CVRx, Inc.

Good day and thank you for your standby. Welcome to the CBRX second quarter 2021 earnings call. At this time, all participants are in listen on the mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Mike Valley of Westwick Please go ahead.

Good afternoon, and thank you for joining us today for CBRX's second quarter 2021 earnings conference call. Joining me on today's call are the company's president and chief executive officer, Nadeem Yared, and its chief financial officer, Jared Oshun. The remarks today will contain forward-looking statements, including statements about financial guidance. These 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-Q that will be filed with the SEC. I would now like to turn the call over to CVRX's President and Chief Executive Officer, Nadeem Yared.

Thank you, Mike, and thank you, everyone, for joining us this afternoon for our first earnings call as a public company. First, I'm very grateful to all my colleagues at CVRX, to our board of directors, to our partners, our investors, our customers, the healthcare providers, and most importantly, to our patients. You all trusted us. You believed in us. We stood tall on your shoulders, and for that, we will be forever grateful. It has been a long journey to this point from the time I joined the company in 2006, and I'm incredibly proud of the continued efforts of this group, the results of which are going to change the way patients are treated for heart failure. Before providing an overview of our performance during the quarter, I would like to start by giving an overview of who CVRx is for those of you who are not familiar with our story. We are a medical device company focused on transforming the lives of patients suffering from cardiovascular diseases by developing, manufacturing, and commercializing innovative and minimally invasive neuromodulation solutions, which we believe offer a compelling value proposition for large and significantly underpenetrated markets. Our primary focus is on the treatment of patients with heart failure. Heart failure is one of the most prevalent cardiovascular diseases. We estimate that globally, approximately 26 million people suffer from heart failure, including approximately 6.2 million people in the U.S. and 8.6 million people in the five largest European countries. Every year, 1.3 million new heart failure patients are diagnosed in the U.S. and 1.4 million in the five largest countries in Europe. Heart failure usually develops from an imbalance of the autonomic nervous system. Our proprietary platform technology, Barostim, is designed to leverage the power of the brain to address this imbalance. Barostim therapy utilizes a widely accepted mechanism of action. It works by sending electrical pulses to baroreceptors on the carotid artery to signal the brain to decrease sympathetic activity also known as the fight-or-flight mechanism, and increased parasympathetic activity, which is commonly referred to as the rest-and-digest response. Our second-generation product, Barostim Neo, is the first and only commercially available neuromodulation device indicated to improve symptoms for patients with heart failure with reduced ejection fraction, which we refer to as HEF-REF. Baristem is implanted during a one-hour minimally invasive procedure that is typically performed on an outpatient basis. HF-REF patients are treated with guideline-directed medical therapy that often includes three classes of medications, diuretics, beta blockers, and ACE inhibitors. Some HF-REF patients are indicated for cardiac resynchronization therapies, CRT in short, which actually are biventricular pacemakers. These CRT devices have proven to be an effective therapy, but we estimate that the majority of HF-REF patients are not eligible to be treated with CRT, and that is where our device is now an option. Our solution, Veristem Neo, is approved by FDA to address the symptoms of heart failure in the significant population of HF-REF patients not indicated for CRT and whose NT-ProBNP is less than 1600 picogram per milliliter. We estimate that our initial annual market opportunity for HF-Ref is $1.4 billion in the US and $1.5 billion in the five largest countries in Europe. In the second quarter of 2021, we continue to build out our commercial organization, And the early results from our commercial strategy are encouraging. Total revenue in the second quarter was $3.1 million, an increase of approximately 150% over the second quarter of 2020. This growth was entirely driven by continued strong performance in the U.S. and heart failure, which generated $2 million. We are very happy with the early adoption of Parastim by US physicians during the first half of 2021. We have seen a growth in the US coming from new centers that are treating their first patients and from existing centers that are treating more patients than they have in the past. In