CVRx, Inc.

Good day, and thank you for standing by. And welcome to the CBRX Third Quarter 2021 Conference Hall. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. As a reminder, this conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Mark Vallee with ICR Westwick. Please go ahead.

Good afternoon, and thank you for joining us today for CBRX's third quarter 2021 earnings conference call. Joining me on today's call are the company's president and chief executive officer, Nadim Yared, and its chief financial officer, Jared Osha. 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-Q that will be filed with the SEC. I would now like to turn the call over to CBRX's President and Chief Executive Officer, Nadeem Murad.

Thank you, Mike, and thank you, everyone, for joining us this afternoon. I'll begin by providing an overview of our third quarter performance, followed by an operational update. Our CFO, Jared Oersheim, will then review our financial results. And then I will conclude with our thoughts for the balance of 2021 before turning to the question and answers. Starting with the review of the third quarter. Our total revenue was $3.4 million, an increase of approximately 240% over the third quarter of 2020. This growth was driven by continued strong performance in U.S. heart failure, which generated $2.5 million. Like most procedure-based companies, we were negatively impacted by the COVID-19 Delta spike experienced during the quarter. We have exposure to some of the hardest-hit regions of the country, including areas like Florida, Texas, and Georgia, and as a result, we saw a meaningful dip in procedures in August. However, that dip was offset by a strong September, which we believe benefited from both the traction of our commercial strategy as well as cases being shifted into September. As the spikes receded, we were able to get out into the field and interact with both new and existing customers, leading us to deliver our highest number of US implantations in a single day in our history. The strength in our US heart failure business also offset headwinds seen in our European business, which proved to rebound more slowly than in the US following the summer spikes. Overall, we are really excited with how the quarter ended and look forward to carrying this momentum forward. Turning to an operational update now. The expansion of our commercial infrastructure, particularly our direct sales team in the United States, is a significant component of our strategy to drive adoption. As anticipated, we added three U.S. territories in the third quarter, bringing the total to 11. We are very pleased with the level of talent we have been able to attract to the organization and continue to expect to add an additional three territories in the fourth quarter, bringing the total to 14. Another area of focus is the innovation of our product portfolio. In the last two months, we made three PMA supplement submissions with the FDA. The first was our successful testing results for BarroStim's MRI conditional labeling, which if approved, will allow MRI scanning with specific instructions for patients who have been implanted with BarroStim. While we do not believe that the addition of MRI compatibility will materially drive implant growth, We do believe it will give confidence to physicians to practice medicine in the ways they think is best for their patients. The second PMA submission was for our new implantable pulse generator, or IPG in short, which is smaller in size and has 20% longer battery life on average. And the third PMA submission was for our new programmer, which is tablet phone factor with an even simpler programming software. Approval for the three PMA supplement submissions is expected in the first half of 2022. Another long-term growth driver is the expansion of the clinical body of evidence. Our post-market study of BTHF A randomized controlled study designed to demonstrate the mortality and morbidity benefit of parastim in the HF-REF patient population remains on track. We continue to expect to accrue all the events needed for the final analysis by the end of 2022 and unblind the data in early 2023. Given some of the macro challenges experienced in the quarter, we are very pleased with where we ended up. We have continued the expansion of the commercialization of Perestim Neo and are incredibly excited about what we will accomplish as an organization by year end. While it is still early days, we are optimistic that we will build upon the momentum we saw late in the quarter and are confident in our ability to operate in this continually changing environment. And now I would like to turn the call over to Jared for a financial review.

