps to address the impact of the COVID-19 pandemic,
while attempting to minimize business disruption. In response to the COVID-19
pandemic, during 2020 and 2021 we limited access to our Santa Clara headquarters
only to essential staff in manufacturing and limited support functions following
appropriate hygiene and social distancing protocols. In the second quarter of
2021, certain other employees began to return to our headquarters, although we
continue to review the impact of COVID-19 on employee safety. We continue to
limit non-essential travel to protect the health and safety of our employees and
customers.
We are continuing to monitor the impact of the COVID-19 pandemic on our
employees and customers and on the markets in which we operate, and will take
further actions that we consider prudent to address the COVID-19 pandemic, while
ensuring that we can support our customers and continue to develop our products.
The ultimate extent of the impact of the COVID-19 pandemic on us remains highly
uncertain and will depend on future developments and factors that continue to
evolve, including the ability of various regions to effectively manage COVID-19,
the extent of the continuing resurgence of COVID-19, the efficacy and extent of
distribution of vaccines, and the impact of mutations of COVID-19, and the
ability of various economies and supply-chains to recover from the COVID-19
pandemic. Most of these developments and factors are outside of our control and
could exist for an extended period of time even after the pandemic might end.
Components of Our Results of Operations
Product revenue
Product revenue is primarily from the sale of our IVL catheters.
We sell our products to hospitals, primarily through direct sales representatives, as well as through distributors in selected international markets. For products sold through direct sales representatives, control is transferred upon delivery to customers. For products sold to distributors internationally and products sold to customers that utilize stocking orders, control is transferred upon shipment or delivery to the customer's named location, based on the contractual shipping terms. Additionally, a portion of our revenue is generated through a consignment model under which inventory is maintained at hospitals. For consignment inventory, control is transferred at the time the catheters are consumed in a procedure.
Cost of product revenue
Cost of product revenue consists primarily of costs of components for use in our products, the materials and labor that are used to produce our products, the manufacturing overhead that directly supports production and the depreciation relating to the equipment used in our IVL System to the extent that we loan generators to our hospital customers without charge to facilitate the use of our IVL catheters in their procedures. We depreciate equipment over a three-year period. We expect cost of product revenue to increase in absolute terms as our revenue grows.
Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of direct materials, product mix, geographic mix, discounting practices, manufacturing costs, product yields,
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headcount and cost-reduction strategies. We expect our gross margin percentage
to marginally increase over the long term to the extent we are successful in
increasing our sales volume and are therefore able to leverage our fixed costs.
We intend to use our design, engineering and manufacturing capabilities to
further advance and improve the efficiency of our manufacturing processes,
which, if successful, we believe will reduce costs and enable us to increase our
gross margin percentage. While we expect gross margin percentage to increase
over the long term, it will likely 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 ("R&D") expenses consist of applicable personnel, consulting, materials, and clinical trial expenses. R&D expenses include, but are not limited to:
•certain personnel-related expenses, including salaries, benefits, bonus, travel, and stock-based compensation;
•cost of clinical studies to support new products and product enhancements, including expenses for clinical research organizations, and site payments;
•materials and supplies used for internal R&D and clinical activities;
•allocated overhead including facilities and information technology expenses; and
•cost of outside consultants who assist with technology development, regulatory affairs, clinical affairs and quality assurance.
R&D costs are expensed as incurred. In the future, we expect R&D expenses to increase in absolute dollars as we continue to develop new products, enhance existing products and technologies, and perform activities related to obtaining additional regulatory approvals.
Sales and marketing expenses
Sales and marketing expenses consist of personnel-related expenses, including salaries, benefits, sales commissions, travel, and stock-based compensation. Other sales and marketing expenses consist of marketing and promotional activities, including trade shows and market research. We expect to continue to grow our sales force and increase marketing efforts as we continue commercializing products based on our IVL Technology. As a result, we expect sales and marketing expenses to increase in absolute dollars over the long term.