addition to our strong operational performance, we continue to add talent to the leadership of the organization. In early July, we announced the appointment of Martha Shaden, to our board of directors. Martha brings a long track record of success in helping to commercialize medtech innovations for both startups and large companies. And we look forward to leveraging her experience during this critical growth phase of our business. Our plan is to utilize our first mover advantage to become the global leader in minimally invasive neuromodulation solutions that improve the health of patients with HF-REF, and other cardiovascular diseases. Our main strategic levers to drive growth are the following. One, continue building our commercialization infrastructure with a specialized direct sales force and marketing team in the U.S. to promote awareness among physicians and patients to accelerate adoption of Peristem Neo. Two, continue our innovation of Peristem Neo to enhance our value proposition. Three, expand upon our significant body of clinical evidence. And four, over the long term, leverage our platform technology to expand into new indications and strategically pursue new international markets. Regarding the first lever, a key component of our strategy to drive adoption is the expansion of our commercial infrastructure, in particular, our direct sales force in the U.S. During the second quarter of 2021, we added two new S territories, bringing the total to eight. We expect to have a total of 14 territories by the end of 2021. The territory managers are supported by a group of field clinical engineers whose role is to provide the clinical and technical expertise to healthcare providers. The outpatient barostem procedure is currently mapped to APC 5465, for which the Center of Medicare Services, CMS, reimburses a national average of $29,500 approximately. In addition, CMS granted CVRx a transitional pass-through add-on payment, TPT, to cover the cost of the device for three years, which took effect in January 2021. We estimate that Medicare-covered HF-Ref patients represents 67% of our patient population. For patients covered by private payers, which we estimate to be 19% of our patient population, our market access team has implemented a program to support the prior authorization requests modeled on our industry's best practices. The initial results from this program are encouraging. Regarding our second growth lever, continuous innovation of our product, we are developing a new generation of the implantable pulse generator that has 20% longer battery life on average. This new IPG is expected to be released in the first half of 2022. But the R&D program that I'm very excited about is the development of a new ultrasound-guided implant toolkit that we call BATWIRE. We believe Batwire could potentially expand our addressable patient population by allowing the inclusion of more frail patients. In addition, as a result of this simplified implantation process, we believe more physicians, including electrophysiologists, would be comfortable implanting barostimneo. In June 2021, the first clinical procedure using Batwire was performed here in the U.S., Regarding our third growth lever, the expansion of the clinical body of evidence, we have the post-market study of BEAT-HF. This is a randomized controlled study designed to demonstrate the mortality and morbidity benefit of barostem in the HF-REF patient population. The post-market study has been completely enrolled and has entered the follow-up phase, which allows for the accrual of mortality and morbidity events. We expect to accrue all the events needed for the final analysis by the end of 2022 and unblinded data in early 2023. Finally, regarding the long-term growth lever expanding into new indications, we have received breakthrough designations by FDA for two additional indications, resistant hypertension and heart failure with preserved ejection fraction, or HFPEF. Our focus in the short term is to grow our penetration in HF-REF before we begin our clinical efforts in expanding to new indications such as resistant hypertension or HF-PEF or exploring any potential clinical benefits for arrhythmia or chronic kidney disease. We are incredibly excited about what we have been able to accomplish as an organization over the years. We recognize that our journey has not been a straight line. But the organization and more importantly, our team has shown exceptional resilience to reach this point. It is still early in our U.S. heart failure commercialization efforts, but we are encouraged by our progress during the first half of 2021. We have put a tremendous foundation in place that we believe will allow us to help bring relief to a huge population of heart failure patients who have not had a device-based treatment option before. And now I would like to turn the call over to Jared for a financial review.

