Nuwellis, Inc. — Q3 2023 Form 10-Q
Business and period: Nuwellis develops and commercializes the Aquadex system for ultrafiltration therapy for patients with fluid overload. This filing covers the quarter and nine months ended September 30, 2023; financial statement amounts are unaudited and in thousands, except per-share data.
Financial performance
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net sales | 2023: $2.412 million; 2022: $2.065 million (+16.8%) | 2023: $6.313 million; 2022: $6.204 million (+1.8%) |
| Gross profit / margin | 2023: $1.381 million / 57.3%; 2022: $1.259 million / 60.9% | 2023: $3.595 million / 57.0%; 2022: $3.424 million / 55.2% |
| Operating expenses | 2023: $4.545 million; 2022: $5.179 million | 2023: $17.632 million; 2022: $16.061 million |
| Net loss | 2023: $3.370 million; 2022: $3.870 million | 2023: $14.700 million; 2022: $12.629 million |
| Basic and diluted loss per share | 2023: $1.81; 2022: $36.72 | 2023: $10.21; 2022: $119.85 |
Quarterly sales growth reflected a 26% increase in circuit sales; management reported growth across Heart Failure (+27%), Critical Care (+16%) and Pediatrics (+9%). Nine-month sales rose modestly as higher circuit sales and technical services were partly offset by lower console sales. Quarterly SG&A declined 19.4%, primarily due to lower headcount and compensation costs; R&D rose 20.4%, mainly for pediatric continuous renal replacement therapy device development. For the nine months, SG&A increased 5.1% and R&D increased 28.9%.
Cash and cash equivalents were $4.930 million at September 30, 2023, versus $17.737 million at December 31, 2022; marketable securities were zero, down from $569,000. Nine-month operating cash use was $15.183 million, compared with $12.022 million in 2022. Investing activities provided $294,000, while financing activities provided $2.088 million, principally from the ATM program. Accumulated deficit was $282.1 million. Total liabilities were $3.593 million, including lease liabilities; the filing does not report conventional funded debt. Current liabilities were $2.992 million and current assets $9.638 million.
Changes, outlook and risks
- Quarterly net loss narrowed year over year, but the nine-month net loss and operating cash use increased. Nine-month operating loss was $14.037 million, compared with $12.637 million in 2022.
- Management said existing capital resources were expected to support operations through February 28, 2024, but stated that substantial doubt existed about the company’s ability to continue as a going concern through at least 12 months from the report date. Additional funding will be needed; success and terms are uncertain.
- The March 2023 ATM program generated approximately $2.1 million in net proceeds from 657,333 shares through September 30. After quarter-end, an October 17 offering generated approximately $2.25 million gross. It comprised Series J convertible redeemable preferred stock and warrants; the preferred shares carry a 5% potential in-kind dividend and may require redemption after three years, in cash if legally permissible or potentially in common shares.
- A DaVita pilot for Aquadex therapy was expected to launch by the end of Q4 2023 and run through May 31, 2024. DaVita may choose to extend the agreement for up to 10 years. A warrant for up to 1,289,081 common shares is subject to vesting milestones and had not vested at quarter-end.
- A $450,000 payment to SeaStar is contingent on FDA HDE approval for specified products. Approval was described as reasonably possible; no liability was recorded at September 30, 2023.
- Two customers represented 21% and 11% of quarterly sales; three customers represented 17%, 17% and 11% of accounts receivable at quarter-end. These concentrations create customer and collection exposure.
- Other risks include continued losses, dependence on additional financing and broader adoption of Aquadex, execution of product development and sales plans, hospital budget and staffing constraints, and regulatory and commercialization uncertainty. The company reported no material changes to previously disclosed risk factors, no current legal proceedings, and effective disclosure controls.
Investor facts to verify
- Whether the October 2023 financing and any further capital raises extend the runway beyond management’s stated February 28, 2024 estimate.
- Actual operating cash burn, sales growth and gross margin trends in subsequent filings, including the contribution from circuit sales and the performance of each customer category.
- DaVita pilot launch, extension decision, revenue milestones and potential dilution from the warrant.
- Terms, accounting classification and potential redemption or dilution effects of the Series J preferred stock and warrants.
- Whether SeaStar obtains HDE approval and triggers the $450,000 milestone payment.