General and administrative expenses
General and administrative expenses consist of personnel-related expenses, including salaries, benefits, bonus, travel, and stock-based compensation. Other general and administrative expenses consist of professional services fees, including legal, audit and tax fees, insurance costs, outside consultant fees and employee recruiting and training costs. Moreover, we expect to incur additional expenses associated with operating as a public company, including legal, accounting, insurance, exchange listing andSecurities and Exchange Commission ("SEC") compliance and investor relations. As a result, we expect general and administrative expenses to increase in absolute dollars in future periods.
Loss from equity method investment
Loss from equity method investment, represents our proportionate share of the underlying income or loss incurred in connection with our joint venture withGenesis MedTech International Private Limited ("Genesis"). Also included in loss from equity method investment is the portion of intra-entity profit which is eliminated to the extent the goods have not yet either been consumed by the JV for use in clinical trials, or sold through by the JV to an end customer at the end of the reporting period
Interest expense
Interest expense consists of the interest and amortization expense related to
our outstanding term loan, which matures in
Other income (expense), net
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Results of Operations
Comparison of the Three Months Ended
The following table shows our results of operations for the three months ended
Three Months Ended June 30, Change Change
2022 2021 $ %
(in thousands, except percentages)
Revenue:
Product revenue $ 120,746 $ 55,908 $ 64,838 116%
Cost of revenue:
Cost of product revenue 16,730 9,934 6,796 68%
Gross profit 104,016 45,974 58,042 126%
Operating expenses:
Research and development 20,760 11,815 8,945 76%
Sales and marketing 40,515 25,713 14,802 58%
General and administrative 13,165 8,626 4,539 53%
Total operating expenses 74,440 46,154 28,286 61%
Income (loss) from operations 29,576 (180) 29,756 *
Loss from equity method investment (1,464) - 1,464 100%
Interest expense (304) (318) (14) (4)%
Other income (expense), net (1,473) 146 (1,619) *
Net income (loss) before taxes 26,335 (352) 26,687 *
Income tax provision 774 73 701 960%
Net income (loss) $ 25,561 $ (425) $ 25,986 *
* Not meaningful.
Product revenue
Product revenue increased by $64.8 million , or 116%, from $55.9 million during
the three months ended June 30, 2021 to $120.7 million during the three months
ended June 30, 2022 .
The following table represents our product revenue based on product line:
Three Months Ended June 30, Change Change
2022 2021 $ %
(in thousands, except percentages)
Coronary $ 87,828 $ 36,702 $ 51,126 139%
Peripheral 31,886 18,793 13,093 70%
Other 1,032 413 619 150%
Product revenue $ 120,746 $ 55,908 $ 64,838 116%
Coronary product revenue increased by $51.1 million , or 139%, from $36.7 million
for the three months ended June 30, 2021 to $87.8 million for the three months
ended June 30, 2022 . In February 2021 , we received FDA approval for
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our C2 catheters. The increase in coronary product revenue was primarily due to
the commencement of sales of our C2 catheters in the United States , increased
adoption of our products internationally, and continued recovery from the impact
of the COVID-19 pandemic in the prior year.
Peripheral product revenue increased by $13.1 million , or 70%, from $18.8
million for the three months ended June 30, 2021 to $31.9 million for the three
months ended June 30, 2022 . The change was due to an increase in purchase volume
of our M5, M5+ and S4 IVL catheters within the United States and internationally
driven by increased adoption of our products and recovery from the impact of the
COVID-19 pandemic in the prior year.
We sold to a greater number of customers in the United States and to a greater
number of distributors internationally for the three months ended June 30, 2022
as compared to the three months ended June 30, 2021 . Product revenue, classified
by the major geographic areas in which our products are shipped, was $100.1
million within the United States and $20.7 million for all other countries in
the three months ended June 30, 2022 compared to $42.9 million within the United
States and $13.0 million for all other countries in three months ended June 30,
2021 .
