What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-02 compared with 2021-11-08 · 97 added, 189 removed, 157 unchanged (65% of the section changed)

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Our proprietary platform technology, Barostim, is designed to leverage the power of the brain and nervous system to address the imbalance of the Autonomic Nervous System, which causes HF with reduced Ejection Fraction (“ HFrEF”) and other cardiovascular diseases.

Our second-generation product, BAROSTIM NEO, is the first and only commercially available neuromodulation device indicated to improve symptoms for patients with HFrEF.

BAROSTIM NEO provides Baroreflex Activation Therapy by sending imperceptible and persistent electrical pulses to baroreceptors located in the wall of the carotid artery to signal the brain to modulate cardiovascular function.

BAROSTIM NEO is currently approved by the U.S.

Food and Drug Administration (“FDA”) to improve the symptoms of patients with HFrEF and is CE Marked for HFrEF and resistant hypertension.

Since our inception we have generated minimal revenue, as our activities have consisted primarily of developing our BAROSTIM Therapy, conducting our BeAT-HF pre-market and post-market pivotal studies in the U.S.

Our second-generation product, Barostim, is the first and only commercially available neuromodulation device indicated to improve symptoms for patients with HFrEF.

Barostim provides Baroreflex Activation Therapy by sending imperceptible and persistent electrical pulses to baroreceptors located in the wall of the carotid artery to signal the brain to modulate cardiovascular function.

Barostim is currently approved by the U.S.

Food and Drug Administration (the “ FDA”) to improve the symptoms of patients with HFrEF and is CE Marked for HFrEF and resistant hypertension.

Since our inception we have generated minimal revenue, as our activities have consisted primarily of developing Barostim Therapy, conducting our BeAT-HF pre-market and post-market pivotal studies in the U.S.

and filing for regulatory approvals.

Our ability to generate revenue from product sales and become profitable will depend on our ability to successfully commercialize BAROSTIM NEO and any product enhancements we may advance in the future.

We expect to derive future revenue by expanding our own dedicated salesforce and increasing awareness of our BAROSTIM NEO among payors, physicians and patients.

Our ability to generate revenue from product sales and become profitable will depend on our ability to successfully commercialize Barostim and any product enhancements we may advance in the future.

We expect to derive future revenue by expanding our own dedicated salesforce and increasing awareness of Barostim among payors, physicians and patients.

Our sales and marketing efforts are directed at electrophysiologists, HF specialists, general cardiologists and vascular surgeons because they are the primary users of our technology.

However, we consider the hospitals, where the procedures are performed primarily in an outpatient setting, to be our customers, as they are the purchasing entities of our BAROSTIM NEO in the U.S.

However, we consider hospitals, where the procedures are performed primarily in an outpatient setting, to be our customers, as they are the purchasing entities of Barostim in the U.S.

We intend to continue making significant investments building our U.S.

commercial infrastructure by expanding and training our U.S.

We have dedicated significant resources to educate physicians who treat HFrEF about the advantages of BAROSTIM NEO and train them on the implant procedure.

We have dedicated significant resources to educate physicians who treat HFrEF about the advantages of Barostim and train them on the implant procedure.

The costs for the device and implantation procedure are reimbursed through various third-party payors, such as government agencies and commercial payors.

In the U.S., we estimate that 67% of our target patient population is Medicare-eligible based on the age demographic of the HFrEF patient population indicated for BAROSTIM NEO.

In the U.S., we estimate that 67% of our target patient population is Medicare-eligible based on the age demographic of the HFrEF patient population indicated for

As a result, we have prioritized coverage by the Centers for Medicare and Medicaid Services (“ CMS”) while simultaneously developing processes to engage commercial payors.

As of July 2020, all Medicare Administrative Contractors have retired automatic coverage denial policies for our Current Procedural Terminology (“CPT”) codes, thereby allowing hospitals to be paid for the BAROSTIM procedure.

All Medicare Administrative Contractors have retired automatic coverage denial policies for our Current Procedural Terminology codes, thereby allowing hospitals to be paid for the Barostim procedure.

Our reimbursement strategy involves continuing to broaden our current coverage and build our in-house market access team to assist patients and physicians in obtaining appropriate prior authorization approvals in advance of treatment on a case-by-case basis where positive coverage policies currently do not exist.

Outside the U.S., reimbursement levels vary by country and within some countries by region.

BAROSTIM NEO is eligible for reimbursement in certain countries in the European Union (“EU”), such as Germany, where annual healthcare budgets for the hospital generally determine the number of patients to be treated and the prices to be paid for the related devices that may be purchased.

