What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-04 · 80 added, 184 removed, 133 unchanged (66% of the section changed)

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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.

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 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 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.

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

We expect to derive future revenue by continuing to both expand our own dedicated salesforce and increase awareness of Barostim among payors, physicians and patients.

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

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.

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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.

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

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.

Our reimbursement strategy involves continuing to broaden our current coverage and build our in-house market access team to obtain 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 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.

Barostim is eligible for reimbursement in certain countries in the European Economic Area (“EEA”), 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.

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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 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.

We then 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 used 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 continued 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’s potential to expand its indications for use to other cardiovascular diseases.

On October 31, 2022, we entered into a loan and security agreement under which we may borrow, subject to our achievement of certain milestones, up to a total of $50.0 million in a series of term loans described in Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, and we borrowed $7.5 million of such total on that date to fund our commercial and investment efforts.

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.

On March 10, 2023, we borrowed the $7.5 million remaining under the first tranche of the Loan Agreement, with $4.0 million received on March 13, 2023 and $3.5 million received on March 15, 2023 .

Following this draw, we have $15.0 million in outstanding term loans under the Loan Agreement.

The Loan Agreement provides for up to two additional tranches of loans totaling up to an additional $35.0 million, based on timing, the achievement of certain trailing three months revenue targets and other conditions set forth in the Loan Agreement.

Recent developments

Since it was reported to have surfaced in December 2019, a novel strain of coronavirus (“COVID-19”) has spread across the world and has been declared a pandemic by the World Health Organization.

Efforts to contain the spread of COVID-19 have been significant and governments around the world, including in the U.S., have implemented severe travel restrictions, social distancing requirements, quarantines, stay-at-home orders and other significant restrictions.

As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge and is affecting hospitals, physicians, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S.

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 Barostim, and we expect the pandemic will continue to negatively impact our business, financial condition and results of operations.

In February 2023, we were unblinded to the morbidity and mortality data from the BeAT-HF pivotal trial.

The totality of the evidence from the trial shows long-term benefits for patients with heart failure.

While the trial did not reach statistical significance on the primary endpoint, it did contain additional clinically meaningful prespecified analyses favoring Barostim.

Accordingly, we anticipate making a regulatory submission to the FDA for expanded labeling.

If successful, this label expansion could expand our addressable patient population.

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

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.

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.

These measures include:

● Establishing safety protocols, facility enhancements and work-from-home strategies to protect our employees;

● Ensuring that our manufacturing and supply chain operations remain intact and operational;

● Keeping our workforce intact, including our experienced and specialized U.S.

sales and clinical support team;

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

● 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.

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

● Strong physician participation in our virtual educational events;

● Expansion into new accounts;

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

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, and continuing into the second and third quarters of 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.

While the impact of the pandemic has lessened in 2023, the extent to which the pandemic may impact our business, financial condition and results of operations remains uncertain, especially in the event of any resurgence or variants that may affect public health and the economy.

Factors affecting our performance

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commercial organization;

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

● Seeking expanded labeling for Barostim and promoting awareness among physicians, hospitals and patients to accelerate adoption of Barostim;

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

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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.

sales force, as well as by seeking expanded labeling for Barostim.

As a result, we expect that U.S.

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Research and development (“R&D”) expenses consist primarily of personnel costs, including salaries, bonuses, employee benefits and stock-based compensation expenses for our R&D employees.

R&D expenses also include costs associated with product design efforts, development prototypes, testing, clinical trial programs and regulatory activities, contractors and consultants, equipment and software to support our development, facilities and information technology.

R&D expenses also include costs associated with product design efforts, development prototypes, testing, clinical

trial programs and regulatory activities, contractors and consultants, equipment and software to support our development, facilities and information technology.

We expense R&D costs as they are incurred.

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.

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

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs, including base salaries, bonuses, employee benefits and stock-based compensation expense for our sales and marketing personnel, including sales commissions, and for administrative personnel that support our general operations

such as executive management, financial accounting, information technology and human resources personnel.

SG&A expenses also include costs attributable to marketing, as well as travel, legal fees, financial audit fees, insurance, fees for other consulting services, depreciation and facilities.

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Interest expense

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

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

Other income (expense), net

Other income (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 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.

Other income, net consists primarily of interest income on our interest-bearing account.

Other expense, net consists primarily of 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, 2022, compared to the three months ended September 30, 2021

Consolidated results of operations for the three months ended March 31, 2023, compared to the three months ended March 31, 2022

Three months ended

September 30,

(unaudited and in thousands)

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Interest expense

Other income, net

Other income (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

Revenue was $6.2 million for the three months ended September 30, 2022, an increase of $2.8 million, or 82%, over the three months ended September 30, 2021.