Thanks, Nadeem. Before turning to an update on our performance, I wanted to outline the key components of revenue and what information we will be disclosing going forward. We generate revenue through direct sales of our devices to hospitals in the U.S. and Germany and to a lesser extent to distributors in other European countries. In addition to key revenue metrics, we will also be providing updates on key drivers of revenue, which include U.S. active implanting centers, which are customers that have completed at least one commercial heart failure implant in the last 12 months. The next metric is U.S. and European sales territories, which are the number of active commercial sales territories as of the end of the quarter. The final metric is revenue units. We will be providing heart failure revenue units sold in the U.S. and total revenue units sold in Europe. As for the second quarter results, total revenue generated in the current quarter was 3.1 million, which is an increase of 1.9 million or 150% when compared to the same period last year. Revenue generated in the U.S. was $2.1 million in the current quarter, which is an increase of 1.9 million or 969% over the same period last year. Heart failure revenue in the U.S. totaled $2 million in the current quarter on a total of 67 revenue units as compared to only $65,000 in the second quarter of last year for two revenue units. The increase was primarily driven by continued growth following the U.S. heart failure commercial launch in 2020, which resulted in the expansion into new sales territories and increased physician and patient awareness of barostem. At the end of the current quarter, we had a total of 31 active implanting centers compared to 19 in Q1 2021. The number of sales territories in the US increased from six in Q1 of this year to eight during the current quarter. Revenue generated in Europe was $1 million in the current quarter, which is a decrease of $35,000 or 3.3% over the same period last year. Total revenue units in Europe decreased from 49 in Q2 of 2020 to 47 in the current quarter. Relatively flat performance in Europe is primarily due to the continued impact of the COVID-19 pandemic in Germany. The number of sales territories in Europe remained consistent at six during the current quarter. Gross profit was $2.2 million for the current quarter, which is an increase of 1.3 million or 144% over the same period last year. Gross margin decreased to 70.8% for the current quarter compared to 72.4% for the same period last year. Gross margin in the current quarter was lower due to a larger percentage of our revenue units coming from treating new patients versus battery replacements for existing patients. New patients receive a full system that includes an IPG and a stimulation lead and therefore have a lower gross margin than a standalone IPG used for a battery replacement. This was partially offset by an increase in our average selling price. We believe that the negative impact to gross margin for treating more new patients will be offset in the near term by increasing production to meet the increased demand, which will in turn drive down the cost of our devices over time. R&D expenses were $2.3 million for the current quarter, which is an increase of 0.1 million or 5.8% when compared to the same period last year. This change was primarily due to an increase in stock-based compensation expense from approximately $10,000 in Q2 of 2020 to $190,000 in Q2 of 2021. SG&A expenses were $5.6 million for the current quarter, which is an increase of 3.8 million, or 207%, when compared to the same period last year. The primary driver was an increase in compensation, including salaries and commissions, mainly as a result of increased headcount. In addition, stock-based compensation expense increased from approximately $20,000 in Q2 of 2020 to $430,000 in Q2 of 2021. Other expense net was $11.4 million for the current quarter compared to income of $33,000 for Q2 of 2020. This change was primarily driven by an $11.4 million increase in a non-cash expense related to the increase in the fair value of the convertible preferred stock warrants. Net loss was $17.7 million or $48.48 per share for the current quarter as compared to a net loss of $3.7 million or $10.18 per share for the same period last year. Net loss per share was based on approximately 366,000 weighted average shares outstanding for the current quarter and approximately 360,000 weighted average shares outstanding for the second quarter of 2020. The weighted average shares outstanding were adjusted for the 1 for 39.548 reverse stock split that became effective in June of 2021. Turning to a balance sheet update, at the end of the current quarter, cash and cash equivalents were $47.1 million compared to $54 million as of March 31st, 2021. On July 2, 2021, we closed on our IPO of 8,050,000 shares of common stock at a public offering price of $18 per share, which included 1,050,000 shares of common stock issued upon the full exercise of the underwriter's option to purchase additional shares. The net proceeds from the offering after deducting the underwriting discount and other offering expenses was approximately $133.3 million. The IPO also triggered the conversion of all outstanding shares of our convertible preferred stock into an aggregate of approximately 11.93 million shares of common stock. Pro forma cash and cash equivalents as of June 30, 2021 was $180.4 million after including the net proceeds from the IPO and we had approximately 20.3 million pro forma shares of common stock outstanding at the end of the current quarter. This is after adjusting for the conversion of outstanding shares of preferred stock into shares of common stock and the sale of shares of common stock in the IPO. Net cash used in operating and investing activities were $6.8 million for the three months ended June 30, 2021, compared to $2.3 million for the same period last year. The primary driver was an increase in compensation, including salaries and commissions, mainly as a result of increased headcount across the entire organization. Now turning to guidance. As a matter of practice going forward, we will be providing formal guidance on full-year total revenue, gross margin, and operating expenses, and next quarter total revenue. For the full year of 2021, we expect total revenue between $13.3 and $13.9 million, gross margin between 72% and 74%, and operating expenses between $34 and $36 million. For the third quarter of 2021, we expect to report total revenue between $3.3 and $3.6 million. I would now like to turn the call back over to Nadim. Thanks, Jadot.