We manage all aspects of manufacturing operations and product supply of our BAROSTIM NEO, which includes final assembly, testing and packaging of our implantable pulse generator (“IPG”) and stimulation lead, at our headquarters in Minneapolis, Minnesota.

Barostim is eligible for reimbursement in certain countries in the European Union (“EU”), such as Germany, where annual healthcare budgets for the hospital generally determine the number of patients to be treated and the prices to be paid for the related devices that may be purchased.

We manage all aspects of manufacturing operations and product supply of Barostim, which include final assembly, testing and packaging of our implantable pulse generator (“IPG”) and stimulation lead, at our headquarters in Minneapolis, Minnesota.

We utilize components or various subassemblies manufactured by third-party suppliers, some of which have significant lead times.

Many of these components are from a limited number of suppliers.

We believe that our component manufacturers are recognized in their field for their competency to manufacture the respective portions of our BAROSTIM NEO and have quality systems established that meet FDA requirements.

We believe that our component manufacturers are recognized in their field for their competency to manufacture the respective portions of Barostim and have quality systems established that meet FDA requirements.

We seek to maintain higher levels of inventory to protect ourselves from supply interruptions and continue to seek to broaden and strengthen our supply chain through additional sourcing channels.

From our inception until the IPO, we financed our operations primarily through preferred stock financings, and additionally, from sales of our BAROSTIM products and amounts borrowed under our current and past credit facilities.

We have devoted substantially all of our resources to research and development activities related to our BAROSTIM Therapy, including clinical and regulatory initiatives to obtain marketing approval, and sales and marketing activities.

We intend to use a portion of the IPO proceeds to continue funding the expansion of our direct sales force and commercial organization related to BAROSTIM NEO in the U.S.

From our inception until the IPO, we financed our operations primarily through preferred stock financings, and additionally, from sales of our Barostim products and amounts borrowed under our past credit facilities.

We have devoted substantially all of our resources to research and development activities related to Barostim Therapy, including clinical and regulatory initiatives to obtain marketing approval and sales and marketing activities.

We intend to use a portion of the IPO proceeds to continue funding the expansion of our direct sales force and commercial organization related to Barostim in the U.S.

We also intend to continue investing in research and development in the near term to improve clinical outcomes, optimize patient adoption and comfort, increase patient access and enhance the physician and patient experience.

Longer term, we plan to explore BAROSTIM NEO’s potential to expand its indications for use to other cardiovascular diseases.

Longer term, we plan to explore Barostim’s potential to expand its indications for use to other cardiovascular diseases.

As a result of these investments and our commercialization efforts, we expect to continue to incur net losses for the next several years, which may require additional funding and could include future equity and debt financings.

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and world economy and in financial markets.

The COVID-19 pandemic has negatively impacted our business, financial condition and results of operations by decreasing and delaying procedures performed to implant our BAROSTIM NEO, and we expect the pandemic will continue to negatively impact our business, financial condition and results of operations.

Beginning in March 2020, our revenue was negatively impacted by COVID-19 as healthcare facilities and

clinics began restricting in-person access to their clinicians, reducing patient consultations and treatments or temporarily closing their facilities.

The COVID-19 pandemic has negatively impacted our business, financial condition and results of operations by decreasing and delaying procedures performed to implant Barostim, and we expect the pandemic will continue to negatively impact our business, financial condition and results of operations.

Beginning in March 2020, our revenue was negatively impacted by COVID-19 as healthcare facilities and clinics began restricting in-person access to their clinicians, reducing patient consultations and treatments or temporarily closing their facilities.

As a result, substantially all of our then-scheduled procedures were postponed, and numerous other cases could not be scheduled.

During May 2020, the widespread shutdown resulted in key physician-society conferences being moved to a virtual setting, which directly impacted our planned commercial launch in the U.S.

During May 2020, the widespread shutdown resulted in key

physician-society conferences being moved to a virtual setting, which directly impacted our planned commercial launch in the U.S.

In response to the COVID-19 pandemic, we have implemented a variety of measures intended to help us manage its impact while maintaining business continuity to support our customers and patients.

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● Implementing virtual physician education programs to support opening new accounts with minimal in person interaction;

● Increasing our capital resources through the issuance of shares of Series G Preferred Shares for net proceeds of $49.8 million in July 2020.

● Increasing our capital resources through the completion of the IPO, which resulted in net proceeds of $133.2 million.

Our hospital customers in the U.S.

and Europe began to gradually perform elective procedures again during the fourth quarter of 2020.

We believe the recovery of our business in the fourth quarter of 2020 and through the first nine months of 2021 is an encouraging sign for when remaining shelter-in-place and hospital limitations are lifted.