Revenue was $8.0 million for the three months ended March 31, 2023, an increase of $3.9 million, or 96%, over the three months ended March 31, 2022.

Revenue generated in the U.S.

was $5.0 million for the three months ended September 30, 2022, an increase of $2.5 million, or 96%, over the three months ended September 30, 2021.

was $6.9 million for the three months ended March 31, 2023, an increase of $3.9 million, or 127%, over the three months ended March 31, 2022.

Total HF revenue units in the U.S.

totaled 167 and 84 for the three months ended September 30, 2022 and 2021, respectively.

totaled 225 and 99 for the three months ended March 31, 2023 and 2022, respectively.

HF revenue in the U.S.

totaled $4.9 million for the three months ended September 30, 2022, an increase of $2.4 million, or 99%, over the three months ended September 30, 2021.

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

As of September 30, 2022, we had a total of 91 active implanting centers as compared to 38 as of September 30, 2021.

totaled $6.8 million for the three months ended March 31, 2023, an increase of $3.9 million, or 132%, over the three months ended March 31, 2022.

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

HF business as a result of the expansion into new sales territories, new accounts, and increased physician and patient awareness of Barostim.

As of March 31, 2023, we had a total of 122 active implanting centers as compared to 56 as of March 31, 2022.

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

As of September 30, 2022, the Company had a total of 23 sales territories as compared to 11 as of September 30, 2021.

Revenue generated in Europe was $1.1 million for the three months ended September 30, 2022, an increase of $0.3 million, or 39%, over the three months ended September 30, 2021.

Total revenue units in Europe were 61 for the three months ended September 30, 2022 as compared to 38 in the prior year period.

The revenue increase was primarily due to the lessening impact of the COVID-19 pandemic in Europe, partially

offset by an unfavorable currency impact on net sales .

As of September 30, 2022, we had a total of six sales territories in Europe.

Cost of goods sold and gross margin

Cost of goods sold increased $0.5 million, or 53%, to $1.3 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

This increase was primarily due to higher sales of Barostim.

Gross profit was $4.8 million for the three months ended September 30, 2022, an increase of $2.3 million, or 92%, over the three months ended September 30, 2021.

Gross margin increased to 78% for the three months ended September 30, 2022, compared to 74% for the three months ended September 30, 2021.

Gross margin for the three months ended September 30, 2022 was higher due to a decrease in the cost per unit.

This was partially offset by a decrease in the average selling price and 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 increased $0.6 million, or 35%, to $2.3 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

This change was primarily driven by a $0.5 million increase in compensation expenses, mainly as a result of increased headcount, and a $0.1 million increase in non-cash stock-based compensation expense, partially offset by a $0.1 million decrease in clinical study expenses.

Selling, general and administrative expenses

SG&A expenses increased $4.6 million, or 56%, to $12.7 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

This was primarily driven by a $3.2 million increase in compensation expenses, mainly as a result of increased headcount, a $0.5 million increase in travel expenses, a $0.4 million increase in non-cash stock-based compensation expense, a $0.3 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S.

and a $0.2 million increase in professional fees.

Interest expense

Interest expense decreased $0.6 million for the three months ended September 30, 2022, compared to the three months ended September 30, 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 income, net

Other income, net was $0.3 million for the three months ended September 30, 2022, compared to $1.8 million for the three months ended September 30, 2021.

The income in the third quarter of 2021 reflects $1.5 million of income related to the change in the fair value of our convertible preferred stock warrants from June 30, 2021 to July 2, 2021, which is the date the warrants converted to common stock warrants.

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

Provision for income taxes

Provision for income taxes was nominal for each of the three months ended September 30, 2022, and September 30, 2021.

Consolidated results of operations for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021

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 income (expense), net

Loss before income taxes

Provision for income taxes

NM – Not meaningful

The following table provides revenue by geography:

Nine months ended

September 30,

(unaudited and in thousands)

United States

Total Revenue

Revenue was $15.3 million for the nine months ended September 30, 2022, an increase of $5.9 million, or 63%, over the nine months ended September 30, 2021.

Revenue generated in the U.S.

was $12.0 million for the nine months ended September 30, 2022, an increase of $5.7 million, or 91%, over the nine months ended September 30, 2021.

Total HF revenue units in the U.S.

totaled 394 and 195 for the nine months ended September 30, 2022 and 2021, respectively.

HF revenue in the U.S.

totaled $11.6 million for the nine months ended September 30, 2022, an increase of $5.9 million, or 103%, over the nine months ended September 30, 2021.