Thanks, Nadeem. Total revenue generated in the third quarter was $3.4 million, which is an increase of $2.4 million or 241% when compared to the same period last year. Revenue generated in the U.S. was $2.6 million in the current quarter, which is an increase of $2.3 million or 769% over the same period last year. Heart failure revenue in the U.S. totaled $2.5 million in the current quarter on a total of 84 revenue units, as compared to $140,000 in the third quarter of last year on four revenue units. The increase was primarily driven by the 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 barostim. At the end of the current quarter, we had a total of 38 active implanting centers compared to 31 on June 30, 2021. The number of sales territories in the US increased from 8 on June 30, 2021 to 11 at the end of the current quarter. Revenue generated in Europe was $823,000 in the current quarter, which is an increase of $122,000 or 17% over the same period last year. Total revenue units in Europe increased from 32 in Q3 2020 to 38 in the current quarter. The slight revenue increase was primarily due to the lessening 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 $2.5 million for the current quarter, which is an increase of $1.7 million or 221% over the same period last year. Gross margin decreased to 74% for the current quarter compared to 79% 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. R&D expenses were $1.7 million for the current quarter, which is an increase of 13% when compared to the same period last year. This change was primarily due to an increase in stock-based compensation expense from $11,000 in Q3 2020 to $115,000 in Q3 2021. SG&A expenses were $8.1 million for the current quarter, which is an increase of $5.8 million, or 249% 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. Other increases included more direct spending in marketing in connection with our expanding commercial launch in the U.S., and other expenditures in connection with now being a public company. Stock-based compensation expense also increased from 12%. 2023-2020 to $353,000 in Q3 2021. Other income net was $1.8 million for the current quarter compared to income of $455,000 for Q3 2020. This change was primarily driven by a $1.5 million decrease in the fair value of the convertible preferred stock warrant liability from June 30, 2021 to July 2, 2021, which is the date the warrants converted to common stock warrants. Net loss was $6.1 million or $0.30 per share for the current quarter as compared to a net loss of $3.2 million or $9.56 per share for the same period last year. Net loss per share was based on approximately 20,127,000 weighted average shares outstanding for the current quarter and approximately 360,000 weighted average shares outstanding for the third quarter of 2020. Now turning to a balance sheet update. At the end of the current quarter, cash and cash equivalents were $170.9 million compared to $47.1 million as of June 30, 2021. The cash increase was driven by the net proceeds we received from our IPO of $133.2 million on July 2. Net cash used in operating and investing activities were $9.4 million for the current quarter compared to $5.3 million for the same period last year. The primary driver was an increase in compensation as a result of increased headcount across the organization. There was also an increase in our annual payment for director and officer insurance of $2.6 million in connection with becoming a public company. On November 3rd, we fully repaid the outstanding portion of our $20 million loan with Horizon Technology Finance Corporation. Put in place in September of 2019, the agreement carried a relatively high interest rate and 30 months of interest-only payments. followed by 30 months of interest plus principal payments. The principal payments were set to begin in the first half of 2022. In an effort to be efficient stewards of capital, we looked at our various options, including refinancing the loan under different terms. Ultimately, we felt it prudent to pay the $20 million principal at this time. However, debt may have a role to play in financing the business needs in the future. The total cost of extinguishment was $21.3 million, the impact of which will be reflected in our fourth quarter financial statements. Following the repayment, we believe we have more than three years of cash on hand. Now turning to guidance. For the full year of 2021, we continue to 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 fourth quarter of 2021, we expect to report total revenue between $3.9 and $4.5 million. Before turning the call back to Nadeem, I wanted to quickly acknowledge some changes to the reimbursement landscape in the U.S. As is typical this time of year, CMS announced this week their final changes for outpatient reimbursement for calendar year 2022. These changes are all positive for BarroStim. Additionally, CMS has previously proposed to repeal the Medicare Coverage for Innovative Technologies, or MSIT. While this repeal is disappointing for the MedTech innovation ecosystem, the repeal has no immediate impact on the current reimbursement for BarroStem, and it has no impact on the inpatient or outpatient add-on payments that are currently in place for BarroStem. I would now like to turn the call back over to Nadeem.