As the pandemic has eased, we are experiencing the following positive trends:

We believe the recovery of our business in the fourth quarter of 2020 and through most of fiscal year 2021 is an encouraging sign for when remaining shelter-in-place and hospital limitations are lifted.

As the pandemic eased throughout 2021, we experienced the following positive trends:

● Strong physician participation in our virtual educational events;

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● Hospitals accepting patients for elective procedures at closer to pre-pandemic levels in the U.S.

Despite the encouraging signs of recovery of our business, we believe the challenges resulting from COVID-19 will likely continue for the duration of the pandemic.

However, procedure volumes were again negatively impacted by the Delta and Omicron variants of COVID-19 in the third and fourth quarters of 2021 and continuing into the first quarter of 2022.

By March 2022, implant centers resumed procedures at more normal levels.

We believe the challenges resulting from COVID-19 will likely continue for the duration of the pandemic.

The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and spread of COVID-19 and its variants and the actions to contain the spread of COVID-19 and its variants or treat its impact.

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commercial organization;

● Promoting awareness among physicians, hospitals and patients to accelerate adoption of our BAROSTIM NEO;

● Raising awareness among payors to build upon reimbursement for BAROSTIM NEO;

● Investing in research and development to foster innovation and further simplify our BAROSTIM NEO procedure;

● Promoting awareness among physicians, hospitals and patients to accelerate adoption of Barostim;

● Raising awareness among payors to build upon reimbursement for Barostim;

● Investing in research and development to foster innovation and further simplify the Barostim procedure;

● Leveraging our manufacturing capacity to further improve our gross margins.

Components of results of operations

We have derived primarily all of our historical revenue from the sale of our BAROSTIM NEO to hospitals in Germany and other select countries in Europe.

Revenue from sales of our BAROSTIM NEO in Europe fluctuates based on the average selling price of our BAROSTIM NEO as determined by location of sale and channel mix, each of which may vary significantly from country to country.

Our revenue from international sales can also be significantly impacted by fluctuations in foreign currency exchange rates.

sales have increased since the pre-market approval of our BAROSTIM NEO by the FDA in August 2019, and the subsequent reimbursement changes in 2020.

We expect to continue to drive increases in revenue through our efforts to increase awareness of BAROSTIM NEO among physicians, patients and payors and by the expansion of our U.S.

sales have increased since the pre-market approval of Barostim by the FDA in August 2019, and the subsequent reimbursement changes in 2020.

We expect to continue to drive increases in revenue through our efforts to increase awareness of Barostim among physicians, patients and payors and by the expansion of our U.S.

As a result, we expect that U.S.

sales will continue to account for the majority of our revenue going forward.

We derive a portion of our revenue from the sale of Barostim to hospitals in Germany and other select countries in Europe.

Revenue from sales of Barostim in Europe fluctuates based on the average selling price of Barostim as determined by location of sale and channel mix, each of which may vary significantly from country to country.

Our revenue from international sales can also be significantly impacted by fluctuations in foreign currency exchange rates.

Cost of goods sold and gross margin

Cost of goods sold consists primarily of acquisition costs of the components and subassemblies of BAROSTIM NEO, allocated manufacturing overhead, and scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs.

Cost of goods sold consists primarily of acquisition costs of the components and subassemblies of Barostim, allocated manufacturing overhead and scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs.

We expect cost of goods sold to increase in absolute dollars primarily as, and to the extent, our revenue grows.

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The full system sales typically have a lower gross margin as they include the cost of an IPG and a stimulation lead whereas individual IPG sales only include the cost of an IPG.

The manufacturing overhead costs of BAROSTIM NEO are directly aligned to our production volume and therefore the cost per product is reduced if production levels increase.

The manufacturing overhead costs of Barostim are directly aligned to our production volume and therefore the cost per product is reduced if production levels increase.

While we expect our gross margin to be positively affected over time to the extent we are successful in selling more product through our direct sales force and by increasing our production volumes, it will likely fluctuate from period to period as we continue to introduce new products and adopt new manufacturing processes and technologies.

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We expense research and development costs as they are incurred.

We expect R&D expenses to increase in absolute dollars as we continue to develop enhancements to BAROSTIM NEO.

Our R&D expenses may fluctuate from period to period due to the timing and extent of our product development and clinical trial expenses related to BAROSTIM NEO in HFrEF.

We expect R&D expenses to increase in absolute dollars as we continue to develop enhancements to Barostim.

Our R&D expenses may fluctuate from period to period due to the timing and extent of our product development and clinical trial expenses related to Barostim in HFrEF.

Selling, general and administrative expenses

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Interest expense consists of interest on our debt and amortization of associated debt discount.

