What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-09 compared with 2023-02-10 · 50 added, 76 removed, 185 unchanged (41% of the section changed)

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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 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.

Barostim is currently indicated by the FDA for patients who are NYHA Class III or II (who had a recent history of Class III) despite treatment with guideline-directed medical therapies (medications and devices), have a LVEF ≤ 35% and a NT-proBNP < 1600 pg/m and is CE Marked for HFrEF and resistant hypertension.

Since our inception 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 continue to successfully commercialize Barostim and any product enhancements we may advance in the future.

Our ability to generate significant 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.

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As a result, we have prioritized coverage by the CMS while simultaneously developing processes to engage commercial payors.

All MACs have retired automatic coverage denial policies for our CPT codes, thereby allowing hospitals to be paid for the Barostim procedure.

All MACs have retired their official automatic coverage denial policies for our CPT codes, thereby allowing hospitals to submit payment requests for the Barostim procedure to be adjudicated on a claim-by-claim basis.

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.

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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.

We have continued investing in research and development 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 5 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, and we borrowed $7.5 million of such total on that date to fund our commercial and investment efforts.

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 Annual Report on Form 10-K, 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.

On December 15, 2023, we borrowed $15.0 million under the second tranche of the Loan Agreement.

We had $30.0 million in outstanding Term Loans under the Loan Agreement at December 31, 2023.

The Loan Agreement provides for an additional tranche of up to $20.0 million, based on the timing and other conditions set forth in the Loan Agreement .

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 financing.

Recent developments

Since it was reported to have surfaced in December 2019, a novel strain of coronavirus disease, 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., implemented severe travel restrictions, social distancing requirements, quarantines, stay-at-home orders and other significant restrictions.

As a result, the COVID-19 pandemic 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.

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.

In response to the COVID-19 pandemic, we 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 through the date of this Annual Report on Form 10-K, implant centers resumed procedures at more normal levels.

The extent to which the business recovers from the COVID-19 pandemic 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.

In December 2023, the FDA approved expanded labeling for Barostim based on the BeAT-HF trial data, resulting in simplification and clarification of the indications for use as well as inclusion of the primary endpoint results, the 6, 12 and 24 month symptomatic data, the Win Ratio and the all-cause mortality data in the “Clinical Summary” discussion included in Barostim’s indications for use.

We currently believe this would increase our annual market opportunity in the U.S.

to an estimated $2.2 billion, or 76,000 patients, based on this new long-term safety and effectiveness data as well as our commercial experience and, as discussed below, the new reimbursement assignment for Barostim in 2024.

In the 2024 OPPS final rule issued in November 2023, Barostim was reassigned to New Technology APC 1580, which carries an average payment amount of $45,000.

The new payment took effect January 1, 2024.

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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Components of results of operations

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

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

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

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

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Interest expense

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

Other income (expense), net

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

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 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.

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

Other income, net

Other income, net consists primarily of interest income on our interest-bearing accounts, partially offset by the effect of exchange rates on our foreign currency-denominated asset and liability balances.

Provision for income taxes

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Interest expense

Other income (expense), net

Other income, net

Loss before income taxes

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totaled 1,123 and 587 for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2022, the Company had a total of 106 active implanting centers, as compared to 46 as of December 31, 2021.

As of December 31, 2023, we had a total of 178 active implanting centers, as compared to 106 as of December 31, 2022.

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

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A sales territory is an established regional area held by an account manager, typically after six to nine months of employment.

Legacy hypertension revenue in the U.S.

totaled $0.5 million and $0.7 million for each of the years ended December 31, 2022 and 2021, respectively.

Revenue generated in Europe was $4.4 million for the year ended December 31, 2022, an increase of $0.6 million, or 14%, over the year ended December 31, 2021.

Total revenue units in Europe increased to 231 for

the year ended December 31, 2022, from 176 for the prior year period.

