CVRx, Inc. (NASDAQ:CVRX) Q4 2023 Earnings Call Transcript

CVRx, Inc. (NASDAQ:CVRX) Q4 2023 Earnings Call Transcript January 25, 2024

CVRx, Inc. beats earnings expectations. Reported EPS is $-0.44, expectations were $-0.55. CVRX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the CVRx Fourth Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Vallie, Investor Relations for CVRx. Thank you. You may begin.

Mike Vallie: Good afternoon. Thank you for joining us today for CVRx’s fourth quarter 2023 earnings conference call. Joining me on today’s call are the company’s President and Chief Executive Officer, Nadim Yared; and Chief Financial Officer, Jared Oasheim. The remarks today will contain forward-looking statements, including statements about financial guidance. The statements are based on plans and expectations as of today, which may change over time. In addition, actual results could differ materially due to a number of risks and uncertainties, including those identified in the earnings release issued prior to this call and in the company’s SEC filings, including the upcoming Form 10-K that will be filed with the SEC. I would now like to turn the call over to CBRx’s President and Chief Executive Officer, Nadim Yared.

Nadim Yared: Thank you, Mike, and thanks, everyone, for joining us. I’ll begin today’s call by providing an overview of our fourth quarter performance, followed by our operational update and a review of our financial results by our CFO, Jared Oasheim. Then I will conclude with our thoughts for the rest of the year before turning to Q&A. We are immensely proud of the achievements of our team in 2023. It’s been an important year for CVRx, marked by significant progress in all our strategic initiatives, which have driven increased adoption and utilization of Barostim. This is reflected in our worldwide revenue, which has shown substantial growth, primarily attributed to the impressive 97% annual expansion in our U.S. Heart Failure business.

As we wrapped up 2023, we did so on a strong note, showcasing consistent and effective execution across various aspects of our business in the fourth quarter. This underscores our team’s skill in accelerating the adoption of Barostim through our commercial and marketing efforts. Now let’s dive into the details of our performance. Starting with the review of the quarter, worldwide revenue was $11.3 million, a 58% increase over the fourth quarter of 2022. This was primarily due to the execution within our U.S. Heart Failure business. The increase was primarily driven by continued growth as a result of the expansion into new sales territories and new accounts as well as increased physician and patient awareness of Barostim. Turning to an update on our operational progress during the fourth quarter.

As a reminder, our focus areas for 2023 were the continued expansion of our commercial infrastructure and the expansion of our clinical body of evidence, starting with the expansion of our commercial infrastructure. We’ve grown our commercial reach by adding three new sales territories in the United States as expected, bringing our total to 38. We continue to add high-caliber talent, which we believe is due to the enthusiasm around Barostim in the market. Additionally, we’ve been making continued and consistent headway with our marketing efforts, including our direct-to-consumer and patient education programs. As we press forward, we continue to expect refining these initiatives to drive awareness among both patients and healthcare providers.

Shifting to our second focus area, which is the growth of our clinical evidence which has driven both reimbursement and regulatory progress. In November, the Center for Medicare and Medicaid Services, CMS, reassigned Barostim to New Technology APC 1580 with an average payment of $45,000, which went into effect on the first of January 2024. As a reminder, in 2023, Barostim was under the APC 5465 with an average payment of $29,000 plus the transitional pass-through payment. We believe that this reassignment to APC 1580 will make the Barostim therapy more accessible for Medicare patients dealing with heart failure by simplifying the reimbursement landscape and ensuring fair reimbursement for facilities offering the procedure. In late December, the FDA approved expanded labeling for Barostim by revising the instructions for use for Barostim and incorporating key long-term clinical data from the BeAT-HF randomized clinical trial.

The new labeling includes the following conclusion in the clinical section. In both premarket and post-market phases, the primary safety endpoint was met and confirmed. The premarket phase showed positive results across all effectiveness endpoint, indicating 6-month improvements in 6 Minute Hall Walk, Quality of Life, NYHA Class and NT-proBNP. The Post-Market Phase effectiveness endpoint of cardiovascular mortality and heart failure morbidity was not met, but additional Post-Market Phase analysis, such as the win ratio and freedom from all-cause mortality analysis suggested the favorable effect of Barostim therapy. The totality of 6-, 12- and 24-month data demonstrated symptomatic improvements for heart failure patients. All of this data is now included in the instructions for use and can be used by our sales team when educating physicians on our therapy.

The updated indication statement in the instruction for use now specifies that Barostim is indicated for patients who are NYHA Class III or Class II with the recent history of Class III, despite treatment with guideline-directed medical therapies who have a ventricular ejection fraction of less than or equal to 35% and an NT-proBNP less than 1,600 picograms per milliliter. Barostim delivers baroreflex activation therapy to improve patients’ heart failure functional status, 6 Minute Hall Walk and quality of life. As a result of these changes, we estimate that the U.S. annual market opportunity for Barostim has increased to include patients considered by physicians based on this new long-term safety and efficacy data as well as our commercial experience and to account for the new reimbursement assignment for Barostim.