Other income (expense), net

Other income (expense), net consists primarily of the fair value adjustments related to our outstanding convertible preferred stock warrants, which are accounted for as a liability and marked-to-market at each reporting period.

Other expense, net

Other expense, net consists primarily of the fair value adjustments related to our formerly outstanding convertible preferred stock warrants, which were accounted for as a liability and marked-to-market at each reporting period.

The final fair value adjustment of the warrant liability was recorded upon the closing of the IPO in connection with the conversion of the warrants to common stock warrants.

Other items include gains (losses) on the extinguishment of debt, interest income earned on our cash and cash equivalents, and the effect of exchange rates on our foreign currency-denominated asset and liability balances.

Translation adjustments are recorded as foreign currency gains (losses) in the condensed consolidated statements of operations and comprehensive loss.

Other items include losses on the extinguishment of debt, interest income earned on our cash and cash equivalents and the effect of exchange rates on our foreign currency-denominated asset and liability balances.

Provision for income taxes

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Results of operations

Consolidated results of operations for the three months ended September 30, 2021, compared to the three months ended September 30, 2020

Consolidated results of operations for the three months ended March 31, 2022, compared to the three months ended March 31, 2021

Three months ended

September 30,

(unaudited and in thousands)

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Interest expense

Other income, net

Other expense, net

Loss before income taxes

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Three months ended

September 30,

(unaudited and in thousands)

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Total Revenue

Total revenue increased by $2.4 million, or 241%, to $3.4 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.

Revenue generated in the U.S.

was $2.6 million for the three months ended September 30, 2021, an increase of $2.3 million, or 769%, over the three months ended September 30, 2020.

HF revenue units in the U.S.

totaled 84 and four for the three months ended September 30, 2021 and 2020, respectively.

HF revenue in the U.S.

totaled $2.5 million and $0.1 million for the three months ended September 30, 2021 and 2020, respectively.

The increase was primarily driven by continued growth following the U.S.

HF commercial launch in 2020, which resulted in the expansion into new sales territories and increased physician and patient awareness of our BAROSTIM NEO.

As of September 30, 2021, we had a total of 38 active implanting centers, as compared to four as of September 30, 2020.

Active implanting centers are customers that have completed at least one commercial HF implant in the last 12 months.

The number of sales territories in the U.S.

increased by three to a total of 11 during the three months ended September 30, 2021.

Legacy hypertension revenue in the U.S.

totaled $0.1 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively.

Revenue generated in Europe was $0.8 million for the three months ended September 30, 2021, an increase of $0.1 million, or 17%, over the three months ended September 30, 2020.

Total revenue units in Europe for the three months ended September 30, 2021 increased to 38 from 32 for the three months ended September 30, 2020.

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 three months ended September 30, 2021.

Cost of goods sold and gross margin

Cost of goods sold increased $0.7 million, or 313%, to $0.9 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.

This increase was primarily due to higher sales of our BAROSTIM NEO.

Gross margin decreased to 74% for the three months ended September 30, 2021, compared to 79% for the three months ended September 30, 2020.

Gross margin for the three months ended September 30, 2021 was lower due to a larger percentage of our revenue units coming from full systems, which require an IPG and a stimulation lead, as compared to individual IPG sales.

This was partially offset by an increase in the average selling price.

Research and development expenses

R&D expenses increased $0.2 million, or 13%, to $1.7 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.

This change was primarily due to an increase of $0.1 million in non-cash stock-based compensation expense and an increase of $0.1 million in compensation expenses, including salaries and other employee-related expenses, mainly as a result of increased headcount.

Selling, general and administrative expenses

SG&A expenses increased $5.8 million, or 249%, to $8.1 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.

This was primarily driven by an increase of $2.8 million in compensation expenses, including salaries and commissions, and other employee-related expenses, mainly as a result of increased headcount, a $0.8 million increase in marketing and advertising expenses primarily related to the commercialization of our BAROSTIM NEO in the U.S., a $0.7 million increase in insurance costs incurred as a result of the IPO, $0.4 million of additional travel expenses, a $0.3 million increase in non-cash stock-based compensation expense, and a $0.3 million increase in consulting expenses.

Interest expense

Interest expense remained consistent at $0.6 million for each of the three months ended September 30, 2021 and 2020.

Other income, net

Other income, net was $1.8 million for the three months ended September 30, 2021, compared to $0.5 million for the three months ended September 30, 2020, driven by a $1.5 million increase in income related to the decrease in fair value of our convertible preferred stock warrants due to the change in our common stock price from June 30, 2021 to July 2, 2021, which is the date the warrants converted to common stock warrants.

Provision for income taxes

Provision for income taxes was nominal for each of the three months ended September 30, 2021 and September 30, 2020.

