CVRx Q1 2023 Earnings Call Transcript

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April 27, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to the CZRx Q1 2023 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Bally.

Operator

Thank you. Please go ahead, sir.

Speaker 1

Good afternoon. Thank you

Speaker 2

for joining us today for CVRX's Q1 2023 Earnings Conference Call. Joining me on today's call are the company's President and Chief Executive Officer, Naveem Yared and Chief Financial Officer, Jared O'Shein. The remarks today will contain forward looking statements, including statements about financial guidance. The statements are based on In addition, actual results could differ materially due to several risks and uncertainties, including those identified in the earnings release issued prior to this call and in the company's SEC filings, including the upcoming Form 10 Q that will be filed with the I would now like to turn the call over to CBRx's President and Chief Executive Officer, Nedimy Arad.

Speaker 1

Thank you, Mike, and thanks to everyone for joining us. I'll begin today's call by providing an overview of our Q1 performance, followed by an operational update, a review of our financial results by our CFO, Gerard Dorsheim. And then I will conclude with our thoughts for the rest of 2023 before turning to Q and A. We are thrilled With our Q1 performance, which demonstrated solid execution on multiple fronts, we're able to share the preliminary data from the BEAT HF study during the quarter and continue to grow our U. S.

Speaker 1

Heart failure business. This is a testament to our team's ability to accelerate adoption of Parastem through the increased capabilities of our commercial organization in our marketing and awareness efforts. At a high level, our Verastem therapy continues to gain traction. The feedback from physicians at active implanting centers is extremely positive, with many reporting meaningful impact on the quality of life for their patients suffering from heart failure. Now let's dive into the details of our performance.

Speaker 1

Starting with the review of the Q1, our worldwide revenue for the quarter was $8,000,000 an increase of 96% over the Q1 of 2022. The U. S. Heart failure business Generated $6,800,000 of revenue, an increase of more than 132% over the Q1 of 2022. This accelerating top line performance in the U.

Speaker 1

S. Was highlighted by March, which was By far, the best single month in the company's history. While we don't know how much of the revenue performance in Marsh is attributable to the announced unblinding of the BEAT HF study in February or to our commercial execution over recent quarters, We can definitely say our strategy is working. We are also seeing these strong adoption trends continue into April. Now turning to an update on the operational progress we made during the Q1.

Speaker 1

Starting with the continued expansion of our commercial infrastructure. During the quarter, We added 3 new territories, bringing the total to 29. We remain excited With the quality of sales talent, we have been able to attract and look forward to continuing to build upon that quality in 2023. During the Q1, we made significant progress with our marketing initiatives, including or direct to consumer and patient education programs. We will continue to optimize these campaigns to improve cost effectiveness and evaluate the broader rollout to capitalize on the accelerating momentum in our business.

Speaker 1

Moving to our next area of focus, the expansion of our clinical body of evidence. I want to provide an update on our ongoing interaction with FDA regarding our potential label expansion following the post market BEAT HF data We recently announced we have started an interactive discussion with FDA to ensure that our submission is designed in a way that is most effective for their review process. Based on the data collected so far In guidance from our executive steering committee, we remain optimistic that we will receive a label expansion. However, please keep in mind that our 2023 guidance showing significant growth Does not assume any positive impact from a label expansion. We look forward to reporting our progress over the coming months.

Speaker 1

Wrapping up the quarter, I want to express my gratitude to our team and thank everyone for their continued support. We had a strong first quarter with impressive revenue growth, particularly in the U. S, where our heart failure business performed exceptionally well. We remain confident in our business to help bring relief to many patients suffering from heart failure. I'll now turn the call over to Jared to review our financials.

Speaker 1

Jared?

Speaker 3

Thanks, 1st quarter total revenue generated was $8,000,000 representing an increase of $3,900,000 or 96% compared to the same period last Last year, heart failure revenue in the U. S. Totaled $6,800,000 in the current quarter on a total of 2.25 revenue Compared to $2,900,000 in the Q1 of last year on 99 revenue units. This increase was primarily driven by the continued expansion of the U. Heart failure business into new sales territories, new accounts and increased awareness among physicians and patients about Barostim.

Speaker 3

At At the end of the current quarter, we had a total of 122 active implanting centers compared to 56 on March 31, 2022 And 106 on December 31, 2022. We also had 29 sales territories in the U. S. At the end of the current quarter compared to 17 at the The 3 months ended March 31, 2023 was $6,700,000 an increase of $3,500,000 compared to the 3 months ended March 31, 2022. Gross margin for the current quarter increased to 83% compared to 77% for the same period last year.

Speaker 3

This increase was primarily driven by a decrease in the cost per unit as a result of the increase in production volumes. Research and development expenses for the current quarter were $3,400,000 reflecting an increase of 51% compared to the same period last year. This change was primarily due to increased compensation expenses, non cash stock based compensation expenses and consulting fees. SG and A expenses for the current quarter were $15,400,000 representing an increase of 43% compared to the same period last year. This increase was mainly driven by higher compensation expenses due to increased headcount as well as increases in travel expenses, Non cash stock based compensation expenses and marketing and advertising expenses related to the commercialization of Barostim.

Speaker 3

Other income net was $1,100,000 in the current quarter compared to a net expense total of $57,000 in the same period last year. The income in the Q1 of 2023 was primarily driven by interest income on our interest bearing account. Net loss for the current quarter was $11,400,000 or $0.55 per share compared to a net loss of $10,000,000 or $0.49 per share And 20,400,000 weighted average shares outstanding for the Q1 of 2022. At the end of the current quarter, cash cash equivalents were $103,300,000 Net cash used in operating and investing activities was $10,500,000 for the current quarter compared to $10,900,000 for the same period last year. During the current quarter, we also drew down $7,500,000 of debt on our current credit facility to further strengthen our financial position.

Speaker 3

Now turning to guidance. For the full year of 2023, we now Expect total revenue to be between $35,500,000 $38,000,000 Gross margin is now expected to be between 80% 83% And we continue to expect operating expenses between $76,000,000 $80,000,000 For the Q2 of 2023, we to report total revenue between $8,200,000 $8,800,000 I would now like to turn the call back over to Nadeem.

Speaker 1

Thanks, Jared. These are very exciting times at CVRx. We continue to see exceptional execution across our business. Revenue is accelerating, our margin profile continues to improve and our cash burn is decreasing. Simply put, our model is working as we expect it to.

Speaker 1

We have continued to see strong performance in the business through April And as a result, are raising the low end of our full year revenue guidance and increasing our full year gross margin guidance. We look forward to continue to build on the momentum we have created and successfully execute our growth strategy throughout the remainder of 2023. Now I would like to open the line for questions. Operator?

Operator

Thank you, sir. Ladies and gentlemen, we will now be conducting a question and answer The first question we have is from Bo Kva Vankaj from Canaccord Genuity. Please go ahead.

Speaker 4

Great. Thanks for taking my questions and congrats on the quarter. Just really two questions on really on the M and M data. One is, your discussion of the interactive discussion with FDA. Can you give us your thoughts on the label, kind of how we should think about this is like What are you going for at the high end?

Speaker 4

What are you going for at the low end? It kind of frame that discussion for us, if possible. And then secondly, Your commentary on a very strong March, not sure if that's commercial or the M and M data. I was just Any anecdotal feedback from the physician community would be great there. Thanks for taking my questions.

Speaker 1

Yes. Hello, Bill. Very nice hearing from you and great questions. Let me start With the question about the interactions with FDA. And as you know, there are 2 ways of filing PMA supplement.

Speaker 1

One is apologies for that. The first approach is to prepare the clinical report submitted And then wait to hear feedback from FDA. The second is do it more interactively. We selected the second pathway and this interaction would allow us to optimize The clinical report to ensure that we basically are providing the information in a way that is the most useful to FDA to make their assessment. The labeling we're going after, as I've said it previously, is a treatment effect.