We are very optimistic about the future of C-Varax. Cardiovascular diseases, in particular heart failure, have a tremendous impact on a patient's quality of life. These patients cannot do the things they enjoy, like playing with their grandkids, let alone the basic day-to-day tasks, like walking up and down stairs. With Berostem, we offer patients the chance to get their lives back. We are laser focused on driving its widespread adoption to bring the benefits of this therapy to as many patients as possible. We are in the early stages of our commercialization, but we believe the recent influx of capital will help fuel the acceleration of our growth for years to come. And now I would like to open the line for questions.

Sure, sir. As a reminder, if you want to ask a question, please press a star, the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, press the pound key. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Robbie Marcus with J.P. Morgan. Your line is now open.

Oh, hey. Thanks for taking the question. Congrats on the first quarter public. Really just two questions from me. First, and I'll ask them up front. First, you know, really nice U.S. heart failure performance. It'd be great to get a sense, you know, second quarter is in the rear and you got it for the full year a little above the street. It would be great to get a sense of what you're seeing out in the field, what the reception is from teams from implanters, how it's going, training doctors, and getting hospitals on board, and just any qualitative or quantitative comments you could give about what you're seeing in the field so far over the summer. And then the second one, I'll just ask, price came in really nice in the second quarter in the U.S. How should we be thinking about pricing for the balance of the year? Thanks. Thanks.

Thank you, Robbie, for the question. Let me answer the first one, and I will ask Jared to answer the question regarding pricing. In regard to feedback from customers in the field, listen, we had the heart-ridden society meeting last week, although the attendance was lower than usual. I would estimate it to be one-quarter to one-third of the attendance. In my 25 years plus experience in medical devices, I have never, ever been as busy as last week in a medical conference. And from my perspective, that is a testimony here to the interest that we're seeing from electrophysiologists, which are, I think, an important group of customers we have. One of the feedback I would like to relate came from a very important key opinion leader, an electrophysiologist. I respect the confidentiality of the comment. This key opinion leader treated three patients last quarter with barostem. And his feedback to me was, I've seen enough. And I told him a little bit more to understand what has he seen enough. I mean, the data is the data. And we have data from VTHF. that shows the improvement in the quality of life. And his comment was that the visible impact on a patient goes beyond what the numbers show on the Minnesota Living with Heart Failure questionnaire scale. You know, we talk about 11, 12, 13 points of improvement depending on which trial we're looking at in our data. But what he is seeing in his patients is a visible, visible impact. And he's very impressed with it. And he was actually, talking to another electrophysiologist about this. So, Robbie, from my perspective so far, the feedback is overall positive. The reception we received at HRS was exceptional, despite the low attendance, and I'm very excited in here. So, I don't know if you have any follow-up questions, or if I maybe turn it to Jared. You have to answer the question regarding pricing.