Consolidated results of operations for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020

Nine months ended

September 30,

(unaudited and in thousands)

Cost of goods sold

Operating Expenses:

Research and development

Selling, general and administrative

Total operating expenses

Loss from operations

Interest expense

Other (expense) income, net

Loss before income taxes

Provision for income taxes

NM – Not meaningful

Revenue by Geography

Nine months ended

September 30,

(unaudited and in thousands)

United States

Total Revenue

Revenue increased by $5.4 million, or 137%, to $9.4 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

Revenue was $4.1 million for the three months ended March 31, 2022, an increase of $1.2 million, or 43%, over the three months ended March 31, 2021.

Revenue generated in the U.S.

was $6.3 million for the nine months ended September 30, 2021, an increase of $5.4 million, or 597%, over the nine months ended September 30, 2020.

was $3.1 million for the three months ended March 31, 2022, an increase of $1.4 million, or 90%, over the three months ended March 31, 2021.

Total HF revenue units in the U.S.

totaled 195 and 11 for the nine months ended September 30, 2021 and 2020, respectively.

totaled 99 and 44 for the three months ended March 31, 2022 and 2021, respectively.

HF revenue in the U.S.

totaled $5.7 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively.

The increase was primarily driven by the continued growth following the commercial launch in 2020, which resulted in the expansion into new sales territories and increased physician and patient awareness of our BAROSTIM NEO.

The number of sales territories in the U.S.

increased by five to a total of 11 during the nine months ended September 30, 2021.

Legacy hypertension revenue in the U.S.

totaled $0.6 million and $0.5 million for the nine months ended September 30, 2021 and 2020, respectively.

Revenue generated in Europe was $3.1 million for the nine months ended September 30, 2021, a slight increase of $26,000, or 1%, over the nine months ended September 30, 2020.

Total revenue units in Europe decreased to 137 from 138 for the nine months ended September 30, 2021 and 2020, respectively.

The number of sales territories in Europe remained consistent at six during the nine months ended September 30, 2021.

totaled $2.9 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively.

The increase was primarily driven by continued growth as a result of the expansion into new sales territories, new accounts and increased physician and patient awareness of Barostim.

As of March 31, 2022, we had a total of 56 active implanting centers, as compared to 19 as of March 31, 2021.

Active implanting centers are customers that have completed at least one commercial HF implant in the last 12 months.

As of March 31, 2022, we had a total of 17 sales territories as compared to 6 as of March 31, 2021.

Revenue generated in Europe was $1.0 million for the three months ended March 31, 2022, a decrease of $0.2 million, or 18%, over the three months ended March 31, 2021.

Total revenue units in Europe were 50 for the three months ended March 31, 2022 as compared to 52 in the prior year period.

The decrease is due to reduced procedure volumes attributable to the impact of COVID-19.

As of March 31, 2022, the Company had a total of six sales territories in Europe.

Cost of goods sold and gross margin

Cost of goods sold increased $1.7 million, or 169%, to $2.7 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

This increase was primarily due to higher sales of our BAROSTIM NEO.

Gross margin decreased to 72% for the nine months ended September 30, 2021, compared to 75% for the nine months ended September 30, 2020.

Gross margin for the nine months ended September 30, 2021 was lower due to a larger percentage of our revenue units coming from full systems, which require an IPG and a stimulation lead, as compared to individual IPG sales.

This was partially offset by an increase in the average selling price.

Cost of goods sold increased $0.1 million, or 9%, to $0.9 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

This increase was primarily due to higher sales of Barostim.

Gross profit was $3.1 million for the three months ended March 31, 2022, an increase of $1.1 million, or 57%, over the three months ended March 31, 2021.

Gross margin increased to 77% for the three months ended March 31, 2022, compared to 70% for the three months ended March 31, 2021.

Gross margin for the three months ended March 31, 2022 was higher due to a decrease in the cost per unit and an increase in the average selling price.

This was partially offset by a larger percentage of our revenue units coming from full systems versus battery replacements.

New patients receive a full system that includes an IPG and a stimulation lead, which has a lower gross margin than a stand-alone IPG used for a battery replacement.

Research and development expenses

R&D expenses decreased $0.2 million, or 3%, to $5.7 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

This was primarily driven by a $0.8 million decline in clinical study expenses, partially offset by a $0.3 million increase in compensation expenses, including salaries and other employee-related expenses, mainly as a result of increased headcount, and a $0.3 million increase in non-cash stock-based compensation expense.

R&D expenses increased $0.5 million, or 29%, to $2.3 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

This change was primarily driven by a $0.3 million increase in compensation expenses, mainly as a result of increased headcount, a $0.3 million increase in clinical study expenses, and a $0.1 million increase in non-cash stock-based compensation expense, partially offset by a $0.2 million decrease in consulting expenses.