Cost of product revenue, gross profit and gross margin percentage
Cost of product revenue increased by$6.8 million , or 68%, from$9.9 million during the three months endedJune 30, 2021 to$16.7 million during the three months endedJune 30, 2022 . Gross margin percentage improved to 86% for the three months endedJune 30, 2022 , compared to 82% for the three months endedJune 30, 2021 . This change in gross margin percentage was primarily due to a higher average selling price and lower fixed costs per unit from increased sales volume of our IVL catheters and efficiencies from improvements to operations and production.
Research and development expenses
The following table summarizes our R&D expenses incurred during the periods
presented:
Three Months Ended June 30, Change Change
2022 2021 $ %
(in thousands)
Compensation and personnel-related costs $ 11,659 $ 6,940 $ 4,719 68%
Materials and supplies 2,859 935 1,924 206%
Clinical-related costs 2,796 1,805 991 55%
Facilities and other allocated costs 2,277 1,326 951 72%
Outside consultants 752 554 198 36%
Other research and development costs 417 255 162 64%
Total research and development expenses
76%
R&D expenses increased by $8.9 million , or 76%, from $11.8 million during the
three months ended June 30, 2021 to $20.8 million during the three months ended
June 30, 2022 . The change was primarily due to a $4.7 million increase in
compensation and personnel-related costs due to an increase in headcount, a $1.9
million increase in materials and supplies, an increase in clinical-related
costs of $1.0 million , a $1.0 million increase in facilities and other allocated
costs due to increased information technology, rent and building expenditures, a
$0.2 million increase in outside consultants, and a $0.2 million increase in
other R&D costs.
Sales and marketing expenses
Sales and marketing expenses increased by $14.8 million , or 58%, from $25.7
million during the three months ended June 30, 2021 to $40.5 million during the
three months ended June 30, 2022 . The change was primarily due to a $10.4
million increase in compensation and personnel-related costs, resulting from
increased headcount and commissions driven by increased sales of our products.
There was also a $2.3 million increase in travel related costs, a $1.1 million
increase in facilities and other allocated costs, a $0.7 million increase in
marketing and promotional costs, a $0.2 million increase in general corporate
costs, and a $0.1 million increase in professional services and consulting
costs.
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General and administrative expenses increased by$4.5 million , or 53%, from$8.6 million during the three months endedJune 30, 2021 to$13.2 million during the three months endedJune 30, 2022 . The change was primarily due to a$2.7 million increase in compensation and personnel-related costs, a$0.7 million increase in professional services and consulting costs, a$0.6 million increase in general corporate costs, a$0.3 million increase in facilities and other allocated costs due to increased information technology, rent and building expenditures, and a$0.2 million increase in training and recruiting costs.
Loss from equity method investment
The increase in loss from equity method investment of$1.5 million for the three months endedJune 30, 2022 was due to increased JV activities to support commercialization of NMPA approved products in the PRC, and the elimination of intra-entity profit for goods sold by the Company to the JV but have not yet sold through by the JV to an end customer at the end of the reporting period.
Interest expense
Interest expense of$0.3 million for the three months endedJune 30, 2022 was related to our outstanding term loan which matures inDecember 2023 . The term loan requires monthly repayments of principal starting inJuly 2022 .