We believe the U.S. annual market opportunity is now $2.2 billion or 76,000 new patients annually as compared to our earlier estimate of $1.4 billion or 55,000 new patients, representing increases of approximately 60% and 38%, respectively. I want to express my gratitude to all the patients, investigators, research teams, the Executive Steering Committee and FDA personnel who have supported our efforts in conducting the study over seven years especially considering the challenges encountered during the COVID-19 pandemic. Looking back at 2023, it was a great year for CVRx. Throughout the year, we continued to support the growth of Barostim in the United States through our commercial and marketing efforts, underscoring the benefits that Barostim can provide to healthcare professionals and patients dealing with cardiovascular disease.

The year wrapped up on a positive note, including the expanded Barostim labeling and CMS’s decision to reassign Barostim to a new APC code. Before turning the call over to Jared, I want to address my decision to retire from CVRx. While there is never a perfect time for a leadership transition, the recent completion of BeAT-HF, the expanded labeling and the recent reimbursement decision, there is a window that now exists before the company embarks on the next phase of growth. I believe now is the right time to bring in a CEO who can build on the achievements of the company and steer CVRx to great success. I’m confident in CVRx’s future given the proven benefits of Barostim therapy, our strong commercial traction and our outstanding leadership team.

The board and I are committed to a seamless transition, and I will continue in my current role until a new CEO is appointed. The board has engaged a leading executive search firm to assist in this process. I’ll now turn the call over to Jared to review our financials. Jared?

Jared Oasheim: Thanks, Nadim. In the fourth quarter, total revenue generated was $11.3 million, representing an increase of $4.1 million or 58% compared to the same period last year. Revenue generated in the U.S. was $10.3 million in the current quarter, reflecting growth of 72% over the same period last year. Heart Failure revenue in the U.S. totaled $10.2 million in the current quarter on a total of 330 revenue units compared to $6 million in the fourth quarter of last year on 193 revenue units. The increase was primarily driven by continued growth as a result of the expansion into new sales territories and new accounts as well as increased physician and patient awareness of Barostim. At the end of the current quarter, we had a total of 178 active implanting centers compared to 106 on December 31, 2022, and 159 on September 30, 2023.

We also had 38 sales territories in the U.S. at the end of the current quarter compared to 26 on December 31, 2022, and 35 on September 30, 2023. The revenue generated in Europe was $1 million in the current quarter, representing a decrease of 15% compared to the same period last year. Total revenue units in Europe decreased from 68 in Q4 of 2022 to 52 in the current quarter. The number of sales territories in Europe remained consistent at six for the three months ended December 31, 2023. Gross profit for the three months ended December 31, 2023, was $9.6 million an increase of $3.9 million compared to the three months ended December 31, 2022. Gross margin for the current quarter increased to 85% compared to 79% for the same period last year.

Gross margin for the three months ended December 31, 2023, was higher due to a decrease in the cost per unit and an increase in the average selling price. Research and development expenses for the current quarter were $2.2 million, reflecting a decrease of 26% compared to the same period last year. This change was primarily driven by a $0.7 million decrease in clinical study expenses and a $0.6 million decrease in consulting expenses, partially offset by a $0.3 million increase in compensation expenses, mainly as a result of increased headcount and a $0.1 million increase in noncash stock-based compensation expense. SG&A expenses for the current quarter were $17 million, representing an increase of 21% compared to the same period last year.

This change was driven by a $1.7 million increase in compensation expenses, a $0.7 million increase in marketing and advertising expenses, a $0.4 million increase in noncash stock-based compensation expense and a $0.4 million increase in consulting expenses, partially offset by a $0.1 million decrease in D&O insurance costs and a $0.1 million decrease in professional fees. Interest expense increased $0.4 million for the three months ended December 31, 2023, compared to the three months ended December 31, 2022. This increase was driven by the interest expense on borrowings under the loan agreement entered into on October 31, 2022. Other income net was $1.1 million for each of the three months ended December 31, 2023 and 2022. Other income net consisted primarily of income on our interest-bearing accounts.

Net loss for the current quarter was $9.2 million or $0.44 per share compared to a net loss of $10.5 million or $0.51 per share for the same period last year. Net loss per share was based on 20.8 million weighted average shares outstanding for the fourth quarter of 2023 and 20.6 million weighted average shares outstanding for the fourth quarter of 2022. At the end of the fourth quarter, cash and cash equivalents were $90.6 million. Net cash used in operating and investing activities was $39.6 million in 2023. This is compared to net cash used in operating and investing activities of $43.4 million in 2022. Now turning to guidance. For the full year of 2024, we expect total revenue between $53 million and $57 million. We expect full year gross margin between 83% and 84%.

And we continue to expect operating expenses between $86 million and $90 million. For the first quarter of 2024, we expect to report total revenue between $11 million and $12 million. I would now like to turn the call back over to Nadim.