Selling, general and administrative expenses

SG&A expenses increased $11.7 million, or 182%, to $18.1 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

This was driven by an increase of $6.3 million in compensation expenses, including salaries and commissions, and other employee-related expenses, mainly as a result of increased headcount, a $1.9 million increase in marketing and advertising expenses, primarily related to the commercialization of our BAROSTIM NEO in the U.S., $1.4 million of additional travel expenses, a $1.0 million increase in consulting expenses, and a $0.8 million increase in non-cash stock-based compensation expense.

SG&A expenses increased $6.3 million, or 142%, to $10.8 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

This was primarily driven by a $3.2 million increase in compensation expenses, mainly as a result of increased headcount, a $0.7 million increase in travel expenses, a $0.7 million increase in insurance costs incurred as a result of becoming a public company, a $0.6 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S., a $0.6 million increase in non-cash stock-based compensation expense, a $0.3 million increase in consulting expenses, and a $0.2 million increase in professional fees.

Interest expense

Interest expense remained consistent at $1.8 million for each of the nine months ended September 30, 2021 and 2020.

Other (expense) income, net

Other expense, net was $13.4 million for the nine months ended September 30, 2021, compared to other income, net of $0.6 million for the nine months ended September 30, 2020.

This change was primarily driven by a $13.7 million increase in expense related to the increase in fair value of our convertible preferred stock warrants due to the change in our common stock price from January 1, 2021 to July 2, 2021, which is the date the warrants converted to common stock warrants.

Interest expense decreased $0.6 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

This decrease was driven by the repayment of the outstanding debt under the loan agreement with Horizon Technology Finance Corporation (the “Horizon loan agreement”) in November 2021.

Other expense, net

Other expense, net was $0.1 million for the three months ended March 31, 2022, compared to $3.8 million for the three months ended March 31, 2021.

The expense in the first quarter of 2021 was primarily driven by the increase in fair value of the convertible preferred stock warrant liability from December 31, 2020 to March 31, 2021.

As these preferred stock warrants converted to common stock warrants upon the IPO, there is no longer a change in fair value recorded into other expense, net.

Provision for income taxes

Provision for income taxes was nominal for each of the nine months ended September 30, 2021 and 2020.

Provision for income taxes was nominal for each of the three months ended March 31, 2022 and March 31, 2021.

Liquidity, capital resources and plan of operations

We have incurred significant operating losses and negative cash flows from operations since our inception, and we anticipate that we will incur significant losses for at least the next several years.

As of September 30, 2021 and December 31, 2020, we had cash and cash equivalents of $170.9 million and $59.1 million, respectively.

For the three months ended September 30, 2021 and 2020, our net losses were $6.1 million and $3.2 million, respectively.

For the nine months ended September 30, 2021 and 2020, our net losses were $32.5 million and $10.7 million, respectively.

Our net cash used in operating activities for the nine months ended September 30, 2021 and 2020 was $20.7 million and $12.0 million, respectively.

As of March 31, 2022 and December 31, 2021, we had cash and cash equivalents of $131.2 million and $142.1 million, respectively.

For the three months ended March 31, 2022 and 2021, our net losses were $10.0 million and $8.6 million, respectively.

Our net cash used in operating activities for the three months ended March 31, 2022 and 2021 were $10.6 million and $5.0 million, respectively.

Prior to the IPO, our operations were financed primarily by aggregate net proceeds from the sale of our convertible preferred stock of $383.1 million, as well as debt financings.

In July 2020, we completed an equity financing pursuant to which we issued 62,500,000 shares of Series G Preferred Shares at a price of $0.80 per share, for net proceeds of $49.8 million after deducting offering expenses.

In September 2019, we

entered into the Horizon loan agreement to borrow $20.0 million.

On November 3, 2021, we fully repaid our outstanding principal balance of $20.0 million under the Horizon loan agreement.

In January, May and August of 2019, we completed equity financings pursuant to which we issued shares of Series G Preferred Shares at a price of $0.80 per share, for net proceeds of $24.7 million.

In September 2019, we entered into the Horizon loan agreement to borrow $20.0 million, which was fully repaid on November 3, 2021.

In July 2020, we completed an equity financing pursuant to which we issued 62,500,000 shares of Series G convertible preferred stock at a price of $0.80 per share, for net proceeds of $49.8 million after deducting offering expenses.

On July 2, 2021, we closed our IPO for net proceeds from the offering, after deducting the underwriting discount and other offering expenses payable by us, of $133.2 million.