Other income (expense), net
Other income (expense), net decreased by$1.6 million , from$0.1 million in other income, net during the three months endedJune 30, 2021 to$1.5 million in other expense, net during the three months endedJune 30, 2022 . The decrease in other income (expense), net was primarily due to increased foreign exchange losses, partially offset by an increase in interest income due to the increased interest rate environment. 25 --------------------------------------------------------------------------------
Comparison of the Six Months Ended
The following table shows our results of operations for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, Change Change 2022 2021 $ % (in thousands, except percentages) Revenue: Product revenue$ 214,377 $ 87,808 $ 126,569 144% Cost of revenue: Cost of product revenue 29,620 17,826 11,794 66% Gross profit 184,757 69,982 114,775 164% Operating expenses: Research and development 37,779 22,092 15,687 71% Sales and marketing 76,476 49,705 26,771 54% General and administrative 25,554 15,852 9,702 61% Total operating expenses 139,809 87,649 52,160 60% Income (loss) from operations 44,948 (17,667) 62,615 354% Loss from equity method investment (1,511) (5,523) (4,012) (73)% Interest expense (601) (630) (29) (5)% Other expense, net (1,783) (89) 1,694 * Net income (loss) before taxes 41,053 (23,909) 64,962 272% Income tax provision 971 117 854 730% Net income (loss)$ 40,082 $ (24,026) $ 64,108 267% * Not meaningful. Product revenue Product revenue increased by$126.6 million , or 144%, from$87.8 million during the six months endedJune 30, 2021 to$214.4 million during the six months endedJune 30, 2022 .
The following table represents our product revenue based on product line:
Six Months Ended June 30, Change Change
2022 2021 $ %
(in thousands, except percentages)
Coronary $ 158,165 $ 52,010 $ 106,155 204%
Peripheral 54,738 34,934 19,804 57%
Other 1,474 864 610 71%
Product revenue $ 214,377 $ 87,808 $ 126,569 144%
Coronary product revenue increased by $106.2 million , or 204%, from $52.0
million for the six months ended June 30, 2021 to $158.2 million for the six
months ended June 30, 2022 . In February 2021 , we received FDA approval for our
C2 catheters. The increase in coronary product revenue was primarily due to the
commencement of sales of our C2 catheters in the United States , increased
adoption of our products internationally, and continued recovery from the impact
of the COVID-19 pandemic in the prior year.
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Peripheral product revenue increased by $19.8 million , or 57%, from $34.9
million for the six months ended June 30, 2021 to $54.7 million for the six
months ended June 30, 2022 . The change was due to an increase in purchase volume
of our M5, M5+ and S4 IVL catheters within the United States and internationally
driven by increased adoption of our products and recovery from the impact of the
COVID-19 pandemic in the prior year.
We sold to a greater number of customers in the United States and to a greater
number of distributors internationally for the six months ended June 30, 2022 as
compared to the six months ended June 30, 2021 . Product revenue, classified by
the major geographic areas in which our products are shipped, was $178.6 million
within the United States and $35.8 million for all other countries in the six
months ended June 30, 2022 , compared to $64.0 million within the United States
and $23.8 million for all other countries in the six months ended June 30, 2021 .
Cost of product revenue, gross profit and gross margin percentage
Cost of product revenue increased by$11.8 million , or 66%, from$17.8 million during the six months endedJune 30, 2021 to$29.6 million during the six months endedJune 30, 2022 . Gross margin percentage improved to 86% for the six months endedJune 30, 2022 , compared to 80% for the six months endedJune 30, 2021 . This change in gross margin percentage was primarily due to a higher average selling price and lower fixed costs per unit from increased sales volume of our IVL catheters and efficiencies from improvements to operations and production.
Research and development expenses
The following table summarizes our R&D expenses incurred during the periods
presented:
Six Months Ended June 30, Change Change
2022 2021 $ %
(in thousands)
Compensation and personnel-related costs
70%
Materials and supplies 3,914 962 2,952 307%
Facilities and other allocated costs 4,300 2,358 1,942 82%
Outside consultants 1,780 1,021 759 74%
Other research and development costs 890 389 501 129%
Clinical-related costs 4,702 4,324 378 9%
Total research and development expenses
71%
R&D expenses increased by $15.7 million , or 71%, from $22.1 million during the
six months ended June 30, 2021 to $37.8 million during the six months ended
June 30, 2022 . The change was primarily due to a $9.2 million increase in
compensation and personnel-related costs due to an increase in headcount, a $3.0
million increase in materials and supplies, a $1.9 million increase in
facilities and other allocated costs due to increased information technology,
rent and building expenditures, a $0.8 million increase in outside consultants,
a $0.5 million increase in other R&D costs, and an increase in clinical-related
costs of $0.4 million .