Nadim Yared: Thanks, Jared. As we set our sights on 2024, I’m excited about the opportunities that lie ahead for CVRx and the continued expansion of Barostim. Our company is in a fantastic position to capitalize on the opportunities in front of us, thanks to our outstanding leadership team and the consistent execution of our strategic initiatives over the last two years. I believe CVRx is well prepared to continue to execute our strategic plans and drive sustained commercial growth. Reflecting on my 17 years as CEO, it has been an incredible experience and a true honor. I am proud of what we have accomplished and believe the future for CVRx holds immense promises. And now I would like to open the line for questions. Operator?

See also 24 Least Developed Countries in Asia in 2024 and 24 Least Developed Countries in Europe in 2024.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Margaret Andrew with William Blair. Please proceed with your question.

Margaret Kaczor: Hi, good afternoon, guys. Thanks for taking the questions. Nadim, you’ve heard my comments at JPMorgan, but I’ll just say them publicly. Obviously, it’s been a pleasure to know you, and glad to have seen CVRx become what it is today. Maybe just to start out with, you guys are coming off an exceptional year of 70% plus growth overall, 95% of U.S. Heart Failure . And yet you kind of look at the first quarter and you’re at $11 million to $12 million. So maybe just walk us through the assumptions within that. What are the conservative pieces that you guys use to drive to that guidance range? Thank you.

Jared Oasheim: Hi Margaret, this is Jared. I’ll take that one, maybe Nadim can add some color later. So when we put together our guidance, we’re looking at how we’ve been growing the number of territories over the last few quarters and also how the additions for new active implanting centers have been coming on board. And then also taking into consideration the utilization we’ve seen from those centers as they get more and more experienced. So after taking all of that into consideration, we came out with the guidance for Q1 of $11 million to $12 million, again, seeing a step-up from what we delivered in the fourth quarter of 2023. The other thing I’ll just talk about a little bit is seasonality. It’s not something that we’ve seen historically at CVRx, but we have seen other companies that have gone through a similar ramp that we have that start seeing seasonality play a factor as you go into Q1.

Again, I don’t think we took that into consideration here for the first quarter guidance, but rather just trying to set the bar at a level that we think we can go out and deliver in this first quarter. When I think about the components of being able to hit the full year guidance, the $53 million to $57 million that we had talked about, something we talked about at the JPMorgan conference was really towards the low end of that range, we’re targeting adding about 14 new active implanting centers on a quarterly basis and at the high end, targeting adding about 18 new active implanting centers on a quarterly basis. And then from an ASP perspective, in 2023, we were seeing results of about $31,000 for an ASP in the U.S. Heart Failure side. And as we go into 2024, the range we’re looking at is around $29,000 to $30,000, thinking that as we continue to see more and more volume from our implanting centers that we may see some pressure on pricing and see the request for some bigger rebates.

And then from a territory perspective, we’ve been adding at about three per quarter since the IPO. We feel like that is a pretty good pace to continue on, and that’s what was factored into that $53 million to $57 million guidance for 2024.

Margaret Kaczor: Okay. And so if we take that into context, and I appreciate your comments on kind of the centers and so on. But you guys are armed with both a better reimbursement rate as well as the new clinical data. So I know it’s early. Maybe there hasn’t been a big clinical conference at this point in time yet for you guys to start more actively presenting on that. But where are you, I guess, in terms of sales force training as well as putting together an educational — education program, excuse me, as it relates to pushing the new label?

Nadim Yared: Yes. Margaret, I’ll take this question. So first, thank you for your previous comments. I am going to miss these interactions for sure when I retire, I’m not there yet, committed to the transition in here as long as how long it takes. I used to remember that I resented some of the difficult questions that you guys would ask me. But for the time, I understood all of the hard work that you put into this and to understanding our business. And I end up enjoying these interactions. To answer your question, yes, now that we have in between Christmas and New Year Eve, we got the approval from FDA to be able to communicate all of our efforts right now in January has been about how do we get out and educate patients and physicians.

And we have our global sales meeting actually next week to make sure that all of our sales force is trained and equipped with all of these tools. So this is an ongoing process right now to get the word out to patients and providers and payers about the new data. We’re very excited about this next phase.

Margaret Kaczor: Okay. Great. And just one last question for me. I saw the $7 million burn on a cash rate this past quarter. How should we think about that going forward? Are you guys going to step on the gas pedal in terms of expenses with the label and et cetera? Are you going to continue to try to maintain that cash burn around $7 million or better? Thank you.

Jared Oasheim: Yes. Thanks for the question. We gave guidance around spend on OpEx, seeing an increase there to get us up to about $86 million to $90 million. The vast majority of that growth in spend from ’23 to ’24 will go into the sales and marketing organization, specifically in the U.S. So we’re going to continue to be opportunistic where we can to invest in the business to be able to help more and more patients gain access to this therapy. And then I think it’s a bit of a wait and see, right? Let’s see how physicians, let’s see how patients react to the new clinical data. If the new payment code is a little bit easier for centers to come on board at a little bit of a faster rate, then we’ll consider making some additional investments.