Thanks, Jared. Before opening the line for questions, I would like to discuss our key areas of focus for the balance of the year. First, the continued development of our commercial organization, particularly in the US. As mentioned, we expect to end the year with 14 sales territories, and we will continue to look to attract, hire, and train talented reps to ensure that we can continue to seamlessly add new territories as we move into 2022. Along those lines, we will remain focused on engaging with new customers, training surgeons, and bringing new active implanting centers online, while also working with existing customers as they ramp up the utilization of Parastem. Outside of our commercial efforts, we are highly focused on maintaining our supply chain to ensure we can continue manufacturing devices and deliver for our customers. At this point in time, we believe we have over a year's worth of long lead time components at our disposal. We are extremely excited about the position we are in today, despite the challenging macro environment that we have had to endure early in the launch of BetterSTEM in the US. As we move ahead, we're determined to leverage the foundation we have put in place to accelerate the adoption of BetterSTEM and bring relief to as many patients as possible that are suffering with cardiovascular illnesses. Now, I would like to open the line for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Robbie Marcus with JP Morgan. The line is open.

Hi, this is actually Lillian for Robbie. Thanks for taking the question. I was hoping you could just dive a little bit deeper into what you've been seeing on near-term COVID trends, how things trended into the fourth quarter and what's assumed in guidance in terms of the recovery.

Yeah, hi, Lillian. So first, thank you for joining us today. This is Nadim Yarid. Listen, you mentioned that in Q3, we were surprised by how fast the rise in the COVID cases happened in some states like Florida, Georgia, and Texas, among others, where we are strongly penetrated. And we expected at the time that this would be a fire-fast rise and a fast decrease of this Delta variant. And we've seen it happen, but with a couple of weeks' delays. Actually, it extended into the first week or two weeks in September. Since then, we've seen some pockets of COVID rises, but nowhere near the extent that we've seen it back in August. You know, in August in Florida, in Texas, we had some sites declaring code black, meaning no elective procedures. And right now, where we are in the United States, we're not seeing that. Now, granted, as you know, our product has elevated significantly. average selling price point, which is good. But that means we have a smaller number of procedures to make a trend or any information about trend that could be telling here about the future. So with that, I would encourage you to rely more on what larger, more established cardiovascular firms such as Metraulic or Boston Scientific, will say they see a much higher volume of procedures across boards in their business. But thank you for asking the question.

That's helpful. Thank you. And then just a quick follow-up on reimbursement and ASPs. Have you seen the implementation of the NTAP and the TPT have any meaningful tailwinds to adoption recently? And how should we think about the impact that that has on ASPs over the next few months? Thanks.

So again, great question. So the changes between 2021 and 2022 is mostly related to the 2% increase in the national average payments for the code itself, for the APC 5465 code. This is excluding TPT and NTAP. In our case, we have had TPT and NTAP now during calendar year 2021. So we're not expecting a major change in the ASP moving forward. That said, we continue to be cautious here about the level of an average selling price points that we are seeing. And as we look forward to the future, we tend to be a little bit more careful simply because as we grow and we go into broader geographies, we end up selling our therapy in states or zip codes where the average, the reimbursement is below the national average, as you can see. Now the TPT and the NTAP clearly help in those situations, but that's why we are being very careful here about projecting our 29,000 US ASP now into the future.

Thank you. Thank you. Our next question comes from Matthew O'Brien with Piper Sanwa. Your line is open.

Good afternoon. Thanks for taking the question. So, Nadine, you know, you're on track as far as number of reps added, number of centers that you're adding as well. As I look into the ramp that we're expecting in 22, I'm sure you've got some COVID-related headwinds in terms of getting into centers. being able to train clinicians to really ramp things with this expanding footprint that you have. So I'm just wondering, are you seeing a lot of, you know, gating factors to getting into facilities and really trying to train them and get them up and going? And how can you kind of work around that as we head into the end of the year and then, most importantly, into next year where you have a bigger ramp in terms of what's expected on the revenue side of things?

