CVRx Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to the CVRX Q2 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,

Speaker 1

you for joining us today for CBRx's Q2 2023 Earnings Conference Call. Joining me on today's call are the company's President and Chief Executive Officer, Nadim Yared and Chief Financial Officer, Jared Oshon. The remarks today will contain forward looking statements, including statements about financial guidance. The statements are based on plans and expectations as of today, which may change over time. In addition, actual results could differ materially due to a number of risks and uncertainties, including those identified in the earnings release I would now like to turn the call over to CBRx's President and Chief Executive Officer, Nadim Yared.

Speaker 2

Thank you, Mike, and thanks to everyone for joining us. I'll begin today's call by providing an overview of our 2nd quarter performance, followed by an operational update and a review of our financial results by our CFO, Jared Osheim. Then I will conclude with our thoughts for the rest of the year before turning to Q and A. We are thrilled To share that we had another excellent quarter, the nearly 120% year over year growth that we delivered in the U. S.

Speaker 2

Exceeded our expectations and is highlighted by the strength in volumes, the expansion of the New U. S. Active implanting centers and the development of our new customer pipeline. Importantly, We are continuing to receive very positive feedback from physicians regarding their own experience when using our Verastem therapy on their patients. Our financial performance continues to demonstrate the quality of the barastim procedure, the robust demand for barastim in the market and our ability to execute.

Speaker 2

Now let's dive into the details of our performance during the quarter. Worldwide revenue was $9,500,000 an 89% increase over the Q2 of 2022. This was primarily due to the continued execution within our U. S. Heart failure business, which grew by 119% over the prior year.

Speaker 2

These results came from the ongoing utilization of Verastem within our existing customer base, Our successful expansion into new territories and the elevated physician and patient awareness. We are encouraged that following our February announcement of the preliminary results of the BEAT HF trial, Adoption and utilization of Peristem has continued to grow. In each of the 4 months following that announcement, The business has been strong and physicians have seen the data at scientific meetings have had positive reactions. Turning to an update on our operational progress during the Q2. As a reminder, our focus areas are the continued expansion Our commercial infrastructure and the expansion of our clinical body of evidence.

Speaker 2

Starting with the continued expansion of our commercial infrastructure. As expected, we added 3 new U. S. Sales territories, bringing the total to 32. The talent we have been able to attract and put into the field is impressive, and we look forward to continuing to leverage their abilities to educate And trained physicians and healthcare providers on barastip.

Speaker 2

Also during the Q2, we further progressed Our marketing initiatives, including our direct to consumer and patient education programs, which we will continue to optimize to support our commercial Moving to our second focus area, the expansion of our clinical body of evidence. As announced in June, we submitted the PMA supplement to FDA, which included data collected as part of the post market BEAT HF study. As a reminder, The PMA supplement is seeking a potential label expansion for barastim in line with the recommendation of the executive steering committee of the BEAT HF trial. We fully agree with the committee's assessment that the totality of evidence strongly supports barastem as a safe and effective treatment option for heart failure. We are currently undergoing the normal review process with FDA and expect to receive a response from FDA by the end of the year.

Speaker 2

We remain committed to closely monitoring the progress and we'll provide updates when we have significant developments to share. One last update, CMS recently released The proposed outpatient prospective payment system or OPPS for short for 2024 along with the proposed physician fee schedule for the same period. Of particular note was the absence of any mention of our March submission requesting assignment to one of the new technology APC payment codes As our transitional pass through additional payment expires at the end of 2023, we anticipate submitting formal comments on the proposed OPPS package and advocate for inclusion in the final document later this year. However, Please remember that our base case for 2024 is the status quo, which would lead to a reduction in our expected average selling price across the U. S.

Speaker 2

Approximately $26,000 This has been the assumption in our model that is guiding us to be able to reach cash flow breakeven without the need to complete an equity financing. We are very excited about what we have been able to accomplish during the second quarter And throughout the first half of twenty twenty three, through the 1st 6 months of the year, we have grown our U. S. Heart failure revenue by 100 and 24% as compared to 2022. We look forward to continuing to build on this momentum for the balance of the year, And I want to thank our team for their dedication to our mission of improving the lives of patients suffering from heart failure.

Speaker 2

I'll now turn the call over to Jared to review our financials. Jared?

Speaker 3

Thanks, Nadim. In the 2nd quarter, total revenue generated was $9,500,000 representing an increase of 4.5 in dollars or 89% compared to the same period last year. Revenue generated in the U. S. Was $8,300,000 in the current quarter, reflecting growth of 111% over the same period last year.

Speaker 3

Heart failure revenue in the U. S. Totaled $8,300,000 in the current quarter On a total of 265 revenue units compared to $3,800,000 in the Q2 of last year on 128 revenue units. The increases were primarily driven by continued growth in the U. S.

Speaker 3

Heart failure business as a result of the expansion into new sales territories, New accounts and increased physician and patient awareness of Barostim. At the end of the current quarter, we had a total of 140 active implanting centers compared to 71 on June 30, 2022 122 on March 31, 2023. We also had 32 sales territories in the U. S. At the end of the current quarter compared to 20 on June 30, 2022 And 29 on March 31, 2023.

Speaker 3

Revenue generated in Europe was $1,200,000 in the current quarter, representing an increase of 10% compared to the same period last year. Total revenue units in Europe increased from 52 in Q2 of 2022 to 56 in the current quarter. The number of sales territories in Europe remained consistent at 6 for the 3 months ended June 30, 2023. Gross profit for the 3 months ended June 30, 2023 was $8,000,000 an increase of 4 point to the 3 months ended June 30, 2022. Gross margin for the current quarter increased to 84% compared to 76% for the same period last year.

Speaker 3

Gross margin for the 3 months ended June 30, 2023 improved primarily due to a decrease in the cost per unit driven by increased production volumes. Research and development expenses for the current quarter were $3,300,000 reflecting an increase of 39% compared to the same period last year. This change was driven by a $600,000 increase in compensation As a result of increased headcount, a $100,000 increase in non cash stock based compensation expense And a $100,000 increase in consulting fees. SG and A expenses for the current quarter were $16,500,000 representing an increase of 32% compared to the same period last year. This change was primarily driven by a $2,500,000 increase in Compensation expenses, mainly as a result of increased headcount, a $800,000 increase in marketing and advertising expenses associated with the commercialization of Barostem in the U.

Speaker 3

S, a $400,000 increase in travel expenses And a $300,000 increase in non cash stock based compensation expense. Interest expense increased $500,000 for the 3 months ended June 30, 2023 compared to the 3 months ended June 30, 2022. This increase was driven by the interest expense on the borrowings under the loan agreement entered into on October 31, 2022. Other income net was $600,000 in the current quarter compared to other expense net of $34,000 for the same period last year. The income in the Q2 of 2023 was primarily driven by interest income on our interest bearing accounts.

Speaker 3

Net loss for the current quarter was $11,700,000 or $0.56 per share compared to a net loss of $11,100,000 or $0.54 per share for the Same period last year. Net loss per share was based on 20,700,000 weighted average shares outstanding for the Q2 of 20,300,000 weighted average shares outstanding for the Q2 of 2022. At the end of the second quarter, Cash and cash equivalents were $90,800,000 Net cash used in operating and investing activities was $12,950,000 for the Which included our annual premium for our directors and officers insurance of approximately $2,000,000 This is compared to net cash used in operating and investing activities of $10,500,000 for the 3 months ended March 31, 2023. Now turning to guidance. For the full year of 2023, we now expect total revenue between $37,000,000 38,500,000 Up from $35,500,000 to $38,000,000 We now expect full year gross margins between 83% 84%, up from $76,000,000 to $80,000,000 For the Q3 of 2023, we expect to report total revenue between 9,500,000 and $10,200,000 I would now like to turn the call back over to Nadim.

Speaker 2

Thanks, Jared. We had a fantastic first half of twenty twenty three. Our strategy for driving the adoption of Verastem, while for the 2nd consecutive quarter. We are particularly pleased that the business has continued to flourish, particularly since the announcement of our Beat HF data in February, and we remain optimistic about our plans to continue to grow. We look forward to building on our success during the back half of this year.

Speaker 2

And now, I would like to open the line for questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Robbie Marcus with JPMorgan, please proceed with your question.

Speaker 4

Hi, this is Alan on for Robbie. Congrats on the good quarter. Just starting with some of the momentum that you saw, Q1 and Q2, we really saw that translating into better Active implanting centers and I think originally contemplated. So what are you seeing in the Q3 so far when it relates to that? And how sustainable do you think that level of more mid to high teen center as will be into Q3, Q4 and beyond that?

Speaker 3

Hi, Alan. This is Jared. I can take that one. Thanks for the question. So we've seen really strong numbers for active implanting center additions Over the last few quarters, we talked about this back in 2022.

Speaker 3

As COVID moved to the wayside and hospital staffing shortages were kind of Solved. We started to see more interest from hospitals to get these programs off the ground, and that's allowed us to activate these centers. We remind everybody that the contracting process does take time and therefore we do have some insight Into the pipeline of new centers that are on contract through value assessment and champions identified. And then the next step in the process to be identified as an active implanting center is to get that first patient treated. And that's where Some of the hospital staffing shortage issues could come into play in the future.

Speaker 3

But I think as we look forward into Q3 and Q4 and out into 2024, We're still expecting to see about 12 to 13 new active implanting centers per quarter, just based on the volume and the current pipeline that we're seeing today. So Because of the beat in the Q2, it doesn't necessarily mean that we're going to see a slowdown in the new center adds in Q3 and Q4.

Speaker 4

Got it. That's good to hear. And then when I

Speaker 2

look at the

Speaker 4

guidance for $9,500,000 to $10,200,000 kind of an implied 10 point $10,800,000 in Q4. It seems like pretty measured improvement given the increases we've seen so far this year. So why is that the appropriate level of increased future forecast going forward? I think the general sense is that staffing, those kind of dynamics have Better so far this year, so why shouldn't we see room for more upside in the back half? Thank you.

Speaker 3

Yes, I'm happy to take that one again, Alan. Yes, I mean, we're really happy with the results that we've seen to date. I think as we look to provide guidance for Q3, we take into consideration what the current funnel is looking like, What the new active implanting center implant rates are starting to look like and then also what's on the horizon. And the other thing that we Take into consideration is the results we've seen so far in the quarter and what we've seen in July. I think as we march ahead into Q3 Historically, coming out of COVID, we have seen slowdowns in the month of August, right, where people take long vacations.

Speaker 3

Now there's been no signals of that for us yet, And we did just see our biggest jump ever from 1 quarter to the next from Q1 to Q2 just in a pure dollar amount of revenue. And so we didn't want to get ahead of ourselves with increasing the guidance too much and feel pretty comfortable with that range we gave of 9.5 to 10.2 for Q3.

Operator

Our next question comes from Matthew O'Brien with Piper Sandler. Please proceed with your

Speaker 5

Jim? Great. Thanks for taking the question. So, Nadim, this one's for you. You've got a lot of experience on the reimbursement side of things.

Speaker 5

And Just help us get a sense for your the potential for you to get This APC code here in the final rule because if you don't, the 26,000 ASP is the first time I've heard that number Specifically, maybe I missed it, but based on what you're going to do this year from ASP perspective, that's a pretty meaningful like 15% headwind Just on the pricing side as we go into next year. So, that's obviously, you're still going to be able to grow nicely with on the unit side, but you're going to have to deal with Headwind potentially on the ASP side of things. So just help us think about that dynamic and the impact on the business both on the top line and even gross Profit line because gross profits are great, but ASPs are down 15%. That's going to be impactful to gross margin. So just help us think about potential to get that extra code or get the code that you're looking for and then the impact of the business if that doesn't happen.

Speaker 2

Sure, Matt. Thanks for the question by the way. I will ask Jared to answer the second half of the question. Let me answer the first one about the CMS and how to Think about the process. We don't have much experience in this, but we looked at what happened exactly last year With a similar process followed by another small company that's now part of Zol, I'm mentioning Grespicargia.

Speaker 2

They follow the same process. Their application was not mentioned in the Summers proposed ops, then they went in front of a panel, made the case for it. We supported them as well as other constituencies and they got it at the end of the year. What does it Tell us, well, not much because every case is different. And no matter how much we can find similarities and try to find solace in here that, You know, it worked for them, why wouldn't it work for us?

Speaker 2

That's not how CMS necessarily will be looking at things and we don't understand how What are the parameters that they will utilize in here to define whether they take a request like ours into account or not? That's why we have been modeling internally that the ASP will be lowered in the future. And actually, let me turn here to Jared to walk you through a little bit About how we're thinking about it from a gross margin and ASP?

Speaker 3

Yes, Matt. I mean, this has been on the horizon for several years now, right? We knew the expiration of this add on payment was going to be December 31, 2023. So we tend to take the conservative route when building these longer term models. And so we wanted to take that The consideration to what our average selling price would be in 'twenty four and beyond.

Speaker 3

And so as we look out to 'twenty four with our base case, assuming We are in the same APC that we are today. That average selling price would be between $25,000 $26,000 Now it doesn't drop off a cliff overnight. That Number probably comes down over time. But I think the nice thing that we've shown here in 2023 with volume, we can see that cost per unit drop Pretty dramatically. That's allowed us to achieve gross margins of 84% in the current quarter.

Speaker 3

And even with a decrease in the revenue And the average selling price in 2024, we still believe gross margins of 80% in the short term would be attainable just based on volume and seeing that cost per unit drop.

Speaker 5

Got it. Okay. Appreciate that. And then, BHF came out recently. I'm just curious if you Did you see any pause from some of your centers as they were digesting that information?

Speaker 5

Anybody that said I don't like that or Or essentially negatively impactful to the business. I know you still did well in Q2, but did you see any of that? And then just help us think about If you're able to get this indication for the treatment of HF, what I know it helps validate the technology some more, but what does that do from a selling perspective? Is it going to make it easier For new centers or just to go deeper in existing centers? Thanks.

Speaker 2

Yes, excellent question. So let's start first with one reminder to everybody. Where we are right now, where the manuscript is not yet published and FDA has not given us the authorization To make any claims based on the data, we as a company are not allowed to proactively share with healthcare providers or patients The results of BHF. We can only answer questions when these questions are asked. So whatever impact we have seen so far has been limited to the physicians or other Healthcare providers who have seen the BHF data presented at a scientific meeting by another healthcare provider, Period.

Speaker 2

What's the percent of sites that have seen the data and comment on it? I don't have that split exactly. Nevertheless, We have not. I can repeat this over and over. We have not seen any slowdown even at the height of the uncertainty between February 21st March 21st when we went out publicly and we mentioned that We did not meet the primary endpoint of the trial without sharing the data until a month later when the data were presented at the laser breaker at DHT.

Speaker 2

During that month of uncertainty, even then, we had not seen or observed any slowdown of activities at the site. That also kind of moved us into providing some level of Directionality of revenue on a monthly basis in Q2 to alleviate any of this concern and give confidence in here that We are still on the right track. Now can I say for sure that those that have seen the results are You know, implanting more patients, treating more patients or not, that's hard to quantify and hard to link our current growth With the results per se of BHF? To your second part of the question, what do we expect if we get the labeling? Well, the total addressable market should increase a little bit based on the expansion of labeling.

Speaker 2

If you recall, when we did this and It's disclosed actually in full details in our S-one and subsequent filing. When you go through the funnel, at the last Step in the funnel, we eliminated from the total addressable market many patients who have other co morbid diseases, Assuming that when a therapy is assumed to be only treating symptoms, it may not be to a patient who have other comorbidities. So we went a little bit conservative on our assessment of the total addressable market. Now if we get the treatment labeling from FDA, we believe that some of this market will be addressable. Therefore, the total addressable market will increase.

Speaker 2

We're not at the point yet to disclose what the new number will be of new patients sorry, new patients eligible for our Therapy on a yearly basis yet, Matt, but at the right time, once we have clarity from FDA what is The label that they're allowing us, then we will do this exercise and we'll come back to everybody with it. So will we see an increase? Will we see an impact? Possibly, but that will be next year. Will it be sufficient to alleviate your previous concern about the drop in ASP?

Speaker 2

I believe so, but we're not there yet. We're not yet at the point where we're giving guidance

Operator

Our next question comes from Margaret Kaczor with William Blair. Please proceed with your question.

Speaker 6

Hey, good afternoon, guys. Thanks for taking the question. I wanted to see if you guys would provide any additional details in terms of cancer cases throughout the

Speaker 3

Yes. Hey, Margaret, this is Jared. So I know we've discussed month to month results here over the last few After we came out with the Q1 results, we talked about how momentum was continuing into April. We also gave the update, I know, at your conference about how May continuing to be pretty strong just from a procedural perspective. But now that we've gotten through this process of disclosing the clinical data around BHF where there was maybe some uncertainty from investors out there about what was going to happen with the business.

Speaker 3

We're So this is not in any way to indicate that we have concerns about what we're seeing in July, right? This is just us getting back to the normal cadence of Deliver a quarter, give the guidance and move forward there. So I think we're going to pass on the question today to give any updates on July.

Speaker 6

Now understood. So I'll take a second crack at a slightly different question. But I'm just curious as you look at the utilization growth that we've seen, you've now got some more tenured accounts, you've got some newer accounts online. Any surprises there? Or can you Talk about a profile of account that's growing faster or slower, things are kind of on track, I guess, with your expectations.

Speaker 5

Yes. Excellent question, Margaret. This is Nadine by

Speaker 2

the way. Listen, two things. Number 1, we've said previously that accounts have been treating patients with barastem for more than 2 years are doing more patients in average per quarter than those have been treating patients You know from 12 to 24 months ago and these are also doing more patients per quarter than their most recent accounts that started treating patients with Verastem in the last 12 months. So that led us at the time and we still stand behind the statement To conclude that the longer a site is treating patients with Barastem, the more they see the positive impact on their patients, the more they can spread the word Around the institution to build more referral networks to strengthen the different network around them, the more they end up treating patients with Verastem per quarter. So that stands.

Speaker 2

The second dynamic that is interesting, Just like in politics, right? Everything is played at the local level. So it depends a lot On the local competition between hospitals at a specific geography and the more you have accounts In the geography, the more the competition start ramping up and hospitals trying to market The new therapies that they are offering their patients to the community, to the general cardiologists around them, the more we see the buzz augmenting in that geography and the more we see more sites wanting to come in or the fear of missing out on something big. So that bandwagon effect is real and it happens at the local level, not at the national level. And that is very exciting for us to see.

Speaker 6

Yes. Okay. That's very helpful. And then I'll I'll sneak one more in since the first one was a little bit of a bust. But any kind of back and forth Discussions you're having with the FDA on label expansion recently, any kind of color maybe on concerns requests and whether you're confident, I guess, that they won't convene Thank you.

Speaker 2

You're always able to get from me some new things. So here is this one. Yes, we did have discussions with FDA prior to the submission. And if you recall at your conference, I mentioned publicly that we submitted The PMA supplement to FDA after having few discussions or interaction with FDA prior to that, we became comfortable With where we stood with them, we've prepared the dossier with all of the evidence, the totality of evidence and we submitted. Now the process It's for FDA to take 100 days and then come back with questions.

Speaker 2

And we're in this period right now where we're waiting for them to do all of the analysis they need And come back to us with questions. That does not mean that we are not having other conversations with FDA in parallel, but not Specific on the labeling of the PMA supplement.

Speaker 6

Got it. Appreciate that. Congrats guys.

Speaker 2

Thank you, my guys.

Operator

Thank you. Our next question comes from Bill Polviak With Canaccord Genuity, please proceed with your question.

Speaker 7

Hey, great. Thanks. Good evening. A couple of questions for you here. Just one I want to understand the reimbursement.

Speaker 7

When we read through the ops, I guess we saw a T code 0266 T There was reimbursing $30,400 and you're referencing $26,000 I think on reimbursement. What code are you referencing on that in the ops? I'm just trying to figure that one out, what we missed.

Speaker 2

Yes. Bill, this is Nadim by the way and let me pronounce your name correctly, Blavatik. Listen, great question. So yes, it is the 0266 T That is the reimbursement for the device and the procedure. And what Jared is mentioning is the ASP of the device net of the procedure.

Speaker 2

Now When you say a $30,400 that's a national average. So sites at major cities are more expensive And reimbursement could go up all the way to $40,000 and smaller hospitals in rural areas in United States where the cost of living is Lower might go lower than $30,000 So that drives companies to be, Let's say strategic and the account targeting in here and that's why you see often novel therapies Are targeting the big major metropolitan areas because the reimbursement is higher there. So when we're quoting $30,000 When you look at the average in the sites where Barastem is currently utilized, it's probably higher than 30,400. I'm sorry, it will be next year, talking about 2024. Jari, do you want to add one thing?

Speaker 7

Can you remind us what's the reimbursement today?

Speaker 2

Yes. Today is slightly below $3,000 but we have on top of it the transitional pass through payment that adds another $10,000 $15,000 on top of it. And this is the TPT, the transition pass through that expires by the end of this year. We've been granted this for 3 years And that helps novel therapies to be adopted and that's the process in the United States. Now if I compare and contrast With another product similar to ours, let me take the example of Inspire Medical, right.

Speaker 2

They did not have pass through when they started their product and they learn to live within that $30,000 envelope that we're talking about today. In our case, we got lucky. We received that transitional path through payment, but it's only for 3 years. And now it's Arriving toward the end of it by the end of this year.

Speaker 7

Okay. And then, I was wondering if you could talk about, the BAT wire. Now that you've had the Mission and you're in the 100 days. Your regulatory team, I would assume, Had a whole weekend off and then, are you kind of reenergized the BAT wire or how should we think about that program?

Speaker 2

As a company, yes, we're super energized, but the reality on the ground is more nuanced and more difficult than this. The enrollment rate For Batwire has been more challenging that we have anticipated. I think post COVID Patients are a little bit wary regarding experimental approaches and when they have a choice for a given indication Between an FDA approved product like Barastem, that is already minimally invasive and enrolling in a clinical trial With an uncertain outcome because not FDA approved for batwire, it seems that the majority of the patients right now are preferring to go the safer route and selecting barastem and we We've seen this in the numbers. We've seen this in our growth in Barastem, but the price we're paying right now was a slower enrollment in BAT wire. That said, While we remain blinded to the efficacy of BATWIR, we see the safety on a daily basis and we report on The safety of patients every 5 or 10 patients to FDA and so far we're super, super happy with how safe that approach is for patients.

Speaker 2

But again, let me remind everybody, we're still blinded to the efficacy of this. And as we proceed forward with the trial, we'll provide more updates We have something more to say, Bill, about this. Yes. On that topic, do you have any

Speaker 7

kind of updated thoughts on when you might complete enrollment How far through enrollment you are just to give us an idea? And thanks for taking my questions.

Speaker 2

Yes. No, Let me punt on this. We'll provide a longer update, I believe, probably next quarter when we'll learn a little bit more about The trend in the study in terms of enrollment, but what you hear from me here is, the concern about the fact That the enrollment has been more challenging than we anticipated and is going slower.

Speaker 7

Okay, great. We look forward to seeing you at our conference in 2 weeks. Thanks.

Speaker 2

I look forward to it, but thank you for the invite.

Operator

Thank you. Our next question comes from Alex Nowak with Craig Hallum. Please proceed with your question.

Speaker 8

Okay, great. Good afternoon, everyone. I wanted to follow-up to the couple of questions on the We talked a bit on pricing, but I actually want to pivot just a little bit. Just trying to understand how is Medicare thinking about Peristem? Were you just surprised that there was no plain no mention of Verastem anywhere within the documents?

Speaker 8

And I'm trying to understand, is that an outright denial of getting Verastem a new APC code or is that simply that the proposal for the new APC code just didn't make it into the proposed documents yet?

Speaker 2

Alex, how are you? It's a great question. By the way, I wish I know the answer. Would I prefer to have A negative comment explicit, which often what they do is they will say, yep, we received this request and nope, we will not give it to you or Have them stay silent on it. I don't know which one is better.

Speaker 2

Seriously, I think silent is better. It leaves the door open to have the dialogue with the panel In August, but it's hard to know. It is really hard to know, Alex.

Speaker 8

Well, getting a new indication or an upgraded label expansion at FDA, will that have any influence at all on the APC code that Medicare will

Speaker 2

The way Medicare is structured, they have think about it as 3 different Pillars that are independent, you have the coding, the payments and the coverage. The labeling expansion will impact coverage discussions. It would not impact payment and it will not impact coding. Payment under the CMS regulations is driven almost entirely By the cost of charges that hospitals report back to CMS that CMS analyzes. So CMS tries to put Therapies into buckets so that they don't have to price each one, each device or each flavor of a device different.

Speaker 2

They put them in bands or in buckets And they try to price these buckets based on the geometric average of the claim data that they receive from hospitals and it's not linked So an efficacy data or labeling or anything like that, unfortunately.

Speaker 8

Okay. That makes sense. And then obviously, we've seen some really strong sales results this year, last year as well. You've been adding sales territories 3 on average per quarter. What is the right number?

Speaker 8

What is the sales and leadership team asking for? And then this might be a A follow on question for the cash flow breakeven, just provide some more insights on how we get there with on hand, when do we start to see the OpEx growth start to slow? I think it sounds like 2024, but just current thoughts there.

Speaker 2

Excellent. Two questions, Alex. Let me take the easy one and I'll leave the difficult one to Jared. So, yes, we believe the right number is 3 per quarter. As we looked into our path to getting to cash flow Without needing to raise dilutive capital, it's a cone of possibilities, but if we go too slow In the growth rates, we will never get there.

Speaker 2

And if we go too fast, we burn the cash way too soon before getting there. Why is that? It's because when you hire a rep, it takes 6, 9, 12 months for the rep to be trained To start creating the relationships in the field and to take the accounts through the contracting process that we know take many months until they can treat their first So during that period, you're carrying the cost of the rep, the territory manager without getting The benefit from additional sales in that 1st year. So if you load it up too much upfront, You burn through the cash sooner without being able to get to the cash flow breakeven. If We were having you and I this conversation 5 years ago where the market was rewarding growth irrespective of the need to raising capital.

Speaker 2

Maybe that would have been our strategy, but today in this current environment where investors are focusing on the The ability of companies to generate cash flow, it did not this did not appear to be the right strategy for us To grow faster than this. But let me turn to Jared to walk you through the thinking process.

Speaker 3

Yes, Alex, it's something we've been talking about for a while was 2023 was the flat lining year from a cash burn perspective. So The number that we burned in 2022, the expectation was that we would be burning a number that was very similar to that in 2023 based on the guidance that we had put out at the beginning of the year. As we march into 2024 and beyond, that's where we see that cash burn number coming down and seeing the leverage in the model start to play out where the growth in OpEx Is a smaller dollar amount than the growth in revenue and that's how we get to that cash flow breakeven number.

Speaker 8

Appreciate the update. Thank you.

Speaker 2

Thank you, Alex.

Operator

Thank you. Our next question comes from Frank Tacatine with Lake Street Capital Markets. Please proceed with your question.

Speaker 9

Great. Thanks for taking the questions. I wanted to ask slightly differently related to the BHF data. I know it came up that was there any negative impact from that data and understanding it's not on label right now, so it can't be marketed, and it's off label technically, but was there on the flip side any positive impact that you potentially saw from active implanting centers that were familiar with the data. I know As a patient, if you can find your way to 34% reduction in the LVAD transplant, that's probably something you ask your physician about despite or Whether or not it is or is not on label, so maybe any tailwind as it relates to that, that you may have seen at some of your active implanting centers?

Speaker 2

Hey, Frank, excellent question. So when we unblinded the data and The data was presented at the late breaker. It's a common practice to have the steering committee present the data as well To the investigators who participated in the trial as a courtesy and many of those investigators are current customers, And our current Barastem customers and the feedback we got at that time was very positive, super encouraging. Yes, there were questions about, okay, what does it mean not to have met the primary endpoint, but the focus on the long term safety, the durability After symptomatic improvement and when you look at the totality of evidence, particularly as compounded with the win ratio analysis that was positive And the trend in the mortality data, people felt very good about the effect. And we spoke about it publicly back then.

Speaker 2

But I think probably It might have appeared to be a bit defensive when we were trying to convey a positive message and there was some negative sentiment Around the messaging that we did. In any way, that positive messaging, we believe has helped carry the day for us and Is the reason why we're seeing that trajectory change slightly this year versus last year in terms of growth? So With this in mind, yes, we believe it had a positive impact on our growth. Now we're talking here about the same Patient population, we're not talking outside of the current labeling. Listen, we estimated even with our conservative Method back when we did the IPO 2 years ago that there were 55,000 new patients every year That could be eligible to our therapy.

Speaker 2

Those are new patients every year. So if you don't treat them this year, there'll be another 55,000 the next year and so forth. And right now, what are we talking about? Less than 1,000 or 2,000 patients were treating every year? That's still a single digit percentage point of this population.

Speaker 2

So the key here is to give more ammunition to the sites Who are treating patients with Barastem when they in turn preach to the referring physicians about the virtues of Barastem, that's the key element in here is how can A treating a Barastem treating center can start spreading the word to the referral network about the benefit Of parastem and that's what the data allows for those who have been able to see it at scientific meetings. Did I answer your question, Frank?

Speaker 9

Yes, that's perfect. And then maybe just one other one on Utilization, I was hoping you can maybe approximate what percentage of your 140 or so are Running at 12 or more implants per year, just trying to get a sense for how that average is computed and how many of your centers are really contributing

Speaker 3

We have 140 active implanting centers. Just based on the additions we've done over the last 4 quarters or so, Half of them were added, right, in the last year. So that means only 70 of the centers have been with us more than 12 months as of the end of June this year. So we don't have a lot of centers that have reached that 2 plus year marker. But we are seeing really good signs for centers that have been with us 2 plus years to see that average implanting ratio reach that long term average of 1 per month or 12 per year that you're asking about.

Speaker 3

So we're not going to go into the details on the exact number, but we've talked about it in the past. It's more than a couple of handfuls of centers that have Started reaching that average in the more recent quarters.

Speaker 9

Great. That's helpful. I'll stop there. Thanks for taking the questions.

Speaker 2

Thank you so much. Thanks, Frank.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to Nadim for closing comments.

Speaker 2

Yes. Thank you, operator, and thanks everyone for joining us

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Earnings Conference Call
CVRx Q2 2023
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