Sales and marketing expenses
Sales and marketing expenses increased by $26.8 million , or 54%, from $49.7
million during the six months ended June 30, 2021 to $76.5 million during the
six months ended June 30, 2022 . The change was primarily due to a $17.2 million
increase in compensation and personnel-related costs, resulting from increased
headcount and commissions driven by increased sales of our products. There was
also a $5.2 million increase in travel related costs, a $2.1 million increase in
facilities and other allocated costs, a $1.9 million increase in marketing and
promotional costs, a $0.4 million increase in professional services and
consulting costs, a $0.3 million increase in general corporate costs, and a $0.1
million increase in recruiting and training costs. This was partially offset by
a $0.4 million decrease in materials and supplies.
General and administrative expenses
General and administrative expenses increased by
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million increase in compensation and personnel-related costs, a $2.2 million
increase in professional services and consulting costs, a $1.3 million increase
in general corporate costs, a $0.7 million increase in facilities and other
allocated costs, a $0.4 million increase in travel related costs, and a $0.1
million increase in recruiting and training costs.
Loss from equity method investment
The decrease in loss from equity method investment of$4.0 million for the six months endedJune 30, 2022 was due to in-process R&D costs expensed in the six months endedJune 30, 2022 , partially offset by increased JV activities to support commercialization of NMPA approved products in the PRC, and the elimination of intra-entity profit to the extent the goods sold by the Company to the JV have not yet sold through by the JV to an end customer at the end of the reporting period. Interest expense
Interest expense of
Other expense, net
Other expense, net increased by$1.7 million , from$0.1 million during the six months endedJune 30, 2021 to$1.8 million during the six months endedJune 30, 2022 . The increase in other expense was primarily due to increased foreign exchange losses, partially offset by an increase in interest income due to the increased interest rate environment.
Liquidity and Capital Resources
To date, our principal sources of liquidity have been the net proceeds of$280.0 million that we received through the sales of our common stock in our public offerings,$10.0 million of private sales of our equity securities, payments received from customers using our products and to a lesser extent proceeds from our debt financings. We have a number of ongoing clinical trials and expect to continue to make substantial investments in these trials and in additional clinical trials that are designed to provide clinical evidence of the safety and efficacy of our products. We intend to continue to make significant investments in our sales and marketing organization by increasing the number ofU.S. sales representatives and expanding our international marketing programs to help facilitate further adoption among existing hospital accounts and physicians as well as to broaden awareness of our products to new hospitals. We also expect to continue to make investments in R&D, regulatory affairs, and clinical studies to develop future generations of products based on our IVL Technology, support regulatory submissions, and demonstrate the clinical efficacy of our products. Moreover, we expect to continue to incur expenses associated with operating as a public company, including legal, accounting, insurance, exchange listing andSEC compliance, investor relations and other expenses. Because of these and other factors, although we had positive net income for the quarter endedJune 30, 2022 , we had a net loss for the year endedDecember 31, 2021 and we may incur net losses and have negative cash flows from operations in the future.
As of
•the cost, timing and results of our clinical trials and regulatory reviews;
•the cost of our R&D activities for new and modified products;
•the cost and timing of establishing sales, marketing and distribution capabilities;
•the terms and timing of any other collaborative, licensing and other arrangements that we may establish including any contract manufacturing arrangements;
•the timing, receipt and amount of sales from our current and potential products;
•the degree of success we experience in commercializing our products;
•the emergence of competing or complementary technologies;
28
--------------------------------------------------------------------------------•macroeconomic conditions, including a potential recession, inflation, and rising interest rates;
•the cost of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights; and
•the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and cash and other requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. In the event that additional financing is required from outside sources, there is a possibility we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.