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commercial infrastructure and sales forces;

● the degree and rate of market acceptance of BAROSTIM NEO and the ability for our customers to obtain appropriate levels of reimbursement;

● the degree and rate of market acceptance of Barostim and the ability for our customers to obtain appropriate levels of reimbursement;

● the costs of commercialization activities, including product sales, marketing, manufacturing and distribution;

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● the emergence of competing technologies or other adverse market developments.

We believe that our existing cash resources together with revenue will be sufficient to meet our forecasted requirements for operating liquidity, capital expenditures and debt services for at least the next 12 months.

If these sources are insufficient to satisfy our liquidity requirements, however, we may seek to sell additional equity or enter into an additional loan agreement.

If these sources are insufficient to satisfy our liquidity requirements, however, we may seek to sell additional equity or enter into a loan agreement.

If we raise additional funds by issuing equity securities, our stockholders would experience dilution.

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Additional financing may not be available at all, or may only be available in amounts or on terms that we do not deem to be favorable.

If we are unable to obtain additional financing when needed to satisfy our liquidity requirements, we may be required to delay the commercialization and marketing of our BAROSTIM NEO.

The following table sets forth the primary sources and uses of cash for each of the periods presented below:

Nine months ended

If we are unable to obtain additional financing when needed to satisfy our liquidity requirements, we may be required to delay the commercialization and marketing of Barostim.

The following table sets forth the primary sources and uses of cash for each of the periods indicated below:

Three months ended

(in thousands)

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Cash used in operating activities

Net cash used in operating activities for the nine months ended September 30, 2021 was $20.7 million and consisted primarily of a net loss of $32.5 million and a decrease in net operating assets of $3.0 million, partially offset by non-cash charges of $13.3 million related to the fair value adjustment to our convertible preferred stock warrants and $1.2 million from non-cash stock-based compensation expense.

Net operating assets consisted primarily of inventory, accounts receivable and accrued expenses to support the growth of our operations.

Net cash used in operating activities for the nine months ended September 30, 2020 was $12.0 million and consisted primarily of a net loss of $10.7 million and a decrease in net operating assets of $1.3 million.

Net operating assets consisted primarily of inventory, accounts receivable, accounts payable and accrued expenses to support the growth of our operations.

Net cash used in operating activities for the three months ended March 31, 2022 was $10.6 million and consisted primarily of a net loss of $10.0 million and a decrease in net operating assets of $1.5 million, partially offset by a non-cash charge of $0.8 million related to stock-based compensation expense.

Net operating assets consisted primarily of inventory, accounts receivable, prepaid expenses, accounts payable and accrued expenses to support the growth of our operations.

Net cash used in operating activities for the three months ended March 31, 2021 was $5.0 million and consisted primarily of a net loss of $8.6 million and a decrease in net operating assets of $0.3 million, partially offset by non-cash charges of $3.7 million related to the fair value adjustment to our convertible preferred stock warrants.

Net operating assets consisted primarily of inventory, accounts receivable, prepaid expenses, accounts payable and accrued expenses to support the growth of our operations.

Cash used in investing activities:

Cash used in investing activities was $0.6 million and $0.2 million for the nine months ended September 30, 2021 and 2020, respectively, and consisted of purchases of property and equipment.

Cash used in investing activities was $0.3 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively, and consisted of purchases of property and equipment.

Cash provided by financing activities:

Net cash provided by financing activities for the nine months ended September 30, 2021 was $133.2 million and consisted primarily of proceeds from the issuance of common stock of $133.2 million.

Net cash provided by financing activities for the nine months ended September 30, 2020 was $49.8 million and consisted entirely of proceeds from the issuance of Series G Preferred Shares.

In September 2019, we entered into the Horizon loan agreement under which we borrowed $20.0 million, which is the maximum borrowing under the Horizon loan agreement.

Amounts outstanding under the Horizon loan agreement bear interest at a floating per annum rate equal to 10% plus the amount by which the 30-day U.S.

dollar LIBOR rate on the first business day of the month exceeds 2.2%.

The Horizon loan agreement initially required interest only payments through October 2021 and then 36 monthly principal and interest payments beginning in November 2021.

In August 2020, we entered into an amended agreement with Horizon to extend the interest only period through April 2022, followed by 30 monthly principal and interest payments beginning May 2022.

A final payment of $0.7 million, equal to 3.5% of the original principal, is due to be paid in October 2024.

The Horizon loan agreement initially required us to maintain cash on deposit of not less than $5.0 million in accounts over which Horizon maintained an account control agreement.

This minimum cash on deposit requirement was released in July 2020 following the satisfaction of a financing milestone.

The borrowings are collateralized by all or substantially all of our assets, including our intellectual property portfolio.

The Horizon loan agreement contains certain financial covenants, including a minimum U.S.

revenue requirement of approximately $5.9 million during the year ended December 31, 2021, approximately $14.6 million during the year ended December 31, 2022 and $5.0 million during each calendar quarter thereafter;

certain negative covenants, including a requirement that we not receive a final disapproval letter from the FDA for use of BAROSTIM NEO in certain other HF patients upon our request for additional labeling based upon the results of the post-market stage of our BeAT-HF pivotal trial;

and various restrictive covenants, including a restriction on the payment of dividends.

We were in compliance with these covenants as of September 30, 2021.

The amount outstanding under the Horizon loan agreement as of September 30, 2021 was $20.0 million.

Net cash provided by financing activities were nominal for the three months ended March 31, 2022 and 2021, and were entirely attributed to the proceeds from the exercise of common stock options.

Contractual obligations and commitments

There have been no material changes to our contractual obligations as of September 30, 2021, as compared to those disclosed in the final prospectus for the IPO filed with the SEC pursuant to Rule 424(b) on July 1, 2021.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

There have been no material changes to our contractual obligations as of March 31, 2022, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Critical accounting policies and estimates

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In connection with the IPO, we adopted the 2021 Plan under which we may grant equity incentive awards to eligible employees (including our named executive officers), non-employee directors and consultants in order to enable us to obtain and retain services of these individuals, which we deem as essential to our long-term success.

We recognize equity-based compensation expense for awards of equity instruments to employees and non- employees based on the grant date fair value of those awards in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC 718”).

ASC 718 requires all equity-based compensation awards to employees and nonemployee directors, including grants of restricted shares and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values.

We recognize equity-based compensation expense for awards of equity instruments to employees and non-employees based on the grant date fair value of those awards in accordance with ASC 718.

ASC 718 requires all equity-based compensation awards to employees and non-employee directors, including grants of restricted shares and stock options, to be recognized as expense in the condensed consolidated statements of operations and comprehensive loss based on their grant date fair values.

We estimate the grant date fair value of stock options using the Black-Scholes option pricing model.

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The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the fair value of common stock, (ii) the expected share price volatility, (iii) the expected term of the award, (iv) the risk-free interest rate and (v) the expected dividend yield.

● Fair value of common stock — Given the absence of a public trading market for our common stock prior to the IPO, the fair value of our common stock was determined by our Board of Directors with the

assistance of an unrelated third-party valuation firm.

The valuation was determined in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation.

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● Expected dividend yield — We assume an expected dividend yield of zero, as we have never paid dividends and have no current plans to pay any dividends on our common stock.

We estimate pre-vesting forfeitures at the time of grant by analyzing historical data and revise those estimates in subsequent periods if actual forfeitures differ from those estimates or if they are likely to change.

We account for forfeitures as they occur.

We expense the fair value of our equity-based compensation awards granted to employees on a straight-line basis over the associated service period, which is generally the period in which the related services are received.

Freestanding preferred stock warrants

Warrants to purchase our preferred stock were classified as a liability on our condensed consolidated balance sheets.

These warrants were subject to remeasurement at each balance sheet date and any change in fair value was recognized in other income (expense), net.

As a result of the IPO, these warrants were converted to common stock warrants and the liability was reclassified to stockholders’ equity.

The valuation of our warrants required the input of certain subjective assumptions, including (i) IPO probability, (ii) the future fair value of common stock, (iii) the expected share price volatility, (iv) the expected term, (v) the risk-free interest rate and (vi) the expected dividend yield.

● IPO probability — Management, along with the assistance of an unrelated third-party valuation firm, evaluated the likelihood and timing of an IPO and applied these assumptions to the determination of the future fair value of the common stock as well as the expected term assumption.

● Future fair value of common stock — Given the absence of a public trading market for our common stock prior to the IPO, the fair value of our common stock was determined by our Board of Directors with the assistance of an unrelated third-party valuation firm.

● Expected share price volatility — Due to the lack of a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we based our estimate of expected volatility on the historical volatility of a group of similar (guideline) companies that are publicly traded.

The historical volatility was calculated based on a period of time commensurate with the expected term assumption.

The group of guideline companies have characteristics similar to us, including stage of product development and focus on the life science industry.

● Expected term — The expected term of the warrant was driven by the probability and timing of an IPO.

● Risk-free interest rate — Based on a treasury instrument whose term is consistent with the expected term of the stock options.

● Expected dividend yield — We assumed an expected dividend yield of zero, as we have never paid dividends and have no current plans to pay any dividends on our common stock.

JOBS Act accounting election

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What changed 10-Q

Item 2. Management’s Discussion and Analysis