What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-18 compared with 2024-02-09 · 48 added, 64 removed, 171 unchanged (40% of the section changed)

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

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

Barostim is currently 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.

Barostim provides BAT 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 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/ml 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 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.

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

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

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

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

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

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 CMS while simultaneously developing processes to engage commercial payors.

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

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.

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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 credit facilities.

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 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 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 $50.0 million in outstanding Term Loans under the Loan Agreement at December 31, 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 .

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

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.

On November 4, 2024, we announced that CMS assigned the Barostim procedure to New Technology APC 1580.

The APC payment of approximately $45,000 will continue in 2025, as published in the 2025 OPPS final rule.

Factors affecting our performance

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commercial organization;

● 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;

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

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

● Continuing to develop and disseminate clinical evidence supporting the benefits of Barostim;

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

● Investing in research and development to foster innovation;

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

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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.

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

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

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

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

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

Research and development expenses

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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.

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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Provision for income taxes

NM – Not meaningful

Revenue by Geography

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was $47.2 million for the year ended December 31, 2024, an increase of $12.1 million, or 34%, over the year ended December 31, 2023.

HF revenue units in the U.S.

totaled 1,506 and 1,123 for the years ended December 31, 2024 and 2023, respectively.

HF revenue in the U.S.

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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.

Total HF revenue units in the U.S.

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

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

As of December 31, 2024, we had a total of 223 active implanting centers in the U.S., as compared to 178 as of December 31, 2023.

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

The number of sales territories in the U.S.

increased by 12 to a total of 38 during the year ended December 31, 2023.

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

As of December 31, 2024, we had 48 sales territories in the U.S.

as compared to 38 sales territories as of December 31, 2023.

Revenue generated in Europe was $4.1 million for the year ended December 31, 2024, a decrease of $0.1 million, or 1%, over the year ended December 31, 2023.

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.

Total revenue units in Europe decreased to 204 for the year ended December 31, 2024, from 207 for the prior year.

As of December 31, 2024, we had five sales territories in Europe as compared to six sales territories as of December 31, 2023.

Cost of goods sold and gross margin

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Gross profit was $43.0 million for the year ended December 31, 2024, an increase of $9.9 million, or 30%, over the year ended December 31, 2023.

Gross margin increased to 84% for the year ended December 31, 2023, compared to 78% for the year ended December 31, 2022.

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.

Gross margin was 84% for both the years ended December 31, 2024 and 2023.

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 $1.7 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.

R&D expenses decreased $0.5 million, or 4%, to $11.1 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

This change was primarily driven by a $0.5 million decrease in consulting expenses, a $0.3 million decrease in compensation expenses, and a $0.2 million decrease in travel expenses, partially offset by a $0.5 million increase in clinical study expenses.

Selling, general and administrative expenses

SG&A expenses increased $26.8 million, or 42%, to $91.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

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.

This change was driven by a $12.7 million increase in non-cash stock-based compensation expense, an $11.0 million increase in compensation expenses, mainly as a result of increased headcount, a $1.3 million increase in travel expenses, a $0.6 million increase in bad debt 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 our

former Chief Executive Officer in connection with his retirement in the first quarter of 2024 described in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Interest expense

Interest expense increased $2.6 million to $4.4 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

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

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

Other income, net

Other income, net was $4.0 million for the year ended December 31, 2024, compared to $3.9 million for the year ended December 31, 2023.

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

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

Provision for income taxes

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Our net cash used in operating activities for the years ended December 31, 2024 and 2023 was $39.1 million and $39.0 million, respectively.

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 $50.0 million in outstanding Term Loans under the Loan Agreement at December 31, 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.

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

In January 2024, we commenced this ATM offering and issued 3,251,198 shares of common stock for gross proceeds of $33.8 million under the ATM offering during the year ended December 31, 2024.

We have remaining capacity to issue and sell up to $16.2 million of additional shares of common stock under this ATM offering.

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

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

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.

We believe that our existing cash resources together with cash from operations 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.

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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 year ended December 31, 2024 was $39.1 million and consisted primarily of a net loss of $60.0 million, partially offset by $19.1 million from non-cash stock-based compensation expense, an increase in net operating assets of $0.9 million, $0.6 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, 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.

Cash used in investing activities:

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Cash provided by financing activities:

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, 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.

Net cash provided by financing activities for the year ended December 31, 2024 was $55.9 million and consisted of $32.5 million related to proceeds from the issuance of common stock through the ATM offering, $20.0 million related to proceeds under the Loan Agreement, $2.7 million related to proceeds from the exercise of common stock options, and $0.8 million related to proceeds from the Employee Stock Purchase Plan (“ESPP”), partially offset by $0.2 million related to debt financing costs.

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 ESPP and $0.7 million related to proceeds from the exercise of common stock options, partially offset by debt financing costs of $0.2 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.

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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%.

On September 30, 2024, we borrowed the remaining $20.0 million under the third and final 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 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.

A performance covenant took effect upon 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.

Critical accounting policies and estimates

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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.

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

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

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

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 consolidated statements of operations and comprehensive loss based on their grant date fair values.

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

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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 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 share price volatility — We make assumptions with respect to expected stock price volatility based upon the historical volatility of our stock price.

● Expected term of an award — Determined based on our analysis of historical exercise behavior while taking into consideration various participant demographics and option characteristics.

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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