Manufacturing Purchase Obligations
We have engaged a contract manufacturer to produce and supply us with certain products. We have fixed commitments of approximately$7.0 million within the next twelve months. Operating Leases Our operating lease commitments mostly consist of our lease obligations for our Santa Clara headquarter office spaces. Our total operating lease commitments as ofJune 30, 2022 are approximately$55.0 million , of which$5.0 million is expected to be paid within the next twelve months. There were no other material changes during the six months endedJune 30, 2022 to our contractual obligations as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six
Months Ended
2022 2021
Net cash provided by (used in): (in thousands)
Operating activities $ 30,808 $ (15,117)
Investing activities (21,598) 54,300
Financing activities 3,020 (5,338)
Effect of exchange rate changes on cash and cash equivalents (1,526) -
Net increase in cash, cash equivalents and restricted cash
Operating activities During the six months endedJune 30, 2022 , cash provided by operating activities was$30.8 million , attributable to a net income of$40.1 million , non-cash charges of$27.8 million , partially offset by a net change in our net operating assets and liabilities of$37.1 million . Non-cash charges of$27.8 million primarily consisted of$20.5 million in stock-based compensation,$2.1 million in depreciation and amortization, and$1.5 million in non-cash lease expense. The change in our net operating assets and liabilities of$37.1 million was primarily due to a$22.5 million increase in accounts receivable due to an increase in sales, a$16.2 million increase in inventory driven by an increase in raw materials and finished goods 29 -------------------------------------------------------------------------------- inventory. These changes were partially offset by a$3.9 million increase in accrued and other current liabilities resulting from increased accrued asset purchases. During the six months endedJune 30, 2021 , cash used in operating activities was$15.1 million , attributable to a net loss of$24.0 million and a net change in our net operating assets and liabilities of$11.4 million , partially offset by non-cash charges of$20.3 million . Non-cash charges primarily consisted of$11.7 million in stock-based compensation,$5.5 million in loss from equity method investment,$1.6 million in depreciation and amortization,$0.8 million in non-cash lease expense,$0.4 million in accretion of discount on available-for-sale securities, and$0.3 million in amortization of debt issuance costs. The change in our net operating assets and liabilities was primarily due to a$13.3 million increase in accounts receivable, a$5.7 million increase in inventory, a$1.4 million increase in prepaid expenses and other current assets, and a$0.6 million decrease in lease liability. These changes were partially offset by a$8.1 million increase in accrued and other current liabilities, a$1.3 million increase in accounts payable, and a$0.1 million increase in other assets. Investing activities During the six months endedJune 30, 2022 , cash used in investing activities was$21.6 million , attributable to purchases of available-for-sale investments of$52.6 million and purchases of property and equipment of$6.9 million , partially offset by proceeds from maturities of available-for-sale investments of$37.9 million . During the six months endedJune 30, 2021 , cash provided by investing activities was$54.3 million , attributable to proceeds from maturities of available-for-sale investments of$88.3 million , partially offset by purchase of available-for-sale investments of$27.2 million and purchase of property and equipment of$6.8 million . Financing activities During the six months endedJune 30, 2022 , cash provided by financing activities was$3.0 million , attributable to proceeds of$2.1 million from the issuance of shares under our employee stock purchase plan and proceeds of$0.9 million from stock option exercises. During the six months endedJune 30, 2021 , cash used in financing activities was$5.3 million , attributable to$8.3 million in payment of taxes withheld on net settled vesting of restricted stock units, partially offset by proceeds of$1.9 million from stock option exercises and proceeds of$1.1 million from issuance of shares under our employee stock purchase plan.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP"). The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. There have been no significant changes in our critical accounting policies and assumptions associated with the greatest potential impact on our consolidated financial statements as disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
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