Yes, sure, Nadeem. I'll jump in on the pricing question that Robbie had. So, Yeah, Robbie, you know, we did come in with about $2 million of U.S. hard failure revenue on the 67 units. And that average selling price then works out just shy of $30,000 per unit. That is above what we have been modeling internally. And, you know, we've seen this now for a couple of quarters where we've seen a higher average selling price for the U.S. hard failure business. But we have not shifted our internal plans and expectations for our base selling price for the U.S., And really the main reason just comes back to the commercial ramp and the number of new centers that we plan to bring on over the next couple of years. We know that price is going to continue to be an area of focus for the value analysis committees. And so at this point, we're still not ready to shift our internal models to a higher price.

Great. Thanks for both the answers. Appreciate it.

Yeah. Again, thank you for your comment about our first earnings release as a public company. Both Jadid and I are very excited.

Your next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is now open.

Afternoon. Thanks for taking my questions. And let me reiterate Ravi's comments on the good first quarter out of the gate here. So, Nadeem, you know, you mentioned how busy you were at HRS. and just all the interest level that you're getting. Is there any thought to, you know, again, coming out of the IPO with having more capital available, accelerating the sales ramp to kind of on schedule? I think you were at six, you know, in Q1. You're up to eight now. Any thoughts now of just given the feedback you've seen recently with that capital going ahead and accelerating the number of sales territories in the U.S.? ?

Oh, excellent question, Matt. And I wonder in here, you know me, like we are not going to put a cap on our growth, right? Now, when we talk about a sales ramp, first, we are very happy with the results that we are seeing in the U.S. related to the early commercial ramp. No question about it. And we are continuing to hire at the expected pace. Actually, we are seeing the new account managers now getting up to speed quickly with our technology and getting great response from physicians as the physicians become aware of Peristem Neo. Now, that said, two things you have to take into account. Number one, of course, we'll be opportunistic. And of course, when we see an excellent talent out there that matches the outstanding talent that we have been able to attract so far, absolutely, we'll go above any plan that Jared has put in place. So the plan that Jared has put In terms of adding three reps per quarter, we can go above it very easily once we see the talent that we're interested in. Number two, the interest level that we saw at HRS was not only from physicians. You know that the industry participates heavily in these meetings, and they network among each other, and they saw the buzz that we are creating. and that will help us and has already helped us in here in our recruitment strategy. Now, you have to take into account Matt as well another element. When we talk about a commercialization strategy, Feet on the street is an extremely important element, but there is one element of the puzzle. We have to make sure that we have the training capacity to absorb the increase in headcounts that we're doing. We need also to be able to absorb or at least invest at the same level in marketing and awareness creation, and those go hand in hand. I can tell you we will not stop, we will not gap, but at the same time, don't assume that we can go from zero to infinity with a vertical line up. There has to be a ramp in here, and we have to be careful in the expectations for it. Jared, do you want to add anything in here about the talent retention and attraction?

No, I think, Nadeem, you hit most of it. So far, we've been really happy with the level of talent that we've been able to recruit. With the publicity of the IPO, there's obviously a lot of inbound interest from others within the industry as well. That being said, we like to have a pretty steady state as far as the number of reps that we bring on at CVRX so that we can make sure that we are training them up in the right way and getting them effective as quickly as possible. So I think that's still going to be the base case for us.

Okay. Very helpful. Appreciate that. And then, you know, can you just touch ever so briefly on the OUS number, which is a little bit light of what some of us are modeling. I really don't think it's the end of the world, but just touch on that. But more importantly for me, of the 67 implants that you did in the U.S. in Q1, were a majority of those really at the 11 sites that you had when you were exiting Q4 of last year? And what I'm really getting at is are you starting to see some of those sites Really, I think Nadine mentioned one of the clinicians did three implants last quarter alone. Are you starting to see some of these guys really start to ramp up and that you can get more comfort that some of these sites can do three, four, or more per quarter? Thanks so much.

Oh, Matt, excellent questions. Plural in here. You have so many questions. So if I forget to answer any one of them, let me know, right? So I will address the question regarding Europe, and then I'll turn it to Jared to take the second question, and we'll keep going from there. So the first question is Germany. You know, Europe for us, most of our sales in Europe are coming from Germany. And Q2, Q1, so the first half of this year, we were still struggling with COVID there. We hired a new vice president of sales and marketing, Thomas Hankseller, and he started on January 2nd with us. It wasn't until June that Thomas was able to meet with his own team face-to-face. So everything was being done remotely on the phone, and there is a limit of how much you can do. So from that perspective, Europe was slow, Q1, Q2, but we're hopeful that now that he's able to meet with his team and with customers face-to-face, things will start going back slowly, back to normal. Luckily for us, the U.S. has been, which is our area of focus and interest, has carried the bag for us in Q2 and covered this gap. Jared?

Yeah, Matt, I can cover kind of the breakout of the 67 U.S. Heart Failure Revenue Unit. So, you know, we've been trying to slice and dice the data. And I think the simple answer is that we're still early in this commercial ramp. And so it's really hard for us to segregate, you know, early active implanting centers versus those that were just joining just this last quarter. And just a reminder for everyone here. So we had 11 active implanting centers leaving the end of 2020. Of those seven had done their first implant just in the fourth quarter as well. So, I mean, we're talking 27 of the 31 implanting centers, you know, doing their first case in the last nine months. So I think we need a little bit more time before we can start to really segregate, you know, these longer term accounts from the newer accounts and seeing what levels of productivity we're seeing at each one of them. That being said, we have seen a handful of accounts that have started to exceed our long-term goals. And just for everyone on the phone, our long-term expectations for these sites are that they're treating at least one patient per month or 12 patients a year. And we have seen a handful of our longer-term sites that have started to exceed that long-term goal for us already. So there's some positive signs, but I think the data is just a little too early to start breaking out kind of the existing centers versus the new ones. Got it. Makes sense.

Thank you so much.

Thank you, Matt.

Your next question comes from the line at Margaret Cazor with William Blair. Your line is now open.

Hey, guys. Good afternoon. Thanks for taking the questions. You know, maybe I wanted to start with the active and planning centers because it seemed to come in above our expectations. So could you give us a sense of what drove that success, you know, maybe the profile of some of these accounts? And as we look forward, I guess, both within these and some in your pipeline, you know, how does that implanting clinician base look like as you go deeper within them?

Thank you for the question, Margaret. So simply, we are focusing in this phase of the growth of the company, number one, on growing volume in our existing account, and number two, we're targeting the next wave, which we started actually this year, the 200 accounts that have done the highest number of ICD implants. And Jared mentioned it earlier, our long-term goal is to get to one patient per center per month, you know, as an average. So we would have some doing more. We would have some doing less than that. With this in mind, we have to consider one more element. You know that many customers right now, before they embark on a new therapy like BetterStep, It has to go through a contracting process, and part of it is going through the value assessment committee. We have seen in some situations where the value assessment committee will ask the physicians to do a certain number of units, then wait a period of time until they verify that the payment is coming back profitable to the institutions, and then they resume. So when you see an account with CVRX doing 3, 4, 5 very quickly, and then nothing for the next three months to six months. It's almost by design, right? So we should not be very excited about it. At the same time, about the ramp, very quick, three to five in the first three months. But at the same token, we should not panic when this site will slow down for a period of time. And with this, let me turn it to Jared in here to answer the second part of your question.

Yeah, and Margaret, so we did see those 12 new active implanting centers come on in Q2. I don't think it shifts our plans as far as how quickly we're planning to bring new active implanting centers on over the long haul. Part of this just comes down to timing with a couple of the sites being able to treat some patients in June versus doing their first implants in early July. And so Longer term, we're not necessarily changing the rate at which we're expecting new implanting centers to be coming on.

Okay, that's useful. And you're touching on it a little bit, and it's more around utilization as we think about the second half of the year versus the first half. Obviously, utilization is pretty strong this quarter, and I understand a few of them are going to be doing these three, four procedures up front. and then maybe slowing down coming back. But on the same token, you should continue to hire or add new centers, I should say. So, you know, if we look at your guidance, it sort of implies overall utilization, at least in our model, coming down a little bit relative to what we saw in the second quarter. So I'm just curious if that math works out for you guys, especially as maybe some of the sites six, nine months ago continue to ramp higher.

Yeah, Margaret, this is Jared. I can take that one. So, I mean, just back to Nadine's point earlier, we have seen some of these new active implanting centers come on with a bit of a governor assigned to them saying that they can go out and treat a couple patients, step back, see what the reimbursement looks like, including the transitional pass-through payment, and then be able to restart once they see positive reimbursement coming through at the hospital level. And so, We're trying not to get ahead of ourselves here as far as utilization at each one of these sites, knowing that we have that long-term goal of each one treating at least one patient per month. But we have seen some really positive results so far in Q1 and Q2. And, you know, I just don't necessarily want to make a significant shift in what we expect for productivity in Q3, Q4 just at this moment.

Now that's fair enough. And this last question for me, I guess, you know, you guys mentioned the press release driving growth by increasing patients at the implanting centers. So I wanted to get a little bit more color of how you're doing this. You know, is it driving the referral network, you know, with other clinicians getting those patients to some of these implanting sites? And, you know, why shouldn't that process continue to ramp and improve as we go on? Congrats on the quarter, guys. Thanks.

Yeah, excellent question, Margaret, again. So, listen, the three areas in here are focused to drive the flow of patients. Number one is the prevalence model, right, looking at the patients who have already received an ICD and are coming back to the device clinic for the six-month follow-up visit. The second is the incidence model, so educate the physicians, reminding the healthcare providers every time they're talking to a patient about an ICD to mention barostem. And the third element of it is the referral from the outside world to them. And there we're experimenting right now with two models. Number one, our sales reps are going to talk and educate the cardiologists in the community to make sure that once they hear or if they hear from their patients about barostem, They don't have the ignorance or no awareness about the therapy. And at the same token, try to encourage them to send some of their patients who they may have not sent to an electrophysiology department or to a vascular surgeon to be treated with barostem. That's one leg of the strategy. The second leg is we're experimenting as well with a direct-to-consumer education campaign. Now, we did some of that back in the days in 2008 and 2009 when we were conducting a hypertension trial and most recently in 2016 and 2017 when we were enrolling DTHF We did advertisement on Facebook and other social media, but also sometimes TV clips and others. It's a whole program, so it's not only getting a click on a website. It's everything that happens after this click to take the patient in hand and generate the patient engagement and the patient follow-up to convert that lead into an implanted and treated patient. So we're still at the experimental phase of those programs. We're looking very closely to what other companies are doing. For example, Inspire Medical with their device and Boston Scientific with Watchmen. And we're learning from looking at those two good examples with us. I don't know if that answers your question here about the referral. Now, you ask as well, so why shouldn't that continue? Well, it will continue. At the same time, you've got that dynamic that we're talking about, that we're adding so many sites that will go through the initial bonus of patients and then nothing for three to six months waiting for that payment. So you've got all of that dynamic getting into play, and we're feeling comfortable in here with the guidance that Jared is issuing.

Your next question, or your last question, comes from the line of Bill Favonic with Canaccord. Your line is now open.

Hey, great. Thanks. Good evening. And thanks for taking my questions. You know, at this stage of your commercialization, it's probably more about rep profile, making sure you have the right reps, right? You have a handful at this point. You're up to eight. And then the activities you're doing are repeatable and reproducible. And so my question lies in, one, You know, in terms of the profile of the rep, you know, where do you feel you are in that process and kind of dialing down? You have a couple of different on board, I would assume, so you're getting a little better feel for that. And then the second is, you know, when do you think that you have a real repeatable, reproducible kind of model that, you know, you can really start significantly adding to the sales force? Does this take six months, 12 months, 18 months? I mean, you're essentially two quarters into a launch. So I think any help would be greatly appreciated on that. Thanks.

