CVRx, Inc.: Form 10-Q for the period ended Sep 30, 2023

Overview

We are a commercial-stage medical device company focused on developing, manufacturing, and commercializing innovative and minimally invasive neuromodulation solutions for patients with cardiovascular disease. Our proprietary platform technology, Barostim, is designed to leverage the power of the brain and nervous system to address the imbalance of the Autonomic Nervous System, which causes HF with reduced Ejection Fraction (“HFrEF”) and other cardiovascular diseases. 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 approved by the U.S. Food and Drug Administration (“FDA”) to improve the symptoms of patients with HFrEF 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.

Our sales and marketing efforts are directed at electrophysiologists, HF specialists, interventional and general cardiologists, and vascular surgeons because they are the primary users of our technology. However, we consider hospitals, where the procedures are performed primarily in an outpatient setting, to be our customers, as they are the purchasing entities of Barostim in the U.S. We intend to continue making significant investments building our U.S. commercial infrastructure by expanding and training our U.S. sales force. 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. 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 Centers for Medicare and Medicaid Services while simultaneously developing processes to engage commercial payors. All Medicare Administrative Contractors have retired their official automatic coverage denial policies for our Current Procedural Terminology codes, thereby allowing hospitals to submit payment requests for the Barostim procedure to be reviewed on a claim- by-claim basis. Our reimbursement strategy involves continuing to broaden our current coverage and build our in-house market access team to obtain appropriate prior authorization approvals in advance of treatment on a case-by-case basis where positive coverage policies currently do not exist. Outside the U.S., reimbursement levels vary by country and within some countries by region. Barostim is eligible for reimbursement in certain countries in the European Economic Area (“EEA”), such as Germany, where annual healthcare budgets for the hospital generally determine the number of patients to be treated and the prices to be paid for the related devices that may be purchased.

We manage all aspects of manufacturing operations and product supply of Barostim, which include final assembly, testing and packaging of our implantable pulse generator (“IPG”) and stimulation lead, at our headquarters in Minneapolis, Minnesota. We utilize components or various subassemblies manufactured by third-party suppliers, some of which have significant lead times. Many of these components are from a limited number of suppliers. We believe that our component manufacturers are recognized in their field for their competency to manufacture the respective portions of Barostim and have quality systems established that meet FDA requirements. 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 a loan and security 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 condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, 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, with $4.0 million received on March 13, 2023, and $3.5 million received on March 15, 2023. Following this draw, we have $15.0 million in outstanding Term Loans under the Loan Agreement. The Loan Agreement provides for up to two additional tranches of loans totaling up to an additional $35.0 million based on timing, the achievement of certain trailing three months revenue targets 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 February 2023, we were unblinded to the morbidity and mortality data from the BeAT-HF pivotal trial. The totality of the evidence from the trial shows long-term benefits for patients with HF. While the trial did not reach statistical significance on the primary endpoint, it did contain additional clinically meaningful prespecified analyses favoring Barostim. We filed a regulatory submission to the FDA for expanded labeling in early June 2023. If successful, this label expansion could expand our addressable patient population.

In August 2023, we delivered a presentation before the Centers for Medicare & Medicaid Services (“CMS”) Advisory Panel on Hospital Outpatient Payment, resulting in a unanimous non-binding vote in favor of mapping Barostim to the higher paying code, New Technology APC1580, which would offer an average reimbursement of $45,000 to hospitals in 2024. If CMS instead decides to map Barostim to APC5465 without the transitional passthrough payment for 2024, which is the basis for our plans, then the average reimbursement to hospitals will be approximately $30,000. The final outpatient payment rule is expected to be published in late November.

Factors affecting our performance

We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include:

• Growing and supporting our U.S. 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; and
• Leveraging our manufacturing capacity to further improve our gross margins.

Components of results of operations

Revenue

Our U.S. 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. sales force, as well as by seeking expanded labeling for Barostim. As a result, we expect that U.S. sales will continue to account for the majority of our revenue going forward.

We derive a portion of our revenue from the sale of Barostim to hospitals in Germany and other select countries in Europe. Revenue from sales of Barostim in Europe fluctuates based on the average selling price of Barostim as determined by location of sale and channel mix, each of which may vary significantly from country to country. Our revenue from international sales can also be significantly impacted by fluctuations in foreign currency exchange rates.