Speaker 1

We would love it if FDA agrees With the opinion of our executive steering committee that is made of 5 key opinion leaders, where they stated That in their opinion, the totality of evidence from BHF supports this therapy as a treatment for patients suffering from heart failure. Whether through the interaction with FDA, we could augment that labeling or Decrease it. It's still a little bit early right now to assess that. So we're at the beginning at the early phases of these interactive discussions with FDA. In regard to your second questions and anecdotal evidence, we've had few interactions with physicians Since we unblinded the data, I just want to remind everybody here, while answering your question, Bill, that We as a company and as sponsor of the trial, we are not allowed to market the data yet.

Speaker 1

All we can do is answer questions. So if a physician asks a question, we can answer it. If they don't, We cannot provide the information. In our the information I have in front of me, about half Of the physicians that we are either working with or interacting with have not asked Any question about the M and M data, they may not be aware of the unblinding of the data. The remaining half, Those that are aware, the range of feedback varies widely.

Speaker 1

And what we can say right now is we have not seen Any slowdown due to the data or any physician saying, well, I'm disappointed with this data. I don't believe anymore what I've seen in my own patients. Therefore, I am going to slow or stop treating patients with barastem. So we have not seen that. It's a double negative.

Speaker 1

Apologies about this. So, so far, I would say I am very satisfied here

Speaker 4

Thanks for taking my questions.

Speaker 1

Thank you, Bill.

Operator

The next Question we have is from Robbie Marcus from JPMorgan. Please go ahead.

Speaker 5

Hi, this is Lily on for Robbie. Thanks for taking the questions. So you did pay a good amount and guided for the Q2 ahead of The Street, but you only raised the low end of The guidance by $500,000 which implies a slightly softer back half than what we had been thinking. So can you Talk through your thinking there and why isn't the full year range moving up more?

Speaker 3

Hi, Lily. This is Jared. Happy to take your Yes, we were really happy with what we saw in the Q1. I think Nadim mentioned it in the first part of the call, just talking about how we really saw Nice results in the month of March allowing us to beat the top end of that range that we had put out for the Q1. And we saw some of those trends continuing in April to Just one quarter results or just seeing really strong March and seeing a few positive trends into April.

Speaker 3

But if we see the trends continuing after Q2, that's something we'd look at that point.

Speaker 5

Got it. That's helpful. And then maybe just a follow-up. Can you talk About how you're thinking about growth in the U. S.

Speaker 5

Versus internationally, what does it take to get the international business ramping from here? Or is the focus for the foreseeable future really on the U. S. And driving adoption there? Thanks so much.

Speaker 1

Listen, great question. And we've asked ourselves this question almost on a quarterly basis. We have limited resources and limited capability in growing, right? It's not about throwing money and hoping what sticks on the wall. We need to invest judiciously in here.

Speaker 1

As I mentioned in previous calls, the cone of possibilities that would allow us to reach cash flow breakeven without raising additional money is wide, but not too wide. So we don't have too much margins in here of throwing money and hoping for the best outcome. And in our opinion right now, the best return on investment right now is for us to invested in sales and marketing in the United States. Now the situation will change in the future as we start increasing our penetration in the United States. But right now, With the growth that we're seeing in the United States, any dollar we can spend in the U.

Speaker 1

S, we are spending it in the U. S. When we talk about Europe, Yes. It's multiple countries, right? Every country is different.

Speaker 1

And even within a single country like Italy, there are 13 regions, each have its own reimbursement paradigms and so forth. Right now our focus in Europe is in Germany. We only increased the headcounts in Germany to support steady slower growth that we have because what we've experienced previously about a year ago was that if we maintain Our presence flat in Germany actually decreases and it became an anchor around our worldwide growth. So we hit that sweet spot where we can grow it enough, so that becomes a value added, but we don't have The ability right now to invest faster in Germany to grow it as fast in the United States. So for the short term, for the foreseeable future, And as our penetration is still super low in the United States, our best return of investment is in the U.

Speaker 1

S. We'll focus on the U. S.

Operator

Next question we have is from Matt O'Brien from Piper Sandler. Please go ahead.

Speaker 6

Hi. This is Sam on for Matt. Congrats on a great quarter. I guess, a question we had is about Barocean's utilization since announcement of the BHF trial, are you seeing anything change or is it Staying mostly the same. And then also what kind of questions are you getting from physicians since this readout?

Speaker 6

Thank you.

Speaker 1

Yes. Great question. So in terms of utilization, I'm assuming that we mean here is a treatment of new patients with with the device. So we're not talking here about programming more or replacement of batteries for patients who received the therapy 5 years ago. So in terms of de novo patients receiving a therapies, which correlates with the revenue, we've seen a Super strong March and we are very happy with it.

Speaker 1

And that trend continues in April. What we don't know yet is how much of that can be attributed to the data that was Basically, we issued a press release in middle to late February around 21st February or It's just execution. We know we have a great team. We've done fantastically well and we've been growing our business In the United States approximately 100% year over year. Maybe that's only the result of just superb execution and maybe it's both.

Speaker 1

So all we can say at this stage is that we have not seen a slowdown. It's a double negative. And the Acceleration that we're seeing is a bit too early to say it is due to the data that was unblinded.

Speaker 6

Great. Thank you. And then just the last part on kind of what questions you're getting from physicians.

Speaker 1

Yes. Thanks for reminding me about the second question. So physicians questions, I'm assuming it is based on the data. The largest question that we received at THT was about one component Of the primary endpoints. I don't know if you've seen the data, but we had that chart that Doctor.

Speaker 1

Zile presented. And I actually summarized it that same evening in our press conference. That chart had all of the points, all of the dots on the right side favoring the device with the exception of 1 dot, which was Close to the center with a wide error bars, but on the other side of that segment. And that was the heart failure morbidity. So those are the hospitalization due to heart failure.

Speaker 1

What Doctor. Zahl presented at The symposium at THD was that in his analysis, 2020 was a very different year. The rate of heart failure hospitalizations in the control arm We're about 1 fourth of the same rate of hospitalizations in the same arm in the other years. And the p value is off the chart how different 2020 was for this specific group as compared to any other year. And that led us to consider and ask the question, what would the data look like if 2020 Was not there.

Speaker 1

If 2020 is not existing, if we did not have a pandemic in 2020, but instead of filling 2020 with fake numbers, we said, all right, What if 2020 did not exist? We went from 2019 directly to 2021. So he Doctor. Zeil presented additional data At the German Congress of Cardiology known as DGK at Mannheim, where he did that analysis And it shows concordance of the data. So all of those dots on that chart now are on the right side, Favoring parastim.

Speaker 1

That was a direct answer to the biggest question we kept Hearing is and the question is, how can you explain that you have such a dramatic effect on reducing mortality, but yet you're not reducing morbidity. And that analysis ignoring the data from 2020 answered that question. So Sam, that's I would say what was the if there was one single feedback, I would summarize it as such.

Speaker 6

Great. Thank you so much.

Speaker 1

Thank you.

Operator

The next question we have is from Margaret Kaczor from William Blair. Please go ahead.

Speaker 7

Hi. This is Macaulay on for Margaret. Thanks for taking our questions and congrats on the strong quarter. I guess one On the DTC campaigns, you've obviously mentioned you're monitoring and testing a variety of different channels. So Just wondering what you've seen from those and if kind of just any notable increases and

Speaker 1

Yes. No, excellent question. My colleague, nice hearing Again, it was great seeing you last month. Listen, in our opinion, based on the data that we're looking at, Our direct to consumer efforts appears to be paying off. And We started expanding to new geographies, but only to the areas where we have active implanting centers.

Speaker 1

And we're very happy with the results that we saw in the Q1. We're super happy with the results we saw in April in regard to the effect Of DTC to drive utilization. In terms of different channel, we will keep testing new channels. Right now, we are present on Facebook. We are present on Google AdWords.

Speaker 1

We are present on some TV channels. I'm not going to go through this in details, But many of you, if you happen to be in these area, if you happen to be above a certain age and Facebook has probably shown you one of those ads.

Speaker 7

Awesome. Thanks. And then just a quick follow-up on the BATTLIERE trial. Is there any more color you could give there on Adding more sites and patients, just wondering, if we could get a bit more detail on how that's progressing and potentially how many of the estimated 400 patients have been enrolled. Thanks for taking our question.

Speaker 1

Yes. I will not comment on the Sites that we're adding at this stage, the all I can say is, my colleague, we are a very small team at CVRx And particularly our clinical team. Right now, at this stage, at this moment, Our focus is the analysis of BHF data, the mortality morbidity data and the discussions with FDA and the filing of the Great. Thanks again. Thank you, Mikhail.

Speaker 1

Have a good night.

Operator

The next question we have is from Alex Nowak from Craig Hallum Capital Group. Please go ahead.

Speaker 8

Okay, great. Good afternoon, everyone. I want to continue off that last question there. Now with BEAT HF being read out, the FDA is going to want to do it will do whatever it wants to do there. But obviously, your team is going to be focusing on getting BHF good to go and submit to the FDA.

Speaker 8

But I guess, what other studies, small or big, do You want to go ahead and green light here in the upcoming quarters. What's next?

Speaker 1

Hey, Alex. How are you? Great question. Here is what we have disclosed in the past. We do have the post market study that just Right now, unless if FDA asked us to do yet another post market study, It will be our own initiative and we have currently a large registry that is currently enrolling in the United States.

Speaker 1

It's called Rebalance. And our objective here is to try to collect as much data as possible within reason. Obviously, we don't want to create additional burden On hospitals where we know they have still staffing shortage, that's number 1. And number 2, we don't want the cost to CVRx To be over and overburdened. So that rebalanced registry is ongoing as we speak.

Speaker 1

The second element is we have opened up the door to academic investigators At institutions who have an experience with Barostem to submit a request For a study to CVRx, we have an independent adjudication committee that looks at the scientific merit So those are the ongoing elements. And of course, We've got Batwired. I just answered a question previously on this topic. And then finally, We have been accepted in a new program at FDA, Which is called TAP, the total life cycle program is an advisory program. This program is in a pilot phase at the FDA.

Speaker 1

They would accept up to 15 projects this year only in cardiovascular. I'm happy to say that our projects proposal was accepted by FDA on January 6. So I believe we are the 1st pilot project within TAP. We are looking at Expansion of the market that we're going after, this obviously would require new trials. It's a bit early in the analysis phase.

Speaker 1

We are working with FDA. The essence of TAP is very intriguing and exciting. It is only for programs that have a breakthrough designation. And if you recall, we have a breakthrough designations for Hypertension and the other side of heart failure, which is the preserved ejection fraction and The essence or the promise of the TAP program is for FDA to work with the sponsor and include other stakeholders such as payers or patients or patient advocacy groups or physician groups, physician societies and so forth To ensure that the future trial that will be conducted answers all of the requirements of all of the stakeholders. Now it's a little bit early.

Speaker 1

It is still a project. We don't have a plan yet to start a trial. It would take months of work in here with all of these stakeholders to design a trial and then we'll have to make a decision when is the appropriate time for CVRx to invest in this trial. So it is a little bit premature right now to discuss the details of the trial is because we don't know yet details of the trial, but I'm very happy here to disclose to you and everybody else that CVRx has been selected As part of this pilot project with FDA and we are super excited with the weekly interaction we are having with FDA and with the other stakeholders on this topic.

Speaker 8

Okay. Very exciting to hear What comes of that? With regards to BHF being submitted to the FDA, I know the discussions are underway now as part of the breakthrough designation. What is the latest timing Internally for submitting that package for label expansion?

Speaker 1

It will depend. Usually, one would Say, if it's the classical road that we're following, usually it takes company about 3 months to assemble the PMA Submission and submitted to FDA. I've seen companies taking 1 year or 50 months to do. In our case, since it is a PMA supplement, the product is already approved. So it's more focused on the clinical report of the post market phase of it.

Speaker 1

The 3 months seems to be a good Approximation, if we're following the traditional way and then FDA would have 6 months to provide their feedback on it. So Think of it, Alex, as being end of the year situation. Now in our case, we may take more time upfront As we are working this interactively with FDA, with the hope that the review process by FDA will be faster and more predictable.

Speaker 8

Okay. Understood. That makes sense. And then just one more clarification just for Jared. The step up in inventory, did you mention what that was for?

Speaker 8

It looks like you did maybe worry about supply chain issues or you're getting ready for some pretty big demand. So just the step up in inventory, what was the cause there?

Speaker 3

Yes. Hey, Alex. Thanks for the question. So we did see that jump up in inventory from the end of the year. Part of this was us building up some finished goods Towards the end of 2022 and getting that finished up here in early 2023, part of that was trying to get some more inventory over into Europe With a lot of question marks around MDR, we obviously were able to kick the can on that MDR deadline With some of the updates that came through in the industry over the last couple of months, couple of weeks, so it's less of a concern there.

Speaker 3

And then also part of it is just supply chain, right? We had a lot of supply on the shelf, we're able to build out that finished goods. So it doesn't hurt to have some more goods available so that we're able to sell the units if there is the demand there.

Speaker 8

Yes, 100%. Makes sense. Thanks for the update. Appreciate it.

Speaker 2

Yes. Thanks, Alex.

Operator

Thank you. The final question we have is from Frank Takhinath from Lake Street Capital Markets. Please go ahead.

Speaker 7

Hey, thanks for taking the questions. I wanted to follow-up with one more on the utilization question. In the past, you guys have spoke to in the 1st couple of months, a facility may treat 1 or 2 patients and they may wait 3 to 6 months For reinitiating treatment for additional patients beyond there, did that dynamic play out at all in the strong March April Months that you called out maybe where you have a bolus of clinics going from that or post that 3 to 6 month evaluation period,

Speaker 3

I'll take that one. Yes, I think what we've seen is a lot more of the same from those same types of groups. We just have more centers that are now reaching that point of being with us or being active for more than 24 months. And so as they cross that threshold, we're seeing them treating almost one patient a month on average. And that's that long term goal that we are pushing all of these sites to reach.

Speaker 3

So the growth that we saw in March and continuing into April, I think is Seeing new sites being activated treating those first few patients, but then also seeing all of those other sites continuing to treat more and more the longer they're with us.

Speaker 7

Okay. That's helpful. And then maybe just for my second one. As it relates to the BEAT HF data, My assumption is it's going to go in the process of FDA communications, submission, hopefully label expansion. At the same time, is there anything you can be doing with the guidelines to start having any conversations about how you could be positioned within the guidelines Once we get through the FDA communications and hopefully label expansion?

Speaker 1

Yes, Frank, this is an excellent question. In my understanding, Companies have very little influence with the guideline committees. The guideline committee, in general, they are proud to be super independent without any conflict of interest. Therefore, the only thing that sponsors of trials can do is provide the We reviewed manuscript with the data and ensure that the guideline committee has seen them. So there is no Lobbying that is allowed before that and we're limited here to just sending them an email with a manuscript when the manuscript is published.

Speaker 1

Now I want to, Frank, to answer your question in here and give a little bit more color. I just want to make sure That I reiterate one point and I don't think I've made that enough. Our model That has this path to getting us to profitability without raising additional cash is based On the current labeling we have, this is by no mean a lack of confidence in us getting additional label, But it's more about us being super confident with our model based on what we have today in our hand and not needing anything else To get to the cash flow breakeven point and the same can be said about payment levels and reimbursement. So Based on what we have today on our hands, we have a clear path to get to profitability. Anything above this, and in our opinion, we will get a label expansion Will be an upside, I.

Speaker 1

E. Getting us to that cash flow breakeven earlier or allowing us more flexibility in terms of investment in our future. Makes sense, Frank.

Speaker 7

Yes. That's perfect. Good context. Appreciate you taking the questions.

Speaker 1

Fantastic. Thank you so much.

Operator

Thank you. That concludes the question and answer session. I would like to turn the floor back over to Nadeem Yarden for closing comments. Please go ahead, sir.

Speaker 1

Thank you, operator, and thanks everyone for joining us for our Q1 earnings call. We appreciate your ongoing support And we look forward to updating you on our progress on our next update. Good night.

Operator

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your

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