What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-10 · 100 added, 58 removed, 166 unchanged (49% of the section changed)

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

W e had $30.0 million in outstanding Term Loans under the Loan Agreement as of March 31, 2024.

W e had $30.0 million in outstanding Term Loans under the Loan Agreement as of June 30, 2024.

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.

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Recent developments

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 instructions for use.

This data was published in the European Journal of Heart Failure in April 2024.

We believe our annual market opportunity in the U.S.

increased 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.

In the 2024 final outpatient rules (“OPPS”) 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.

On January 31, 2024, we announced that our Board of Directors appointed Kevin Hykes as President and Chief Executive Officer, effective February 12, 2024.

Hykes succeeded Nadim Yared, who previously announced his plan to retire upon the appointment of his successor.

Hykes has served as a member of the Board of Directors since December 2022 and remained on the Board of Directors.

Yared retired from the Board at the time of his retirement as Chief Executive Officer.

In July 2024, the Centers for Medicare and Medicaid Services (“CMS”) proposed OPPS rules for 2025, including moving Barostim procedures back to APC 5465, which would reduce the average payment amount for Barostim to $31,000.

We believe the data supports creation of a Level 6 Neurostimulator APC and will work with CMS with the goal of achieving this, or alternatively, leaving Barostim in New Technology APC 1580 for another year.

In April 2024, we announced the termination of the employment of our Senior Vice President of U.S.

Sales, effective April 29, 2024.

Pursuant to his employment agreements, he is eligible for severance benefits provided that he signs a release of claims in favor of the Company and complies with certain covenants, including non-competition and non-solicitation restrictions.

Pursuant to his employment agreements, he was eligible for severance benefits provided that he signed a release of claims in favor of the Company and complies with certain covenants, including non-competition and non-solicitation restrictions.

He signed the release, and we began making severance payments to him in July 2024.

In April 2024, we announced that we were suspending enrollment in the BATwire clinical trial due to slow enrollment, given that many patient candidates elected the commercially approved procedure, as opposed to participating in the trial.

We intend to continue following the patients enrolled in the BATwire trial until the study is completed.

Since the beginning of the second quarter of fiscal 2024, we have hired new leaders for sales, medical affairs, clinical, reimbursement and human resources, completing the expansion of the executive team.

Factors affecting our performance

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Cost of goods sold and gross margin

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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Our gross margin has been and will continue to be affected by a variety of factors, but is primarily driven by the average sale price of our product, the percentage of products sold that include a full system (i.e., an IPG and a stimulation lead), as compared to individual IPG sales, and the allocated manufacturing overhead.

Although we sell the majority of our devices directly to hospitals, the impact of the average selling price on gross margin is driven by the percentage of products we sold to distributors as compared to those sold directly to hospitals, as our average selling price is typically higher on products we sell directly.

Although we sell the majority of our devices directly to hospitals, the impact of the average selling price on gross margin is driven by

the percentage of products we sold to distributors as compared to those sold directly to hospitals, as our average selling price is typically higher on products we sell directly.

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.

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Results of operations

Consolidated results of operations for the three months ended March 31, 2024, compared to the three months ended March 31, 2023

Consolidated results of operations for the three months ended June 30, 2024, compared to the three months ended June 30, 2023

Three months ended

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Total Revenue

Revenue was $10.8 million for the three months ended March 31, 2024, an increase of $2.8 million, or 35%, over the three months ended March 31, 2023.

Revenue was $11.8 million for the three months ended June 30, 2024, an increase of $2.3 million, or 24%, over the three months ended June 30, 2023.

Revenue generated in the U.S.

was $9.8 million for the three months ended March 31, 2024, an increase of $2.9 million, or 42%, over the three months ended March 31, 2023.

was $10.7 million for the three months ended June 30, 2024, an increase of $2.4 million, or 29%, over the three months ended June 30, 2023.

HF revenue units in the U.S.

totaled 319 and 225 for the three months ended March 31, 2024 and 2023, respectively.

totaled 339 and 265 for the three months ended June 30, 2024 and 2023, respectively.

HF revenue in the U.S.

totaled $9.7 million and $6.8 million for the three months ended March 31, 2024 and 2023, respectively.

totaled $10.5 million and $8.3 million for the three months ended June 30, 2024 and 2023, respectively.

The increases were 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.

These increases were partially offset by decreased productivity in February due primarily to turnover within the sales organization.

We implemented actions to address these challenges in our U.S.

Heart Failure business to rebuild these territories, resulting in stronger performance in March.

As of March 31, 2024, we had a total of 190 active implanting centers, as compared to 122 as of March 31, 2023.

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

last 12 months.

As of March 31, 2024, we had a total of 39 sales territories as compared to 29 as of March 31, 2023.

Revenue generated in Europe was $0.9 million for the three months ended March 31, 2024, a decrease of $0.1 million, or 10%, over the three months ended March 31, 2023.