Yeah, hi, Matthew. Great questions. And, again, thank you for inviting me to serve or to sit on a panel at the annual meeting, the Heartland Summit meeting. It was really a good conversation. In regard to COVID and, you know, the implication for next year and site activation, we have to go back to – maybe rehearsing a little bit here, how the dynamic of opening an account and training a physician happens. For the barostem therapy, the gating item is not training the implanter. That is overall, in the entire scheme of things, one of the simplest aspects of the deployment of our therapy. Clearly our procedure It starts like a basic carotid endosterectomy and ends like a pacemaker procedure, two medical acts very well understood. However, the activation of a center requires having a center's attention. You know, you have to create a coalition and take this product basically through the value assessment committee, the contracting process, and everything around that. And early in Q3, we saw a little bit of a slowdown, but the steam picked up in September. And we believe that what has happened in here, the excess or extra activities that we've seen in September in terms of site activation was mostly a shift from August to September. That said, you know, and as I mentioned previously, I think in our last call, because we have a smaller number of sites overall and a smaller number of procedures because of the elevated average selling price point of our device, we end up being able to shift things around when we have short-lived spikes in COVID. So as long as future COVID spikes are similar to the Delta variant, so fast rise, fast decay, I think we will be able to weather it in the future.

Okay. That's helpful. And then pivoting over to Europe, you know, so far the U.S. has outperformed nicely, you know, even with all the COVID headwinds. I'm a little bit surprised, you know, most companies in the space right now are talking about Europe as kind of, you know, being a little less, you know, affected by COVID. And I understand you guys are really focused in Germany. But, you know, why is it you're seeing a little bit more headwind in your OUS business? And then how should we think about some of those pressures abating here in Q4 and in the next year? Thanks.

Yeah, great question, Matthew. So in Europe, I think the pressure is mostly specific to CPRX. We have hired Thomas Hexler at the beginning of the year, and he's building a very solid team in Germany. We are adding, as we speak in here, account managers in Germany. That said, It takes time for an account manager to become effective in owning the territory, basically. That's number one. Number two, it's a decision within CVRX. And I'm not going to ask your opinion, but if I do, I'm sure you'll agree with me on this one. If I have $1 to spend in marketing right now, would I spend it in the United States or in Germany? at the stage of our company right now, are wood invested in the United States of America. And that's why what we're seeing right now with CVRX being opportunistic in Germany but investing heavily in the United States. Now, would things change? Of course. As we start seeing some traction in Germany post-COVID and with the new team we have in place, there comes a time when a dollar invested in Germany starts becoming interesting in terms of marketing, and we will do so. Got it. Very helpful. Thank you so much. Thank you, Matthew.

Thank you. Thank you. Our next question comes from Margaret Katzer with William Blair. The line is open.

Hey, good afternoon, everyone. Thanks for taking the questions. I wanted to follow up maybe a little bit on the implantation commentary that you had, particularly on the U.S. I think at one point you had said it was the highest number of U.S. implantations in a single day in history. Now, I understand some of that's probably a little bit of catch-up, but what can you maybe comment on in terms of what you see in October? And then anything you can comment on as well in terms of that patient lead pipeline, which may or may not have been impacted by the Delta variant.

Yeah. Hey, Micah, thank you. And thank you again for joining us today. I know how busy you are. Listen, as I mentioned earlier, the, uh, increased activity in September can be traced back to two components. One component is us as a company growing and we have done a phenomenal job in here, uh, building a very solid, uh, U S Salesforce and a marketing organization. And, uh, you know, our VP of sales in the United States is extremely charismatic. Greg Palmer has been able to attract really top notch talent in this space. Uh, This is one component of our growth in September. The second component, we believe, is a shift of some of the delayed procedures from August into September. Now, as we project forward to Q4, do we expect that type of strong month to continue? And the answer is no. In our estimates for Q4. We're going back to the original plan. What we have seen in October is well aligned with our original estimates of this plan. But if I may here, I probably should turn to Jared to give you a little bit more guidance on the Q4 as well. Jared?

Yeah, Margaret. I think I'll just reiterate a little bit of what Nadim said here in that You know, what we are seeing so far in Q4 is a little bit back to steady state. We saw a little bit of that funnel buildup after procedures were delayed from August into September, seeing that backlog get worked through in September and then getting back to steady state. So when we look to the Q4 guidance that we provided of $3.9 to $4.5 million in It's not continuing at the same rate that we saw in September individually, but obviously continuing to grow the business quarter over quarter as we move forward.

Okay. That makes sense. And then, you know, I guess I wanted to follow also up on the PMA supplements and then kind of those subsequent approvals in the first half of 22. I know we're looking forward a little bit, and I'm not asking for guidance, but just kind of big picture it for me. How quickly or how material can some of those approvals be for you as you launch?

Thank you, Margaret. Materiality, in terms of increased sales due to those three PMA supplements, we do not believe it will be material. We believe those three PMA supplements are crucial to the patients and the clinicians, but are not major drivers for our growth. The major drivers for our growth for 2022 will continue the buildup of territories and activations of accounts. Now, why are these three PMA supplements important? Well, the simplified programming is crucial for the ability of healthcare providers to do the programming of patients without us being there. That's particularly important after month six where we believe some of the patients will transition from having to need a CVRX representative to be onsite to support the programming to allow the healthcare providers to do the programming without us. The increased longevity of 20%, the smaller size factor of the new IPG and the MRI conditional compatibility are very important for the patients. Now, do we see any patients today saying, no, thank you, I don't want a better stem because I do not have those? No. So that's why I would not expect those PMA supplements to have a material impact on our growth, but it's more of a material impact on the satisfaction of patients after getting the device.

Okay. Great. And just last question for me, and you touched on a little bit, right? So, so what matters for 22 is kind of that utilization and planning centers that you guys are bringing on. I guess it's difficult to say with COVID, but to the best of your abilities, have you been able to ramp some of the new accounts as fast as you would have liked? And then, you know, if you look at some of the more historical accounts that you've had for a while, How is utilization trended there, you know, again, as best as you can, adjusting for COVID? Thanks.

Yes. So we have a handful of accounts that have achieved what we believe is our long-term goal in terms of number of implants. If you recall, we always thought that we would like to see every account doing at least one barostem procedure per month. and would like one territory to have five accounts doing that type of volume. And we already have a handful of accounts at this level. That said, of the 34 territories we have, or active implanting accounts, I'm sorry, we have, 31 of them, or 30 of them, have been activated in the last 12 months. So we don't have enough here longevity of data to say, you know, for all sense of purpose, we can think of all of this active implanting accounts today to be fresh and young because the vast majority of them have been activated for less than 12 months. Does this make sense, Margaret?

Yeah.

I'm sorry. I need to correct myself. It's 34 of 38, not 34. Yeah.

No, I appreciate the try. Thanks again, guys.

Thank you.

Thank you. And our last question comes from the line of Bill Blavonic with Canaccord. Your line is open.

Great, thanks. Good evening, and thanks for taking my questions. First off, I'd just like to start out is a big picture question. You know, you've now been commercial for a couple of years. You're kind of, you know, you keep getting hit by COVID and all these different things. But I'm just, as you continue to expand the number of territories, What are the learnings or what things have you had to change or kind of implemented and adjust outside of COVID as you continue to expand to a bigger footprint, if any?