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.

Revenue generated in Europe was $3.3 million for the nine months ended September 30, 2022, an increase of $0.2 million, or 5%, over the nine months ended September 30, 2021.

Total revenue units in Europe were 163 for the nine months ended September 30, 2022, as compared to 137 in the prior year period.

The slight revenue increase was primarily due to the lessening impact of the COVID-19 pandemic in Europe, partially offset by an unfavorable currency impact on net sales .

As of September 30, 2022, the Company had a total of six sales territories in Europe.

As of March 31, 2023, the Company had a total of 29 sales territories as compared to 17 as of March 31, 2022.

Revenue generated in Europe was $1.0 million for the three months ended March 31, 2023, an increase of $19,000, or 2%, over the three months ended March 31, 2022.

Total revenue units in Europe were 52 for the three months ended March 31, 2023 as compared to 50 in the prior year period.

As of March 31, 2023, we had a total of six sales territories in Europe.

Cost of goods sold and gross margin

Cost of goods sold increased $0.8 million, or 31%, to $3.5 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

Cost of goods sold increased $0.4 million, or 40%, to $1.3 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

This increase was primarily due to higher sales of Barostim.

Gross profit was $11.8 million for the nine months ended September 30, 2022, an increase of $5.1 million, or 76%, over the nine months ended September 30, 2021.

Gross margin increased to 77% for the nine months ended September 30, 2022, compared to 72% for the nine months ended September 30, 2021.

Gross margin for the nine months ended September 30, 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.

Gross profit was $6.7 million for the three months ended March 31, 2023, an increase of $3.5 million, or 113%, over the three months ended March 31, 2022.

Gross margin increased to 83% for the three months ended March 31, 2023, compared to 77% for the three months ended March 31, 2022.

Gross margin for the three months ended March 31, 2023 improved due primarily to a decrease in the cost per unit driven by an increase in the production volume.

Research and development expenses

R&D expenses increased $1.2 million, or 21%, to $6.9 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

This change was primarily driven by a $1.3 million increase in compensation expenses, mainly as a result of increased headcount, partially offset by a $0.1 million decrease in clinical study expenses.

R&D expenses increased $1.2 million, or 51%, to $3.4 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

This change was primarily driven by a $0.5 million increase in compensation expenses, mainly as a result of increased headcount, a $0.4 million increase in non-cash stock-based compensation expense and a $0.4 million increase in consulting fees.

Selling, general and administrative expenses

SG&A expenses increased $17.7 million, or 98%, to $35.9 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

This was primarily driven by a $9.9 million increase in compensation expenses, mainly as a result of increased headcount, a $1.8 million increase in travel expenses, a $1.6 million increase in non-cash stock-based compensation expense, a $1.5 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S., a $1.3 million increase in public company costs, and a $1.2 million increase in consulting fees.

SG&A expenses increased $4.6 million, or 43%, to $15.4 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

This change was primarily driven by a $2.6 million increase in compensation expenses, mainly as a result of increased headcount, a $0.8 million increase in travel expenses, a $0.6 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S.

and a $0.5 million increase in non-cash stock-based compensation expense.

Interest expense

Interest expense decreased $1.8 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

This decrease was driven by the repayment of the outstanding debt under the Horizon loan agreement in November 2021.

Interest expense increased $0.2 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

This increase was driven by the interest expense on the Loan Agreement.

Other income (expense), net

Other income, net was $0.2 million for the nine months ended September 30, 2022, compared to other expense, net of $13.4 million for the nine months ended September 30, 2021.

The expense for the nine months ended September 30, 2021 was primarily driven by the increase in fair value of the convertible preferred stock warrant liability from December 31, 2020 to July 2, 2021, which is the date the warrants converted to common stock warrants.

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

Other income, net was $1.1 million for the three months ended March 31, 2023, compared to other expense, net of $0.1 million for the three months ended March 31, 2022.

The income in the first quarter of 2023 was primarily driven by interest income on our interest-bearing account.

Provision for income taxes

Provision for income taxes was nominal for each of the nine months ended September 30, 2022 and September 30, 2021.

Provision for income taxes was nominal for each of the three months ended March 31, 2023, and March 31, 2022.

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, 2022 and December 31, 2021, we had cash and cash equivalents of $110.0 million and $142.1 million, respectively.

For the three months ended September 30, 2022 and 2021, our net losses were $9.8 million and $6.1 million, respectively.

For the nine months ended September 30, 2022 and 2021, our net losses were $30.9 million and $32.5 million, respectively.