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

Revenue generated in Europe was $4.2 million for the year ended December 31, 2023, a decrease of $0.3 million, or 6%, over the year ended December 31, 2022.

Total revenue units in Europe decreased to 207 for the year ended December 31, 2023, from 231 for the prior year period.

The number of sales territories in Europe remained consistent at six during the year ended December 31, 2023.

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Gross margin for the year ended December 31, 2023 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.

Research and development expenses

R&D expenses increased $1.7 million, or 17%, to $11.6 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

This change was primarily driven by a $1.8 million increase in compensation expenses, mainly as a result of increased headcount, a $0.4 million increase in consulting fees, a $0.2 million increase in clinical study expenses and a $0.1 million increase in non-cash stock-based compensation expense.

This change was primarily driven by a $1.7 million increase in compensation expenses, mainly as a result of increased headcount and a $0.6 million increase in non-cash stock-based compensation expense, partially offset by a $0.8 million decrease in clinical study expenses.

Selling, general and administrative expenses

SG&A expenses increased $14.5 million, or 29%, to $64.5 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

This change was driven by a $12.3 million increase in compensation expenses, mainly as a result of increased headcount, a $2.4 million increase in travel expenses, a $1.8 million increase in non-cash stock-based compensation expense, a $1.7 million increase in marketing and advertising expenses, primarily related to the commercialization of Barostim in the U.S., a $1.2 million increase related to D&O insurance costs incurred as a result of becoming a public company, a $0.9 million increase in professional fees, and a $0.6 million increase in consulting expenses.

This change was driven by a $8.6 million increase in compensation expenses, mainly as a result of increased headcount, a $2.3 million increase in marketing and advertising expenses, primarily related to the commercialization of Barostim in the U.S., a $1.8 million increase in non-cash stock-based compensation expense, a $1.5 million increase in travel expenses and a $1.0 million increase in consulting expenses, partially offset by a $0.3 million decrease related to D&O insurance costs and a $0.2 million decrease in professional fees.

Interest expense

Interest expense decreased $2.1 million, or 93%, to $0.2 million for the year ended December 31, 2022, compared to the year ended December 31, 2021.

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

Other income (expense), net

Other income, net was $1.4 million for the year ended December 31, 2022, compared to other expense, net of $14.8 million for the year ended December 31, 2021.

Other income, net in 2022 was primarily driven by $1.5 million in interest income on our interest-bearing account.

Other expense, net in 2021 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 the value of our common stock from December 31, 2021 to July 2, 2021, which is the date the warrants converted to common stock warrants.

The expense in 2021 was also due to a $1.3 million loss on debt extinguishment in connection with the November 2021 repayment of the outstanding debt under the Horizon loan agreement.

Interest expense increased $1.6 million, to $1.8 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

This increase was driven by the interest expense on borrowings under the Loan Agreement entered into on October 31, 2022.

Other income, net

Other income, net was $3.9 million for the year ended December 31, 2023, compared to $1.4 million for the year ended December 31, 2022.

This increase was primarily driven by higher interest rates on interest-bearing accounts partially offset by a lower cash balance.

Provision for income taxes

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Our net cash used in operating activities for the years ended December 31, 2023 and 2022, was $39.0 million and $42.7 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 financing.

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 March 10, 2023, we borrowed the $7.5 million remaining under the first tranche of the Loan Agreement.

On December 15, 2023, we borrowed $15.0 million under the second tranche of the Loan Agreement.

We had $30.0 million in outstanding Term Loans under the Loan Agreement at December 31, 2023.

The Loan Agreement provides for an additional tranche of up to $20.0 million, based on the timing and other conditions set forth in 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.

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

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

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.

We believe that our existing cash resources and Loan Agreement for Term Loans together with revenue will be sufficient to meet our forecasted requirements for operating liquidity, capital expenditures and debt services for at least the next three years.