Total revenue units in Europe decreased to 44 for the three months ended March 31, 2024, as compared to 52 in the prior year period.

As of both March 31, 2024 and 2023, we had six sales territories in Europe.

As of June 30, 2024, we had a total of 189 active implanting centers in the U.S., as compared to 140 as of June 30, 2023.

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

As of June 30, 2024, we had a total of 42 sales territories in the U.S.

as compared to 32 sales territories as of June 30, 2023.

Revenue generated in Europe was $1.1 million for the three months ended June 30, 2024, a decrease of $0.1 million, or 6%, over the three months ended June 30, 2023.

Total revenue units in Europe increased to 63 for the three months ended June 30, 2024, as compared to 56 in the prior year period.

As of both June 30, 2024 and 2023, we had six sales territories in Europe.

Cost of goods sold and gross margin

Cost of goods sold increased $0.3 million, or 22%, to $1.6 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Cost of goods sold increased $0.4 million, or 25%, to $1.9 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

This increase was driven by higher sales of Barostim.

Gross profit was $9.2 million for the three months ended March 31, 2024, an increase of $2.5 million, or 38%, over the three months ended March 31, 2023.

Gross margin increased to 85% for the three months ended March 31, 2024, compared to 83% for the three months ended March 31, 2023.

This increase was due primarily to a decrease in the cost per unit driven by an increase in the production volume.

Gross profit was $9.9 million for the three months ended June 30, 2024, an increase of $1.9 million, or 24%, over the three months ended June 30, 2023.

Gross margin was 84% for each of the three months ended June 30, 2024 and June 30, 2023.

Research and development expenses

R&D expenses decreased $0.4 million, or 11%, to $3.1 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

This change was driven by a $0.2 million decrease in non-cash stock-based compensation expense, and a $0.2 million decrease in consulting expenses.

R&D expenses decreased $0.5 million, or 16%, to $2.8 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

This change was driven by a $0.4 million decrease in consulting expenses and a $0.1 million decrease in compensation expenses.

Selling, general and administrative expenses

SG&A expenses increased $12.9 million, or 84%, to $28.3 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

This change was primarily driven by a $9.6 million increase in non-cash stock-based compensation expense, a $2.0 million increase in compensation expenses, mainly as a result of increased headcount, and a $0.6 million increase in travel expenses.

SG&A expenses increased $4.7 million, or 28%, to $21.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

This change was primarily driven by a $2.6 million increase in compensation expenses, mainly as a result of increased headcount, a $1.0 million increase in non-cash stock-based compensation expense, a $0.4 million increase in advertising expenses, a $0.2 million increase in travel expenses, and a $0.2 million increase in consulting expenses.

Interest expense

Interest expense increased $0.5 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

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 increased $0.3 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

This increase was primarily driven by greater interest income on our interest-bearing accounts.

Provision for income taxes

Provision for income taxes was nominal for each of the three months ended June 30, 2024 and June 30, 2023.

Consolidated results of operations for the six months ended June 30, 2024, compared to the six months ended June 30, 2023

Six months ended

(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, net

Loss before income taxes

Provision for income taxes

The following table provides revenue by geography:

Six months ended

(unaudited and in thousands)

United States

Total Revenue

Revenue was $22.6 million for the six months ended June 30, 2024, an increase of $5.1 million, or 29%, over the six months ended June 30, 2023.

Revenue generated in the U.S.

was $20.5 million for the six months ended June 30, 2024, an increase of $5.3 million, or 35%, over the six months ended June 30, 2023.

HF revenue units in the U.S.

totaled 658 and 490 for the six months ended June 30, 2024 and 2023, respectively.

HF revenue in the U.S.

totaled $20.3 million and $15.1 million for the six months ended June 30, 2024 and 2023, respectively.

The increases were 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.

Revenue generated in Europe was $2.1 million for the six months ended June 30, 2024, a decrease of $0.2 million, or 8%, over the six months ended June 30, 2023.

Total revenue units in Europe decreased to 107 for the six months ended June 30, 2024, as compared to 108 in the prior year period.

Cost of goods sold and gross margin

Cost of goods sold increased $0.7 million, or 24%, to $3.5 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

This increase was driven by higher sales of Barostim.

Gross profit was $19.1 million for the six months ended June 30, 2024, an increase of $4.4 million, or 30%, over the six months ended June 30, 2023.

Gross margin was 84% for each of the six months ended June 30, 2024 and June 30, 2023.

Research and development expenses

R&D expenses decreased $0.9 million, or 13%, to $5.8 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

This change was driven by a $0.5 million decrease in consulting expenses, a $0.1 million decrease in non-cash stock-based compensation expense, and a $0.1 million decrease in travel expenses.