Yeah, absolutely, Bill. And it shows as well here your hybrid experience being on the investment side but also on the industry side. Listen, the rep profile that we are hiring, no surprise in here, they come from other medtech companies with a vast, vast, vast majority. I'm talking here. I do not recall hiring anybody who has not had a previous experience relevant and recent with a medtech company, particularly the large cardiovascular companies. We're not limiting this to companies who are operating in the CRM or the electrophysiology space. You would see us as well hiring from other companies that have a similar referral or a coalition building paradigm like what we have with our therapy. Let me explain this a little bit more. If you're selling a therapy that is a substitute for an existing therapy, Versus if you are developing a new therapy that requires building a coalition in the hospital, those are sometimes two different skill sets. So we look at other companies who have done more of the latter, who are creating of those coalition, right, and building them up, and we look at sales reps who have had demonstrated success doing these rather than those sales reps who have been very good at farming an existing client by just shifting from a therapy A to a therapy B or, for example, from a stent A to a stent B. That said, you mentioned Eight sales reps, those are eight territories. And I will let Jared explain the difference between what a territory is and what a rep is, and then I'll answer your question regarding the rep. Jared?

Yeah, I can chime in on that, Nadim. So just for everybody's education here, on the territory discussion, so these are account managers that have been in seat for at least six months, have gone through the full training process and kind of gotten ramped up. And we've gotten to a point now where we can carve out a territory for them. And so the number that we're presenting here of eight territories are those account managers that have been in seat for at least six months and have had a territory assigned to them.

So anytime we're quoting a number, it's for the six-month lag for the training, plus this is a net number, net, net. So we have to take this into account as well, Ben. Otherwise, our plan is to hire three reps per quarter, and we feel comfortable with this champ, very comfortable. I don't know, Jared, if you want to add any detail and any color in here.

Yeah, and the only other thing I'll point back to is in kind of the prepared remarks that Nadine mentioned that, you know, our expectation is to end the year with 14 territories in the U.S.

And then, thank you. And then my final question is, you know, that was an impressive presentation at HRS. You know, that room was pretty, that theater was well attended. I'm just curious in terms of, you know, for the reps or the folks in attendance, you know, were you able to pull a lot of leads off of this? And does this change kind of the thinking? Because I think this is really the first time you really got to profile this product live at a medical meeting, given the timing of approval and launch. So just, you know, does this, you know, as you kind of look at the lead pipeline, does this kind of change your thoughts in any way, shape, or form?

Yeah, Bill, and by the way, thank you for stopping by at the Heart Rhythm Theater. We felt very excited about the attendance. And if you recall, there was the third presenter whose slides were loaded in the system, but the operator would not be able to load them. And he did a fantastic job going over the story without even slides to support him. Anyway, it's hard sometimes to correlate excitement to results. So whenever I come back and tell Jared about the excitement I see, you know, he's got his CFO hat on and he says, well, we need to see the numbers and the early indicators and your excitement, Nadeem, may not translate into different early indicators. That said, we do have a secret weapon and I wish I could introduce you to him. We hired our chief marketing officer, Paul Verastro, at the beginning of this year. And he knows everybody and everybody knows him. He asked us to do one more investment, which is book hotels for our leadership team at hotel rooms at the hotel that was adjacent to the conference. And we had so many side discussions, sometimes going way after midnight, with some of the key opinion leaders here in the electrophysiology field. So I left the meeting very, very excited. I don't have the number of leads, but at the same time, Jared would look at this and say, well, your excitement doesn't mean anything. We need to see the early indicators before we commit here to higher numbers. You know that dynamic, right, Joe?

Yes, thank you very much. Yes.

That concludes our question and answer session for today. I will now turn the call back to Mr. Yared for closing remarks.

Thank you, operator. We appreciate here that everybody was able to join us for our first earnings call as a public company. You heard from the tone of my voice. I am very excited to be a CEO of a public company. But at the same time in here, we're learning as we go, so thank you for your patience with us. We do appreciate your ongoing support, and we look forward to updating you on our progress on our next quarterly earnings call. Thank you. Have a good night.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.