Hey, Ben. Good afternoon. Thank you again for joining us. I know how busy today is for you. Listen, As I mentioned earlier to Margaret, we are still a young organization. Now, you mentioned two years of commercialization. I don't want to be rude and correct you, but it's clearly one year. The first year of those two years were mostly us trying to get ready and then COVID hit and shut down the entire country. But over this year, what have we learned and changed? Well, I would say it has confirmed our initial hypothesis. about the importance in here of number one, having solid clinical data and a well crafted message around this data and drive with it. At the end of the day, adoption is driven by a simple formula. Is the procedure creating more value to the different stakeholders? then the friction it is creating to the different stakeholders. And by stakeholders, you have the patients, you have the healthcare providers, you have the payers, and so forth, right? And from everything that we initially did, all of the planning so far, it's working, all right? So knock on wood, all of those hypotheses about what type of physicians, what type of clinicians, what type of centers, the account targeting that we've done, it is working. So we learned something dramatically that we make us change or shift direction right now? I would say no, we have not. But have we confirmed what we thought would be the hypothesis? And I would say yes so far. These 12 months have been very good in terms of confirmation that, you know, the system works. By system, I don't mean the barrister. We knew the barrister works, but the entire setup, it's working and we're able to grow as expected.

Okay. Okay. Good. So that means basically as you think about it, you have the playbook, and it's just kind of methodically adding territories and continuing to execute on the plan is kind of the way I would think about it. Is that a fair way to think about it? Exactly.

This is all about execution right now. I mentioned Craig Palmer, Paul Verastro, Thomas Hengsteller. We have a very solid sales and marketing leadership team. And it's all right now for the foreseeable future about execution. That's why you don't hear us talk about future indications or future R&D programs. This is all about this playbook, going and repeating it and developing more and more territories and keep repeating it.

Okay, great. And then for Jared, what are the drivers for the Q4 guidance revenue in terms of high-end versus low-end?

Hey, Bill.

Yeah, happy to answer that question. So from a high end perspective, I mean, what we're really hoping to see in the fourth quarter is to see a little bit more of return to normalcy from the European team, a little bit faster traction than what we saw here in the third quarter. But then also continuing to see the number of active impending centers and number of territories come online as expected. For the lower end of the range for the revenue guidance, I mean, really, it's set up there so that if we do see another one of these spikes like we saw with Delta in the month of August in some high-volume regions like in Florida, Georgia, or in Texas, that, you know, a handful of procedures getting delayed from December into January could push us towards the lower end of that number.

That's helpful. Thank you. And then last question for me is just on R&D. I mean, that was a you know, pretty low number coming back to where we were, you know, first quarter of this year and maybe even back even below 2020. How should we think about kind of R&D spend, especially, by the way, with three PMAS filings? That's pretty amazing. How should we think about that spend considering, you know, I don't, you know, think you have any other PMAS filings in the books, you know, why would it tick up and what would drive a tick up in R&D as we go into fourth quarter and next year? And that's all I have. Thanks.

Hey, Bill. This is Jared. I'll address the first part of that. Maybe Nadim can chime in at the end if he needs to add anything. But from an R&D perspective, it was lower in the third quarter. With those three PMA supplements getting filed here in the last couple months, some of the work was being done in the month of October. But a lot of that just turns into paperwork. A lot of the actual development work and research that went into those filings was taking place in previous quarters. And then it was just about getting the files together to submit to FDA. And then the other piece is really related to bat wire. And what we're seeing for enrollments in bat wire is that physicians are being cautious with the first patients that are being selected for the implants in that trial. However, we are expecting the rest of the implants to start to pick up here in the fourth quarter and into 2022, so we will see some condensing of the spend that we had expected from the BATWIRE trial over the next four to five quarters.

Okay. And is it fair to say you expect enrollment to be completed in BATWIRE by the end of 2022?

Yeah, we expect to collect all the data that's necessary by the end of 2023, which was the guidance that was expected or communicated previously related to BATWIRE so that we could submit for an approval in early 2024. Great. That's all I have. Thank you very much.

Thanks, Bill.

Thank you. At this time, I'd like to hand the conference back over to Nadine Yaret for closing comments.

Yes, thank you, Operator, and thank you, Lillian, Matthew, Margaret, and Bill for your questions today. And thanks again, everyone, for joining us for our third quarter earnings call. We appreciate your ongoing support, and we look forward to updating you on our progress on our next update. Bye now.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.