Our net cash used in operating activities for the nine months ended September 30, 2022 and 2021 was $31.8 million and $20.7 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 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.

On October 31, 2022, we entered into a loan and security agreement under which we may borrow, subject to our achievement of certain milestones, up to a total of $50.0 million in a series of term loans described in Note 13 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and we borrowed $7.5 million of such total on that date to fund our commercial and investment efforts.

As of March 31, 2023 and December 31, 2022, we had cash and cash equivalents of $103.3 million and $106.2 million, respectively.

For the three months ended March 31, 2023 and 2022, our net losses were $11.4 million and $10.0 million, respectively.

Our net cash used in operating activities for the three months ended March 31, 2023 and 2022 was $10.2 million and $10.6 million, respectively.

On October 31, 2022, we entered into the Loan Agreement under which we may borrow, subject to our achievement of certain milestones, up to a total of $50.0 million in a series of term loans described in Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, and we borrowed $7.5 million of such total on that date to fund our commercial and investment efforts.

On March 10, 2023, we borrowed the $7.5 million remaining under the first tranche of the Loan Agreement, with $4.0 million received on March 13, 2023 and $3.5 million received on March 15, 2023 .

Following this draw, we have $15.0 million in outstanding term loans under the Loan Agreement.

On November 4, 2022, we entered into an Equity Distribution Agreement with Piper Sandler & Co., as agent, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million in an “at-the-market” or ATM offering, to or through the agent.

As of March 31, 2023, no shares have been sold.

Our future liquidity and capital funding requirements will depend on numerous factors, including:

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

Nine months ended

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, 2022, was $31.8 million and consisted primarily of a net loss of $30.9 million and a decrease in net operating assets of $4.1 million, partially offset by a non-cash charge of $2.8 million related to stock-based compensation expense.

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

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 three months ended March 31, 2023, was $10.2 million and consisted primarily of a net loss of $11.4 million and a decrease in net operating assets of $0.7 million, partially offset by a non-cash charge of $1.7 million related to stock-based compensation expense.

Net operating assets consisted primarily of accounts receivable, inventory, prepaid expenses and other current assets, 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.

Cash used in investing activities:

Cash used in investing activities was $0.6 million for each of the nine months ended September 30, 2022 and 2021, and consisted of purchases of property and equipment.

Cash used in investing activities was $0.2 million and $0.3 million for each of the three months ended March 31, 2023 and 2022, 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, 2022, was $0.4 million and consisted of $0.3 million related to proceeds from the ESPP and $0.1 million related to proceeds from the exercise of common stock options.

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 three months ended March 31, 2023, was $7.6 million and consisted of $7.5 million related to the proceeds under the Loan Agreement and $0.1 million related to proceeds from the exercise of common stock options, partially offset by $0.1 million related to debt financing costs.

Net cash provided by financing activities was nominal for the three months ended March 31, 2022, and was 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, 2022, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to our contractual obligations as of March 31, 2023, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Critical accounting policies and estimates

The preparation of condensed consolidated financial statements in conformity with U.S.

GAAP requires our management to make estimates and judgments that affect the amounts reported in our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.

We base our estimates on historical experience and on various other assumptions that we

believe to be reasonable and supportable under the circumstances.

The results of this evaluation then form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions, and such differences may be material to our condensed consolidated financial statements.

While our significant accounting policies are more fully described in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Stock-based compensation

We maintain an equity incentive plan that was adopted in 2001 to provide long-term incentives for employees, consultants, and members of the Board of Directors.

The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors.

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 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.

We use an estimate of the value of our common stock, with the assistance of an independent appraiser, to determine the fair value of options.

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.

For the valuation as of the date of pricing of the IPO, the fair value of our common stock was determined by our Board of Directors to be the public offering price of the shares of common stock issued in the IPO.

For valuations after the completion of the IPO, our Board of Directors determines the fair value of each share of common stock based on the closing price of our common stock as reported on the date of grant.

Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.

● 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 have based our estimate of expected volatility on the historical volatility of a group of similar (guideline) companies that are publicly traded.

The historical volatility is 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 of an award — Determined based on our analysis of historical exercise behavior while taking into consideration various participant demographics and option characteristics.

We utilize the simplified method to develop the estimate of the expected term.

● 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 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 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.

For a discussion of our potential risks and uncertainties, see the information in Part II, Item 7.

“Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical accounting policies and estimates"

in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

reviewed and determined that those critical accounting policies and estimates remain our critical accounting policies and estimates as of and for the three months ended March 31, 2023.

JOBS Act accounting election

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What changed 10-Q

Item 2. Management’s Discussion and Analysis