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 ended
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 ("M5 catheter"), which was CE-Marked inApril 2018 and cleared by theU.S. Food and Drug Administration ("FDA") inJuly 2018 for use in our IVL System for the treatment of PAD. • Our Shockwave M5+ IVL catheter, for which we are currently initiating a limited market release in theU.S and select international locations, was CE-Marked inNovember 2020 and cleared by theU.S. Food and Drug Administration ("FDA") inApril 2021 for use in our IVL System for the treatment of PAD. • The second version of our Shockwave S4 IVL catheter ("S4 catheter"), which was cleared by the FDA inAugust 2019 and accepted by our EU notified body inMay 2020 for use in our IVL System for the treatment of below the knee PAD.
Product for the Treatment of Coronary Artery Disease ("CAD"):
• Our Shockwave C2 IVL catheter ("C2 catheter") was CE-Marked inJune 2018 and approved by the FDA inFebruary 2021 for use in our IVL System for the treatment of CAD.
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. Importantly, in
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
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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 a 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
For the three months ended
For the six months ended
Since inception, we have incurred significant net losses and expect to continue
to incur net losses for the foreseeable future. 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
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Impact of the COVID-19 pandemic
The global COVID-19 pandemic presents significant risks to us and has had, and continues to have, far reaching impacts on our business, operations, and financial results and condition, directly and indirectly, including, without limitation, impacts on: the health of our management and employees; our manufacturing, distribution, marketing and sales operations; our research and development activities, including clinical activities; and customer and patient behaviors.
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, which could disrupt our supply chain.
We have taken a variety of steps to address the impact of the COVID-19 pandemic, while attempting to minimize business disruption. Essential staff in manufacturing and limited support functions continued to work from our Santa Clara headquarters following appropriate hygiene and social distancing protocols. To reduce the risk to our other employees and their families from potential exposure to COVID-19, until recently all other staff in our Santa Clara headquarters were required to work from home. Certain of these other employees had begun to return to our headquarters full or part-time during the second quarter of 2021, although we are reviewing the impact of the delta variant 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. 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 significant 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 that we loan 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, headcount and cost-reduction strategies. We expect our gross margin percentage to 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
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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:
• 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 and
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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 2021 2020 $ % (in thousands, except percentages) Revenue: Product revenue$ 55,908 $ 10,286 $ 45,622 444% Cost of revenue: Cost of product revenue 9,934 3,592 6,342 177% Gross profit 45,974 6,694 39,280 587% Operating expenses: Research and development 11,815 8,101 3,714 46% Sales and marketing 25,713 11,206 14,507 129% General and administrative 8,626 5,398 3,228 60% Total operating expenses 46,154 24,705 21,449 87% Loss from operations (180 ) (18,011 ) 17,831 (99)% Share in net loss of equity method investment - - - - Interest expense (318 ) (306 ) (12 ) 4% Other income, net 146 220 (74 ) (34)% Net loss before taxes (352 ) (18,097 ) 17,745 (98)% Income tax provision 73 21 52 248% Net loss$ (425 ) $ (18,118 ) $ 17,693 (98)% Product revenue
Product revenue increased by
The following table represents our product revenue based on product line:
Three Months Ended June 30, Change Change 2021 2020 $ % (in thousands, except percentages) Peripheral$ 18,793 $ 6,509 $ 12,284 189 % Coronary 36,702 3,653 33,049 905 % Other 413 124 289 233 % Product revenue$ 55,908 $ 10,286 $ 45,622 444 %
Peripheral product revenue increased by
Coronary product revenue increased by
Other product revenue increased by
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We sold to a greater number of customers in
Cost of product revenue, gross profit and gross margin percentage
Cost of product revenue increased by
Research and development expenses
The following table summarizes our R&D expenses incurred during the periods presented: Three Months Ended June 30, Change Change 2021 2020 $ % (in thousands)
Compensation and personnel-related costs
1,805 2,010 (205 ) (10)% Material and supplies 935 445 490 110% Facilities and other allocated costs 1,326 743 583 78% Outside consultants 554 425 129 30% Other research and development costs 255 134 121 90%
Total research and development expenses
R&D expenses increased by
Sales and marketing expenses
Sales and marketing expenses increased by
General and administrative expenses
General and administrative expenses increased by
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Comparison of the Six Months Ended
The following table shows our results of operations for the six months ended