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

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

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Cash used in operating activities

Net cash used in operating activities for the year ended December 31, 2023 was $39.0 million and consisted primarily of a net loss of $41.2 million and a decrease in net operating assets of $4.8 million, partially offset by $6.3 million from non-cash stock-based compensation expense, $0.5 million from the depreciation of property and equipment and $0.2 million from amortization of deferred financing costs and loan discount.

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

Net cash used in operating activities for the year ended December 31, 2022 was $42.7 million and consisted primarily of a net loss of $41.4 million and a decrease in net operating assets of $5.6 million, partially offset by $3.9 million from non-cash stock-based compensation expense and $0.4 million from the depreciation of property and equipment.

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 year ended December 31, 2021 was $27.7 million and consisted primarily of a net loss of $43.1 million and a decrease in net operating assets of $1.6 million, partially offset by non-cash charges of $13.3 million related to the fair value adjustment to our convertible preferred stock warrants, $1.9 million from non-cash stock-based compensation expense and $1.3 million from the loss on debt extinguishment.

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

Cash used in investing activities:

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Net cash provided by financing activities for the year ended December 31, 2023 was $24.0 million and consisted of $22.5 million related to proceeds from debt financing, $0.9 million related to proceeds from the Employee Stock Purchase Plan and $0.7 million related to proceeds from the exercise of common stock options, partially offset by debt financing costs of $0.2 million.

Net cash provided by financing activities for the year ended December 31, 2021 was $111.9 million and consisted primarily of proceeds from the issuance of common stock of $133.2 million, partially offset by the repayment of the outstanding debt balance and related fees of $21.3 million.

Net cash provided by financing activities for the year ended December 31, 2022 was $7.5 million and consisted of $7.5 million related to proceeds from debt financing, $0.6 million related to proceeds from the Employee Stock Purchase Plan and $0.2 million related to proceeds from the exercise of common stock options, partially offset by debt financing costs of $0.8 million.

On October 31, 2022, we entered into the Loan Agreement with Innovatus, as the collateral agent and a lender, 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.

On the closing date, we borrowed the minimum amount of $7.5 million

under the Loan Agreement.

The term loans advanced pursuant to the Loan Agreement (collectively, the “Term Loans”) bear interest at a floating rate per annum equal to the sum of (a) the greater of (i) the prime rate and (ii) 5.50% plus (b) 2.65%.

On the closing date, we borrowed the minimum amount of $7.5 million under the Loan Agreement.

On March 10, 2023, we borrowed the $7.5 million remaining under the first tranche of the Loan Agreement.

On December 15, 2023, we borrowed $15.0 million under the second tranche of the Loan Agreement.

The term loans advanced pursuant to the Loan Agreement (collectively, the “Term

Loans”) bear interest at a floating rate per annum equal to the sum of (a) the greater of (i) the prime rate and (ii) 5.50% plus (b) 2.65%.

The Term Loans mature on January 31, 2028 and require interest-only payments until November 1, 2027.

The Term Loans are secured by substantially all of our personal property.

We have the option to draw down (i) the remaining $7.5 million of the first tranche from the filing date of our Annual Report on Form 10-K for the year ended December 31, 2022 until September 30, 2023, (ii) up to $30.0 million less the amount funded from the first tranche between September 1, 2023 and December 15, 2023 if we achieve trailing three months revenue of $5.75 million prior to June 30, 2023, and (iii) up to $20.0 million between September 1, 2024 and December 15, 2024 if we achieve trailing three months revenue of $9.0 million prior to June 30, 2024.

We have the option to draw down up to $20.0 million between September 1, 2024 and December 15, 2024 if we achieve trailing three months revenue of $9.0 million prior to June 30, 2024.

A performance covenant takes effect at the earlier of September 30, 2025 or the third tranche funding requiring that we achieve 50% of the trailing twelve months revenue target set in the Board-approved revenue plan in effect for such period.

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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.

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.

● Fair value of common stock — 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.

● Expected share price volatility — Due to the 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis