CVRx, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. CVRx is a commercial-stage medical-device company focused on Barostim, a neuromodulation device approved in the U.S. to improve symptoms for patients with HFrEF and CE Marked in Europe for HFrEF and resistant hypertension. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $6.2 | $3.4 | $15.3 | $9.4 |
| Gross profit / margin | $4.8 / 78% | $2.5 / 74% | $11.8 / 77% | $6.7 / 72% |
| Operating expenses | $15.0 | $9.8 | $42.9 | $23.9 |
| Operating loss | $(10.1) | $(7.3) | $(31.0) | $(17.2) |
| Net loss | $(9.8) | $(6.1) | $(30.9) | $(32.5) |
| Net loss per share | $(0.48) | $(0.30) | $(1.51) | $(4.66) |
- Q3 revenue rose 82% year over year; U.S. revenue increased 96% to $5.0 million and Europe revenue increased 39% to $1.1 million. U.S. HF revenue units were 167 versus 84 a year earlier. The company reported 91 active implanting centers and 23 U.S. sales territories, compared with 38 and 11, respectively.
- Nine-month revenue increased 63%. U.S. revenue grew 91% to $12.0 million; Europe revenue rose 5% to $3.3 million. Management attributed growth mainly to expanded U.S. territories and accounts and increased awareness. European growth was partly offset by unfavorable currency effects.
- Gross margin improved in both periods, primarily due to lower cost per unit; nine-month margin also benefited from higher average selling price. A greater share of full-system sales, which carry lower margins than battery replacements, partly offset improvements.
- Q3 SG&A increased 56%, and nine-month SG&A nearly doubled, largely reflecting personnel and commercial expansion, including marketing, travel, stock compensation and public-company costs. R&D also increased, mainly due to higher compensation and headcount.
- Nine-month net loss was lower than in 2021 despite a larger operating loss, mainly because 2021 included a substantial noncash loss from remeasurement of preferred-stock warrants. The 2021 IPO converted those warrants to common-stock warrants, ending subsequent fair-value remeasurement.
Cash, liquidity and debt
- Cash and cash equivalents were $110.0 million at September 30, 2022, down from $142.1 million at December 31, 2021. Current assets were $124.4 million and current liabilities $7.4 million. Total liabilities were $8.3 million; the balance sheet reported no outstanding borrowing at quarter-end.
- Cash used in operations was $31.8 million for the first nine months, versus $20.7 million in 2021; capital expenditures were $0.6 million. Financing provided $0.4 million in 2022, compared with $133.2 million of IPO proceeds in the 2021 period.
- After quarter-end, on October 31, 2022, CVRx borrowed $7.5 million under a new secured term-loan facility of up to $50.0 million, with further borrowing subject to milestones and available in three tranches through December 2024. Interest is floating-rate; the loans mature January 31, 2028, with interest-only payments through November 1, 2027. Substantially all personal property secures the facility.
- Management expects operating losses and negative operating cash flows to continue for several years, but believes cash, the loan facility and revenue will cover forecast needs for at least three years. Additional financing may be needed if those resources are insufficient and could dilute shareholders or impose restrictive terms.
Outlook, commentary and risks
- No specific numerical revenue or earnings guidance is provided. Management plans to expand and train its U.S. sales organization, build awareness and reimbursement access, invest in product development and clinical work, and improve manufacturing efficiency and gross margins.
- Management said procedure volumes had returned to more normal levels in implant centers by March 2022 and through Q2 and Q3, while cautioning that COVID-19 and future variants could continue to affect procedures and operations.
- Key disclosed risks include continued losses and uncertain profitability; reliance on Barostim and its market acceptance; limited commercial experience; reimbursement and hospital access; competition; dependence on third-party suppliers and potential supply constraints; and the need for long-term clinical data. Inflation and foreign-exchange movements may pressure costs or sales. Cash deposits are concentrated at one U.S. financial institution and may exceed insured limits.
- The company reported no material legal proceedings, no material changes to the risk factors in its 2021 Form 10-K, and no material changes in internal control during the quarter. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether U.S. adoption, implant-center activity and reimbursement access continue to support revenue growth.
- Whether gross-margin gains persist as product mix, pricing, production volume and manufacturing costs change.
- Operating cash burn relative to management’s stated three-year liquidity expectation, including milestone conditions and costs under the new loan facility.
- The effect of COVID-19, supplier constraints, competition, foreign exchange and inflation on procedures, revenue and margins.
- Potential dilution from equity compensation and future financing; as of October 28, 2022, 20,584,163 common shares were outstanding.