Six Months Ended June 30, Change Change 2021 2020 $ % (in thousands, except percentages) Revenue: Product revenue$ 87,808 $ 25,483 $ 62,325 245% Cost of revenue: Cost of product revenue 17,826 9,243 8,583 93% Gross profit 69,982 16,240 53,742 331% Operating expenses: Research and development 22,092 19,991 2,101 11% Sales and marketing 49,705 21,617 28,088 130% General and administrative 15,852 11,622 4,230 36% Total operating expenses 87,649 53,230 34,419 65% Loss from operations (17,667 ) (36,990 ) 19,323 (52)% Share in net loss of equity method investment (5,523 ) - (5,523 ) 100% Interest expense (630 ) (583 ) (47 ) 8% Other income (expense), net (89 ) 724 (813 ) (112)% Net loss before taxes (23,909 ) (36,849 ) 12,940 (35)% Income tax provision 117 44 73 166% Net loss$ (24,026 ) $ (36,893 ) $ 12,867 (35)% Product revenue
Product revenue increased by
The following table represents our product revenue based on product line:
Six Months Ended June 30, Change Change 2021 2020 $ % (in thousands, except percentages) Peripheral$ 34,934 $ 15,590 $ 19,344 124 % Coronary 52,010 9,420 42,590 452 % Other 864 473 391 83 % Product revenue$ 87,808 $ 25,483 $ 62,325 245 %
Peripheral product revenue increased by
Coronary product revenue increased by
Other product revenue increased by
We sold to a greater number of customers in
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months ended
Cost of product revenue and gross margin percentage
Cost of product revenue increased by
Research and development expenses
The following table summarizes our R&D expenses incurred during the periods presented: Six Months Ended June 30, Change Change 2021 2020 $ % (in thousands)
Compensation and personnel-related costs
4,324 6,598 (2,274 ) (34)% Material and supplies 962 1,297 (335 ) (26)%
Facilities and other allocated costs 2,358 1,440 918 64% Outside consultants
1,021 924 97 10% Other research and development costs 389 1,413 (1,024 ) (72)%
Total research and development expenses
R&D expenses increased by
Sales and marketing expenses
Sales and marketing expenses increased by
General and administrative expenses
General and administrative expenses increased by
Other income (expense), net
Other income (expense), net decreased by
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timing of the maturities of marketable securities. Also included in other income (expense), net are the net impact of foreign exchange gains and losses.
Share in net loss of equity method investment
The increase in share in net loss of equity method investment of
Liquidity and Capital Resources
To date, our principal sources of liquidity have been the net proceeds we
received through the sales of our common stock in our public offerings, private
sales of our equity securities, payments received from customers using our
products and to a lesser extent proceeds from our debt financings. On
On
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 of
Our future capital requirements will depend on many factors, including:
• the cost, timing and results of our clinical trials and regulatory reviews; • 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; • 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.
We believe that our cash, cash equivalents and short-term investments as of
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Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30, 2021 2020 (in thousands) Cash used in operating activities$ (15,117 ) $ (42,355 ) Cash provided by investing activities 54,300 34,028 Cash provided by (used in) financing activities (5,338 ) 87,578
Net increase in cash, cash equivalents and restricted cash
Operating activities
During the six months ended
During the six months ended
Investing activities
During the six months ended
During the six months ended
Financing activities
During the six months ended
During the six months ended
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Contractual Obligations and Commitments
Debt, Principal, and Interest
The Company's debt, principal and interest commitments consist of our debt
obligations under the Amended Credit Facility. On
Manufacturing Purchase Obligations
The Company has engaged a contract manufacturer to produce and supply the
Company with certain products. The Company has fixed commitments of
approximately
There were no other material changes during the three months ended
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have,
any off-balance sheet arrangements as defined in the rules and regulations of
the
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with
With the exception of the accounting of equity method investments and license
revenue as described below, herein, 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 ended
Entities which the Company has significant influence over activities of the
entity, but does not control, are accounted for under the equity method of
accounting in accordance with Topic 323, Investments -
The Company's carrying value in the equity method investment is reported as
equity method investment on the Company's consolidated balance sheet. The
Company records its proportionate share of the underlying income or loss which
is recognized in share in net loss of equity method investment. For the three
and six months ended
We assess our equity method investment for impairment when events or circumstances suggest that the carrying amount of the investment may be impaired. We consider all available evidenced in assessing whether a decline in fair value is other than temporary. If the decline in fair value is determined to be other than temporary, the difference between the carrying amount of the investment and estimated fair value is recognized as an impairment charge.
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License Revenue
For arrangements that contain a license of our functional intellectual property with a customer, we consider whether the license grant is distinct from other performance obligations in the arrangement. A license grant of functional intellectual property is generally considered to be capable of being distinct if a customer can benefit from the license on its own or together with other readily available resources. License revenue for licenses of functional intellectual property is recognized at a point in time when the Company satisfies its performance obligation of transferring the license to the customer.
In connection with the formation of the
As of
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