Cost of goods sold and gross margin

Cost of goods sold consists primarily of acquisition costs of the components and subassemblies of Barostim, allocated manufacturing overhead and scrap and inventory obsolescence, as well as distribution-related expenses such as logistics and shipping costs. We expect cost of goods sold to increase in absolute dollars primarily as, and to the extent, our revenue grows. Gross margin may also vary based on regional differences in rebates and incentives negotiated with certain customers.

We calculate gross margin as revenue less cost of goods sold divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, but is primarily driven by the average sale price of our product, the percentage of products sold that include a full system (i.e., an IPG and a stimulation lead), as compared to individual IPG sales, and the allocated manufacturing overhead. Although we sell the majority of our devices directly to hospitals, the impact of the average selling price on gross margin is driven by the percentage of products we sold to distributors as compared to those sold directly to hospitals, as our average selling price is typically higher on products we sell directly. The full system sales typically have a lower gross margin as they include the cost of an IPG and a stimulation lead whereas individual IPG sales only include the cost of an IPG. 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.

Research and development expenses

Research and development (“R&D”) expenses consist primarily of personnel costs, including salaries, bonuses, employee benefits and stock-based compensation expenses for our R&D employees. R&D expenses also include costs associated with product design efforts, development prototypes, testing, clinical trial programs and regulatory activities, contractors and consultants, equipment, and software to support our development, facilities, and information technology. We expense R&D costs as they are incurred. 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.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs, including base salaries, bonuses, employee benefits and stock-based compensation expense for our sales and marketing personnel, including sales commissions, and for administrative personnel that support our general operations such as executive management, financial accounting, information technology and human resources personnel. SG&A expenses also include costs attributable to marketing, as well as travel, legal fees, financial audit fees, insurance, fees for other consulting services, depreciation, and facilities. We expense commissions at the time of the sale.

We expect SG&A expenses to increase in absolute dollars as we continue to expand our direct sales force and commercial organization in the U.S. In addition, we will continue to increase our international presence and to develop and assist our channel partners. However, we expect our SG&A expenses to decrease as a percentage of revenue as our revenue grows.

Interest expense

Interest expense consists of interest on our debt and amortization of associated financing costs.

Other income, net

Other income, net consists primarily of interest income on our interest-bearing accounts, partially offset by the effect of exchange rates on our foreign currency-denominated asset and liability balances.

Provision for income taxes

Provision for income taxes consists primarily of income taxes in foreign jurisdictions in which we conduct business. We maintain a full valuation allowance for deferred tax assets including NOL carryforwards, R&D credits, and other tax credits.

Results of operations

Consolidated results of operations for the three months ended September 30, 2023, compared to the three months ended September 30, 2022

(unaudited and in thousands)

NM – Not meaningful

The following table provides revenue by geography:

(unaudited and in thousands)

Revenue was $10.5 million for the three months ended September 30, 2023, an increase of $4.3 million, or 70%, over the three months ended September 30, 2022.

Revenue generated in the U.S. was $9.6 million for the three months ended September 30, 2023, an increase of $4.5 million, or 90%, over the three months ended September 30, 2022. HF revenue units in the U.S. totaled 303 and 167 for the three months ended September 30, 2023 and 2022, respectively. HF revenue in the U.S. totaled $9.4 million and $4.9 million for the three months ended September 30, 2023 and 2022, respectively. The increases were primarily driven by continued growth in the U.S. HF business as a result of the expansion into new sales territories, new accounts, and increased physician and patient awareness of Barostim.

As of September 30, 2023, we had a total of 159 active implanting centers, as compared to 91 as of September 30, 2022. Active implanting centers are customers that have completed at least one commercial HF implant in the last 12 months. As of September 30, 2023, we had a total of 35 sales territories as compared to 23 as of September 30, 2022.

Revenue generated in Europe was $0.9 million for the three months ended September 30, 2023, a decrease of $0.2 million, or 19%, over the three months ended September 30, 2022. Total revenue units in Europe decreased to 47 for the three months ended September 30, 2023, as compared to 61 in the prior year period. As of both September 30, 2023 and 2022, we had six sales territories in Europe.

Cost of goods sold and gross margin

Cost of goods sold increased $0.4 million, or 26%, to $1.7 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This increase was primarily due to higher sales of Barostim.

Gross profit was $8.8 million for the three months ended September 30, 2023, an increase of $4.0 million, or 82%, over the three months ended September 30, 2022. Gross margin increased to 84% for the three months ended September 30, 2023, compared to 78% for the three months ended September 30, 2022. This increase was due primarily to a decrease in the cost per unit driven by an increase in the production volume.

Research and development expenses

R&D expenses increased $0.4 million, or 18%, to $2.7 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This change was driven by a $0.3 million increase in compensation expenses as a result of increased headcount and a $0.1 million increase in non-cash stock-based compensation expense.

Selling, general and administrative expenses

SG&A expenses increased $3.0 million, or 23%, to $15.7 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This change was primarily driven by a $1.9 million increase in compensation expenses, mainly as a result of increased headcount, a $0.5 million increase in non-cash stock-based compensation expense, a $0.3 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S. and a $0.1 million increase in travel expenses.

Interest expense

Interest expense increased $0.5 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This increase was driven by the interest expense on borrowings under the Loan Agreement entered into on October 31, 2022.

Other income, net

Other income, net increased $0.7 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This increase was primarily driven by higher interest rates on interest-bearing accounts partially offset by a lower cash balance.

Provision for income taxes

Provision for income taxes was nominal for each of the three months ended September 30, 2023 and September 30, 2022.

Consolidated results of operations for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022

(unaudited and in thousands)

NM – Not meaningful

The following table provides revenue by geography:

(unaudited and in thousands)

Revenue was $28.0 million for the nine months ended September 30, 2023, an increase of $12.7 million, or 83%, over the nine months ended September 30, 2022.

Revenue generated in the U.S. was $24.8 million for the nine months ended September 30, 2023, an increase of $12.8 million, or 106%, over the nine months ended September 30, 2022. HF revenue units in the U.S. totaled 793 and 394 for the nine months ended September 30, 2023 and 2022, respectively. HF revenue in the U.S. totaled $24.5 million and $11.6 million for the nine months ended September 30, 2023 and 2022, respectively. The increases were primarily driven by continued growth in the U.S. HF business as a result of the expansion into new sales territories, new accounts, and increased physician and patient awareness of Barostim.

As of September 30, 2023, we had a total of 159 active implanting centers, as compared to 91 as of September 30, 2022. Active implanting centers are customers that have completed at least one commercial HF implant in the last 12 months. As of September 30, 2023, we had a total of 35 sales territories as compared to 23 as of September 30, 2022.

Revenue generated in Europe was $3.2 million for the nine months ended September 30, 2023, a decrease of $0.1 million, or 3%, over the nine months ended September 30, 2022. Total revenue units in Europe decreased to 155 for the nine months ended September 30, 2023, as compared to 163 in the prior year period. As of both September 30, 2023 and 2022, we had six sales territories in Europe.

Cost of goods sold and gross margin

Cost of goods sold increased $1.0 million, or 30%, to $4.5 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This increase was primarily due to higher sales of Barostim.

Gross profit was $23.5 million for the nine months ended September 30, 2023, an increase of $11.7 million, or 99%, over the nine months ended September 30, 2022. Gross margin increased to 84% for the nine months ended September 30, 2023, compared to 77% for the nine months ended September 30, 2022. This increase was due primarily to a decrease in the cost per unit driven by an increase in the production volume.

Research and development expenses

R&D expenses increased $2.5 million, or 36%, to $9.4 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This change was driven by a $1.4 million increase in compensation expenses as a result of increased headcount, a $0.6 million increase in non-cash stock-based compensation expense and a $0.4 million increase in consulting fees.

Selling, general and administrative expenses

SG&A expenses increased $11.6 million, or 32%, to $47.5 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This change was primarily driven by a $6.9 million increase in compensation expenses, mainly as a result of increased headcount, a $1.6 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S, a $1.3 million increase in travel expenses, a $1.3 million increase in non-cash stock-based compensation expense and a $0.6 million increase in consulting fees.

Interest expense

Interest expense increased $1.2 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This increase was driven by the interest expense on borrowings under the Loan Agreement entered into on October 31, 2022.

Other income, net

Other income, net increased $2.5 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This increase was primarily driven by higher interest rates on interest-bearing accounts partially offset by a lower cash balance.

Provision for income taxes

Provision for income taxes was nominal for each of the nine months ended September 30, 2023 and September 30, 2022.

Liquidity, capital resources and plan of operations

We have incurred significant operating losses and negative cash flows from operations since our inception, and we anticipate that we will incur significant losses for at least the next several years. As of September 30, 2023 and December 31, 2022, we had cash and cash equivalents of $83.0 million and $106.2 million, respectively. For the three months ended September 30, 2023 and 2022, our net losses were $9.0 million and $9.8 million, respectively. For the nine months ended September 30, 2023 and 2022, our net losses were $32.0 million and $30.9 million, respectively. Our net cash used in operating activities for the nine months ended September 30, 2023 and 2022 was $31.2 million and $31.8 million, respectively.

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 condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, 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, with $4.0 million received on March 13, 2023, and $3.5 million received on March 15, 2023. Following this draw, we have $15.0 million in outstanding Term Loans under the Loan Agreement. The Loan Agreement provides for up to two additional tranches of loans totaling up to an additional $35.0 million, based on timing, the achievement of certain trailing three months revenue targets 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 September 30, 2023, no shares have been sold.

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

• our investment in our U.S. commercial infrastructure and sales forces;
• the degree and rate of market acceptance of Barostim and the ability for our customers to obtain appropriate levels of reimbursement;
• the costs of commercialization activities, including product sales, marketing, manufacturing and distribution;
• our R&D activities for product enhancements and to expand our indications;
• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
• our need to implement additional infrastructure and internal systems;
• our ability to hire additional personnel to support our operations as a public company; and
• 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. 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. If we were to raise additional funds by issuing equity securities, our stockholders would experience dilution. Additional debt financing, if available, may involve covenants further restricting our operations or our ability to incur additional debt. Any such debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

Additional financing may not be available at all or may only be available in amounts or on terms that we do not deem to be favorable. If we are unable to obtain additional financing when needed to satisfy our liquidity requirements, we may be required to delay the commercialization and marketing of Barostim.

Cash flows

The following table sets forth the primary sources and uses of cash for each of the periods indicated below:

(unaudited)

(in thousands)

Cash used in operating activities

Net cash used in operating activities for the nine months ended September 30, 2023 was $31.2 million and consisted primarily of a net loss of $32.0 million and a change in net operating assets of $4.4 million, partially offset by a non-cash charge of $4.7 million related to stock-based compensation expense. Net operating assets consisted primarily of accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued expenses to support the growth of our operations.

Net cash used in operating activities for the nine months ended September 30, 2022 was $31.8 million and consisted primarily of a net loss of $30.9 million and a change in net operating assets of $4.1 million, partially offset by a non-cash charge of $2.8 million related to stock-based compensation expense. 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:

Cash used in investing activities was $0.4 million and $0.6 million for each of the nine months ended September 30, 2023 and 2022, respectively, and consisted of purchases of property and equipment.

Cash provided by financing activities:

Net cash provided by financing activities for the nine months ended September 30, 2023 was $8.4 million and consisted of $7.5 million related to proceeds under the Loan Agreement, $0.5 million related to proceeds from the ESPP and $0.5 million related to proceeds from the exercise of common stock options, partially offset by $0.1 million related to debt financing costs.

Net cash provided by financing activities for the nine months ended September 30, 2022 was $0.4 million and consisted of $0.3 million related to proceeds from the ESPP and $0.1 million related to proceeds from the exercise of common stock options.

Contractual obligations and commitments

There have been no material changes to our contractual obligations as of September 30, 2023, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Critical accounting policies and estimates

For a discussion of our potential risks and uncertainties, see the information in Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical accounting policies and estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. We have reviewed and determined that those critical accounting policies and estimates remain our critical accounting policies and estimates as of and for the nine months ended September 30, 2023.

JOBS Act accounting election

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.

Recent accounting pronouncements

A discussion of recent accounting pronouncements is included in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest rate risk

The risk associated with fluctuating interest rates is primarily limited to our cash equivalents and debt issued under the Loan Agreement, which are carried at quoted market prices and the prime rate, respectively. We do not currently use or plan to use financial derivatives in our investment portfolio.

Foreign currency exchange rate risk

Portions of our revenue and operating expenses that are incurred outside the U.S. are denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our condensed consolidated statements of operations and comprehensive loss. To date, foreign currency transaction realized gains and losses have not been material to our condensed consolidated financial statements, and we have not engaged in any foreign currency hedging transactions. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates.

Inflation risk

Inflationary factors, such as increases in our cost of goods sold and operating expenses, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin and selling and marketing and operating expenses as a percentage of our revenue if the selling prices of our products do not increase as much as or more than these increased costs.

Credit risk

As of September 30, 2023 and December 31, 2022, our cash and cash equivalents were maintained with financial institutions which we believe have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us; however, our cash balances were in excess of insured limits.

Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For a discussion of our potential risks and uncertainties, see the information in Part I, Item IA. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Other than the risk factors set forth below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K.

If third-party payors do not provide adequate coverage and reimbursement for the use of Barostim, our revenue will be negatively impacted.

Medicare reimbursement levels are important to increasing adoption of Barostim because nearly two-thirds of the target patient population for Barostim is over the age of 65. Effective January 2021, CMS awarded Barostim a TPT payment for outpatient procedures that adds the device cost as a pass-through payment to the calculated procedure payment, which will remain in place through 2023. The calculated procedure payment depends on many factors, including the location of the hospitals and their billing practices, and may not adequately cover hospital costs associated with the procedure. CMS recently released the proposed Outpatient Prospective Payment System (or “OPPS”), for 2024, which did not address our March 2023 submission requesting assignment to one of the New Technology APC payment codes for 2024. We submitted formal comments on the proposed OPPS package to advocate for inclusion in the 2024 final rule to be released later this year. In August 2023, we delivered a presentation before the CMS Advisory Panel on Hospital Outpatient Payment, resulting in a unanimous non-binding vote in favor of mapping Barostim to the higher paying code, New Technology APC1580, which would offer an average reimbursement of $45,000 to hospitals in 2024. If CMS instead decides to map Barostim to APC5465 without the transitional passthrough payment for 2024, which is the basis for our plans, then the average reimbursement to hospitals will be approximately $30,000. The final outpatient payment rule is expected to be published in late November. There can be no assurance that our efforts to request the higher paying code or the CMS Advisory Panel’s vote will be successful in securing the higher paying code. Any future decline in the amount Medicare is willing to reimburse our customers for procedures using Barostim could make it difficult for new customers to adopt Barostim and could create additional pricing pressure for us, which could adversely affect our ability to invest in and grow our business. From time to time, physicians and hospitals have in the past experienced, and others may experience, delays in Medicare reimbursement, which have delayed or may delay their willingness to schedule additional Barostim procedures.

If clinical studies for future indications do not produce results necessary to support regulatory clearance or approval in the U.S. or elsewhere, we will be unable to commercialize our products for these indications.

We will likely need to conduct additional clinical studies in the future to support approval for new indications. For example, in February of 2023, we were unblinded to the morbidity and mortality data from the BeAT-HF pivotal trial that began in 2016. While the trial did not reach statistical significance on the primary endpoint, it did contain additional clinically meaningful prespecified analyses favoring Barostim. We filed a regulatory submission to the FDA for expanded labeling in early June 2023; however, the timing and scope of any such expansion is currently uncertain.

More generally, clinical testing takes many years, is expensive and carries uncertain outcomes. The initiation and completion of studies may be prevented, delayed, or halted for numerous reasons, including, but not limited to, the following:

• the FDA, institutional review boards (“IRBs”), ethics committees, European Union (“EU”) competent authorities or other regulatory authorities do not approve a clinical study protocol, force us to modify a previously approved protocol, or place a clinical study on hold;
• patients do not enroll in, or enroll at a lower rate than we expect, or do not complete a clinical study;
• patients or investigators do not comply with study protocols;
• patients do not return for post-treatment follow-up at the expected rate;
• patients experience serious or unexpected adverse side effects for a variety of reasons that may or may not be related to our products, such as the advanced stage of co-morbidities that may exist at the time of treatment, causing a clinical study to be put on hold;
• sites participating in an ongoing clinical study withdraw, requiring us to engage new sites;
• difficulties or delays associated with establishing additional clinical sites;
• third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the anticipated schedule, or perform in a manner inconsistent with the investigator agreement, clinical study protocol, good clinical practices, other FDA, IRB or ethics committee requirements and EEA member state or other foreign regulations governing clinical trials;
• third-party organizations do not perform data collection and analysis in a timely or accurate manner;
• regulatory inspections of our clinical studies or manufacturing facilities require us to undertake corrective action or suspend or terminate our clinical studies;
• changes in federal, state, or foreign governmental statutes, regulations or policies;
• interim results are inconclusive or unfavorable as to immediate and long-term safety or efficacy;
• the study design is inadequate to demonstrate safety and efficacy; or
• the statistical endpoints are not met.

Clinical trials can fail at any stage. Our clinical studies may produce negative or inconclusive results and we may decide, or regulators may require us, to conduct additional clinical or non-clinical studies in addition to those we have planned. The impacts of the COVID-19 pandemic, which may have affected certain participants in the post-market pivotal trial, are being analyzed, and they may exacerbate certain risks described above. In addition, if the FDA determines for any reason, including safety or their risk-benefit analysis, that the results of a trial are negative, the FDA may decide to modify or revoke our existing approval, or such data may impact the adoption of Barostim. Moreover, a negative perception of clinical results for one indication for use could impact the use of Barostim for other FDA approved and clinically supported indications for use.

We could also encounter delays if the FDA concludes that our financial relationships with investigators result in a perceived or actual conflict of interest that may have affected the interpretation of a study, the integrity of the data generated at the applicable clinical trial site or the utility of the clinical trial itself. Principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. If these relationships and any related compensation to or ownership interest by the clinical investigator carrying out the study result in perceived or actual conflicts of interest, or if the FDA concludes that the financial relationship may have affected interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized.

Even if our products are approved in the U.S. and the EEA, comparable regulatory authorities of additional foreign countries must also approve the manufacturing and marketing of our products in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the U.S. or the EEA, including additional preclinical studies or clinical trials. Any of these occurrences may harm our business, financial condition, and prospects significantly.

Barostim is also subject to extensive governmental regulation in foreign jurisdictions, such as Europe, and our failure to comply with applicable requirements could cause our business to suffer.

In the EEA, Barostim was required to comply with the Essential Requirements laid down in Annex I to the EU Active Implantable Medical Devices Directive. Compliance with these requirements was a prerequisite to affixing the CE mark to Barostim. To demonstrate compliance with the Essential Requirements and obtain the right to affix the CE Mark to Barostim, we underwent a conformity assessment procedure, which varied according to the type of medical device and its classification. Except for low-risk medical devices (Class I with no measuring function and which are not sterile), where the manufacturer could issue an EU Declaration of Conformity based on a self-assessment of the conformity of its products with the Essential Requirements, a conformity assessment procedure required the intervention of a Notified Body, which is an organization designated by a competent authority of an EEA country to conduct conformity assessments. Depending on the relevant conformity assessment procedure, the Notified Body would audit the Quality Management System and examine the Technical File for the manufacture, design, and final inspection of our devices. The Notified Body would issue a CE Certificate of Conformity following successful completion of this conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the Essential Requirements. This Certificate would entitle the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EU Declaration of Conformity.

As a general rule, demonstration of conformity of medical devices and their manufacturers with the Essential Requirements must be based on, among other things, the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use and that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device (e.g., product labeling and instructions for use) are supported by suitable evidence. This assessment must be based on clinical data, which can be obtained from (1) clinical studies conducted on the devices being assessed, (2) scientific literature from similar devices whose equivalence with the assessed device can be demonstrated or (3) both clinical studies and scientific literature. With respect to active implantable medical devices or Class III devices, the manufacturer must conduct clinical studies to obtain the required clinical data, unless reliance on existing clinical data from equivalent devices can be justified. The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These may include the requirement of prior authorization by the competent authorities of the country in which the study takes place and the requirement to obtain a positive opinion from a competent Ethics Committee. This process can be expensive and time-consuming.

In order to continue to sell Barostim in Europe, we must comply with the Medical Devices Regulation (Regulation (EU) 2017/745 — “MDR”) and its evolving transition requirements. We have submitted our application for Barostim to comply with the general safety and performance requirements of the EU MDR (which are similar to the Essential Requirements of the Active Implantable Medical Device Directive (“AIMDD”)), and it is currently under review. Additionally, the EU did approve an amendment to the MDR which allows qualifying AIMDD CE certificates to be accepted through December of 2027. We have already met the qualifications identified within this amendment to allow continued distribution of Barostim through this time. Failing to continue to comply with applicable foreign regulatory requirements, including those administered by authorities of the EEA countries, could result in enforcement actions against us, including refusal, suspension or withdrawal of our CE Certificates of Conformity by our Notified Body (the National Standards Authority of Ireland, or NSAI), which could impair our ability to market products in the EEA in the future.