Selling, general and administrative expenses

SG&A expenses increased $17.6 million, or 55%, to $49.4 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

This change was primarily driven by a $10.6 million increase in non-cash stock-based compensation expense, a $4.6 million increase in compensation expenses, mainly as a result of increased headcount, a $0.6 million increase in advertising expenses, a $0.5 million increase in travel expenses, and a $0.5 million increase in consulting expenses.

Approximately $8.4 million of the increase in non-cash stock-based compensation expense is related to the modification of stock options held by the former CEO in connection with his retirement in the first quarter of 2024 described in Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest expense

Interest expense increased $0.7 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Interest expense increased $1.2 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

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 decreased $18,000 for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

This decrease was primarily driven a lower cash balance in our interest-bearing accounts.

Other income, net increased $0.3 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

This increase was primarily driven by greater interest income on our interest-bearing accounts.

Provision for income taxes

Provision for income taxes was nominal for each of the three months ended March 31, 2024 and March 31, 2023.

Provision for income taxes was nominal for each of the six months ended June 30, 2024 and June 30, 2023.

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 March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $80.1 million and $90.6 million, respectively.

For the three months ended March 31, 2024 and 2023, our net losses were $22.2 million and $11.4 million, respectively.

Our net cash used in operating activities for the three months ended March 31, 2024 and 2023 was $10.9 million and $10.2 million, respectively.

As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents of $70.4 million and $90.6 million, respectively.

For the three months ended June 30, 2024 and 2023, our net losses were $14.0 million and $11.7 million, respectively.

For the six months ended June 30, 2024 and 2023, our net losses were $36.2 million and $23.0 million, respectively.

Our net cash used in operating activities for the six months ended June 30, 2024 and 2023 was $20.7 million and $23.1 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 condensed 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.

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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 as of March 31, 2024.

We had $30.0 million in outstanding Term Loans under the Loan Agreement as of June 30, 2024.

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.

In January 2024, we commenced this ATM offering and issued 23,364 shares of common stock for gross proceeds of $0.6 million under the ATM offering during the three months ended March 31, 2024.

In January 2024, we commenced this ATM offering and issued 23,364 shares of common stock for gross proceeds of $0.6 million under the ATM offering during the six months ended June 30, 2024.

We have remaining capacity to issue and sell up to approximately $49.4 million of additional shares of common stock under this ATM offering.

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

Additional debt financing, if available, may involve covenants further

restricting our operations or our ability to incur additional debt.

Additional debt financing, if available, may involve covenants further restricting our operations or our ability to incur additional debt.

Any such debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

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

Three months ended

Six months ended

(in thousands)

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Financing activities

Effect of exchange rate changes on cash and cash equivalents

Effect of currency exchange on cash and cash equivalents

Net change in cash and cash equivalents

Cash used in operating activities

Net cash used in operating activities for the three months ended March 31, 2024 was $10.9 million and consisted primarily of a net loss of $22.2 million, partially offset by a non-cash charge of $11.1 million related to stock-based compensation expense.

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 cash used in operating activities for the six months ended June 30, 2024 was $20.7 million and consisted primarily of a net loss of $36.2 million, partially offset by a non-cash charge of $13.7 million related to stock-based compensation expense and an increase in net operating assets of $1.4 million.

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 six months ended June 30, 2023 was $23.1 million and consisted primarily of a net loss of $23.0 million and a decrease in net operating assets of $3.5 million, partially offset by a non-cash charge of $3.2 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.

Cash used in investing activities:

Cash used in investing activities was $0.9 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively, and consisted of purchases of property and equipment.

Cash used in investing activities was $1.3 million and $0.4 million for the six months ended June 30, 2024 and 2023, respectively, and consisted of purchases of property and equipment.

Cash provided by financing activities:

Net cash provided by financing activities for the three months ended March 31, 2024 was $1.4 million and consisted of $0.8 million related to proceeds from the exercise of common stock options and $0.5 million related to proceeds from the issuance of common stock through the ATM offering.

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 for the six months ended June 30, 2024 was $1.8 million and consisted of $0.9 million related to proceeds from the exercise of common stock options, $0.5 million related to proceeds from the issuance of common stock through the ATM offering, and $0.4 million related to proceeds from the ESPP.

Net cash provided by financing activities for the six months ended June 30, 2023 was $8.0 million and consisted of $7.5 million related to the proceeds under the Loan Agreement, $0.5 million related to proceeds from the ESPP, and $0.2 million related to proceeds from the exercise of common stock options, partially offset by $0.1 million related to debt financing costs.

Contractual obligations and commitments

There have been no material changes to our contractual obligations as of March 31, 2024, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

There have been no material changes to our contractual obligations as of June 30, 2024, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Critical accounting policies and estimates

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, 2023.

We have 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, 2024.

“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, 2023.

We have reviewed and determined that those critical accounting policies and estimates remain our critical accounting policies and estimates as of and for the six months ended June 30, 2024.

JOBS Act accounting election

5 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis