CVRx, Inc. (CVRX) Earnings Call Transcript & Summary

Good afternoon. I'm Robbie Marcus, the MedTech analyst at JPMorgan. Very happy to host our next session with CVRx. Going to introduce the CEO, Nadim Yared for a presentation, and then we'll do some Q&A.

Thank you, Robbie. Thanks to JPMorgan here for inviting us one more time to present the story. I know there are some people on the webcast, I hope that you'll be able to follow the slides and hear my voice properly. First, I'm here on behalf of my team. I've got a wonderful group of people I work with every day and I'm so blessed to have them. And actually, 80% of them have been promoted internally in the organization that shows the depth we have in this company. But let me step back and talk about heart failure for a second. So heart failure is when the heart of the patients become larger and larger, and patient loses energy, cannot walk, cannot breathe, cannot sleep horizontally. And over time, they unfortunately end up going to the hospital or die. And over the past few decades, there have been a lot of advancements in the medical treatment of heart failure. We have a lot of new drugs. Actually, the current crops of guideline-directed medical therapy are working very well. ACE inhibitors, beta blockers, ARNIs, you name it. And what we've seen is an improvement in the longevity of patients suffering from heart failure by somewhere around 1.4 to 6.3 years. So guideline-directed medical therapy works very well in prolonging the life of heart failure patients, but one thing is missing. The exercise capacity of those patients is not unfortunately improving with guideline-directed medical therapy. You're looking here at the compilation of 29 randomized controlled studies with thousands and tens of thousands of patients with the drugs where it shows that the benefit in exercise capacity is very limited, barely there. Luckily for most heart failure patients, a good therapy exists called CRT, Cardiac Resynchronization Therapy, currently manufactured and commercialized by Medtronic, Abbott, Boston Scientific. It works very well in patients who have a wide QRS. Those patients are Class I indicated for the therapy, but much less so for patients with narrow or intermediate QRS. And it's for those patients that we have developed, Barostim. Barostim is a platform technology patented. And we are leveraging a mechanism of action called the Baroreflex. So all of us human would not be able to stand up without fainting if it wasn't for the Baroreflex. We all have Baroreceptors, those are stretch fibers and the carotid wall and they indicate to the brain, the blood pressure with every beat of the heart. So when we sit down, lay down, stand up, they're sending information to the brain. The brain uses this information and sends orders to the main organs; heart, arteries, kidney to balance the blood flow. And in heart failure patients, what we have made this observation over and over again, is that the sensitivity of the Baroreflex is down. Those Baroreceptors are not sending the right level of information to the brain. The brain thinks, "Oh, I'm not receiving enough blood flows." so it reduces the sympathetic outflow, actually, it increases the sympathetic outflow and reduces the parasympathetic. Let me explain those two. Sympathetic outflow, fight-or-flight mechanism. That's the gas pedal. So in heart failure patients, because the Baroreflex sensitivity is low, the brain is asking the heart to keep pumping blood more and more even during sleep and the artery to constrict and the kidney to retain fluids. And that leads to an exacerbation of the heart failure symptoms. And over the years, we've started the Barostim, our technology, and we've demonstrated in clinical studies that it is very likely reducing the Baroreflex sensitivity, therefore reducing the sympathetic outflow and increasing the parasympathetic outflow. And there has been a question, does it affect and improve the symptoms of patients suffering from heart failure. So we conducted studies and through a randomized controlled trial, this is the second one, the pivotal trial, we call it BeAT-HF. We've demonstrated that Barostim improved the exercise capacity by 60 meters on a standardized test called the 6-minute hall walk test about 20% improvement. Usually, a 25-meter improvement is deemed to be clinically meaningful. Quality of life improvement of 14 points, NYHA classification improving by 34%. And you see at the bottom here, the data from the pivotal trials of those CRT devices that I was talking how beautiful they work in patients. And you see that our data compares favorably to what they accomplished, 29 and 39 meters in the 6-minute hall walk, 11 and 9 points in the Minnesota Living with Heart Failure Questionnaire and 20% and 30% on the functional status. And our data actually has been confirmed with actually an objective endpoint called the NT-proBNP, which tends to correlate well with outcome with the reduction of mortality-morbidity. So in summary, if I add the results from Barostim, on the same graph I've shown earlier, you see that we are achieving here a similar level of benefit to the one achieved by CRT devices in their best subsegment. That's pretty cool. So our therapy, we built a business around that right now. There are five reasons why you may want to pay attention to it, five attributes, I would say, makes it pretty compelling. Number one, large TAM. The market opportunity when you talk about heart failure, you talk about millions of patients, but we have to be careful. We have to select the right patient following the FDA approval of our device eligibility criteria in our approval. And when we do the slicing and dicing of the data, and we'll be -- actually, we are a bit more conservative than the FDA labeling for our therapy. We, for example, remove patients who don't have access to health care or have other comorbidities. We end up with an annual rate of 55,000 new patients that would meet our eligibility criteria. You multiply this by an average selling price point of $25,000. That's $1.4 billion annual market opportunity in the United States; similar numbers in Europe shows about $1.5 billion, so the total is $2.9 believe. So large TAM. Second attributes. Patient identification is straightforward. A patient that has heart failure with Class II or Class III NYHA with the ejection fraction less than 35% is eligible for receiving an ICD, and that is in the guidelines. That same patients, if they receive that ICD and not a CRT for heart failure, it's because they have a narrow QRS. They didn't meet the eligibility of the CRT device. There's only one more test that we need to do, NT-proBNP, a simple blood draw. And if it's below 1,600, the patient is eligible for Barostim, very simple. Third, the procedure is using two portion of procedures well known. It starts like a carotid endarterectomy, but we don't cut inside the carotid, we just open up the skin, suture the electrode on the outside of the skin. And it ends like a pacemaker, but we don't insert anything in the heart. We just put the implantable puncture right in the chest and close it up skin-to-skin about for an hour. Fourth, hospital economics are favorable. 67% of heart failure subjects are above the age of 65, Medicare eligible patients. So our focus has been to work with CMS on the coding and the coverage and the payment of our therapy. And we're very happy with where we are today. The coding of our device is mapped to a payment level that averages nationally about $29,000. And on top of which CMS over the past 3 years have added a new technology add-on payment for outpatient procedure, it is called the transitional pass-through, TPT. So the sum of those two numbers differs zip code by zip code somewhere around $40,000 to $50,000. We sell the device about $30,000. So there is enough margin for the hospital to pay the physicians, the cost of material and so forth and the OR cost and make some profits. 19% of the patients are covered by commercial payers. We follow the prior authorization process patient by patient, we help the patients or the patients themselves or the hospital does it, submit the file of the patients and they go through the process. And if the private payers authorize the procedure, they do it. That's how we're doing right now, the procedures. Finally, our business model from a go-to-market strategy is very traditional. We hire sales reps. We train them. Once they've proven that they're good, we carve out a territory for them. We asked them in the territory to activate five centers. In every center, we asked them to do one procedure per month, that's it. Initially, we targeted the top 200 sites in the United States in terms of volume of ICD procedures. Those top 200 sites did in average in 2019, 17 ICD every month, which is one [indiscernible] of those 17 to be receiving Barostim. 5 times 12 is 60 times at average selling price point of $25,000, that's $1.5 million. Jared, our CFO calculated that with this level of revenue, perhaps we could become a profitable company. Now I've talked about the five reasons why you want to pay attention, but that is the chart that should attract your attention. This is our U.S. revenue since we introduced the product in early 2020. Of course, the first 3 quarters we had COVID. We're still trying to learn how to meet for the physician when we're not allowed to talk to them, right? But after this, it has been a steady growth. Yes, you can see here the dip in Q4, not a dip, but a slowdown when Omicron and Delta hit at the same time in December of 2021. But overall, this has been a fantastic story. In Q4, we did $5.9 million of revenue in the United States. What you see here, the blue line is the addition of reps or territories, 26 by the end of the year. And the purple line growing up is the number of active implanting centers, we added 15 in Q4 for a total of 106. Worldwide, we did in Q4, $7 million to $7.1 million. That's our forecast. The final numbers will be released towards the end of January or early February. The average selling price in Q4 was very nice with $30,900 slightly above what we had in Q3. I mentioned earlier, we added 3 territories for a total of 26 by the end of the year, and we had 106 active implanting centers by adding 15 in Q4. From a cash position, we end up the year with $106 million. I need to note in here that we drew only $7.5 million from the $50 million debt facility that we signed up in October, and we did not use the ATM at all. If there was any question of how much share CVRx sold - zero; we did not use the ATM yet. We still have this facility available to us. $50 million we will use it when we need to. We did not see the need to use it yet. Therefore, for the full year here, the number will be about $22.3 million to $22.4 million with our U.S. heart failure revenue, $17.5 million, which represents a growth year-over-year of 108%. The guidance for 2023. We expect revenue to be between $35 million to $38 million next year. Gross margin between 78% to 79% and our operating expenses, including the noncash operating expenses between $76 million and $80 million. And for Q1, we expect our total revenue to be between $7.1 million and $7.5 million. Switching gears here to talk about the R&D road map. Last year, we introduced a new generation of IPG implantable pulse generator with the new programmer, we spoke about that. Also, our trial design has a post-market component that would allow us to study the effect of mortality-morbidity. I will talk shortly about this because that is an important element that many people are asking questions about. And finally, we have developed this new procedure toolkit. We call it BATwire. This is an ultrasound-guided instrument that allow us to implant the lead, the same lead that we have today but with reducing the size of the incision in the neck. So that would allow an interventionalist such as electrophysiologist to do the procedure if they wish to. So going back to the new data that will be available in the first half of next year. I need to step back and explain how the trial was designed. BeAT-HF is our pivotal trial. And under the breakthrough designation from FDA, we designed a 2-in-1 trial with a premarket and a post market in the same trial with the same patients applying to both. The first 408 patients at 6 months were the data that we used for the first approval. We use 264 of those. That's the intended use population. And at 6 months, we collected the evidence that we needed the NT-proBNP 6-minute hall walk and quality of life. That led FDA to conclude that our device is safe and effective and that the benefit outweigh the risk. We got a PMA approval. We started the commercialization based on that symptomatic improvement of the device. Now after that, we added 59 additional patients. And we kept following those 264 patients. So now some of those patients have been followed by more than 6 years in average more than 3.5 years of follow-up per patient of 323 patients. And we are now compiling data on the mortality and morbidity impacts of the therapy. The way we do this is collecting event. One cardiovascular event is either a cardiovascular mortality, so death because of cardiovascular nature or the patient receiving a left ventricular assist device or a heart transplant or heart failure hospitalizations or unscheduled ER visits. Any one of those is considered to be one event. We count all of the events of all of the patients over time. Once we hit 320 events, we stopped accounting, then we analyze the data and then we compare the two arms, the treatment arm versus the control arm. Where we are today. In December, we accrued all of the 320 events that we need. So now we're waiting to finalize the monitoring of the sites, which somehow is in our control, the independent monitor, we hire, but somehow it's not in our control because we need the research coordinator on the sites to allocate the time to work with our monitors. That's the uncertainty right now in terms of duration. That's why we're saying that we will be unblinding the data in the first half of this year, but we have not narrowed down yet this window. As soon as we finish the monitoring, we will be in a better position to tell you folks more accurate or a narrow window for the availability of the data. Now that is the primary end point. And yes, it's a yea or nay. Have we met the statistical significance? Or have we not met the statical significance. That's the easy answer. The difficult answer is more subtle than that. The device is approved. It is safe and effective and the benefit outweigh the risk. What we're looking for here is for additional evidence that would allow FDA to allow CVRx to make more claims. Does the device have more benefit or additional benefit on top of those symptomatic improvement that we've seen. That's a different equation than when FDA is looking at whether the device is safe and effective and whether the benefit outweigh the risk. Now still, it has to follow scientific rigors and will still be a negotiation between the sponsor, i.e., CVRx and FDA. We will ask for more claims, FDA will push back and will provide less claims, right? And FDA to make their case will use the totality of the evidence. What is the totality of the evidence? Well, you have everything that we're collecting in the trial, symptomatic data plus those mortality-morbidity. But there are multiple ways of analyzing the mortality-morbidity data. I gave you one, the one that we selected for the primary endpoint. It is the most important one. But that's not the only one. For example, we counted every event the same way, but they don't have the same severity. There's another way of counting those events. For example, the win ratio analysis will provide a more accurate way of taking into account the hierarchical severity between those events to compare patients to patients. That is one of the prespecified ancillary analysis that we have previously discussed with FDA and that we will analyze and we'll provide this data to FDA. Whether FDA will allow us to use any of the outcome of those prespecified analysis to make additional claims is uncertain. So when we unblind the data, we will be coming to you and trying to tell you. At least, we cannot tell you the full picture as that is clinical report of 220 pages, we will not have it ready in a short time, right? At the same time, you don't want me to wait 6 months to tell you what we're doing. So I need to be able to tell you more than just the endpoint, but I cannot tell you the full story. So I have to make a judgment of how much I can disclose to you in the shortest period of time so that you can make your decision in here about what to do with the investment. That will be our challenge, but we're up to it. And the other thing that we need to take into account is when I will tell you the data, we would not have heard back from FDA, we may not have submitted yet to FDA all of the data. Writing this clinical report of 200 pages will take some time. So I will tell you what I believe -- I believe how to interpret the data or how I interpret the data and you will have to make your own judgment about what you believe that FDA will react to the data or not, right? I cannot speak on behalf of FDA. Now if we meet the endpoint, it's an easier answer, yes. And I believe we have a good chance of meeting the endpoint. The challenge is, if we did not meet the endpoint, but we meet other ancillary analysis, what does the mean, right? So that's what -- when we talk about unblinding of the data, this is what will happen in the next 6 months. So in conclusion here, we have a great platform therapy that can address multiple diseases. And I just spoke about HFrEF today. Another day, we can talk about hypertension and [ have that ] another indication that we will go after. In HFrEF, in the U.S., it's already a large time with a $1.4 billion annual market potential even excluding the replacement market. Identification of patients is straightforward. Procedures are 1-hour outpatient procedure. There is a favorable reimbursement currently. Our commercial launch, you saw this graph, it's very attractive. We have our own manufacturing in the heartland of the United States, in Minnesota. We produce our own IPGs. We produce our own leads. We have an attractive financial profile. I mentioned the gross margin. We have a solid balance sheet with more than $100 million available, and we have an experienced leadership team. So and with this now, Robbie, I think we have enough time for some Q&A, right? Fantastic.

Maybe we could start with fourth quarter. You preannounced what was it, $7 million to $7.1 million. Maybe you could talk about some of the trends you saw throughout the quarter and how it compared to your expectations?

Yes. So we had guided going into the fourth quarter that we had expected to report between $6.5 million and $7 million. And the way the fourth quarter played out was consistent with what we saw in Q2, Q3, where we were able to continue to activate new centers, not only getting them on contract, but also starting to see new patients be treated at those centers and then also just then start to deliver revenue. So just slightly exceeding the top end of that expectation.

And what are you seeing in terms of your physician user base? Are you seeing greater adoption across the newly trained doctors. Is it a small cohort that's doing a lot, maybe help us understand how the volumes are spreading out across your physician base?

Yes, it's a good question. One thing we've talked about a lot over the last couple of quarters is that the longer a center has been with us the more patients they're treating on average. So the centers that have been active for less than 12 months are doing a little bit less than the centers that have been active for 18 months. We are doing a little bit less than those centers that have been with us for 24 months. So it seems like the program is working, right? As physicians get more experience using the device, they're more likely to treat more of their patients that they're seeing on a regular basis.

When you go into a hospital, what's the pushback you're getting today to the therapy? And how has that changed over the past 2, 3 years since you initially launched?

The process has changed a lot over the past decade. It used to be you go to a hospital and the physician wants to use a stent and then you bring a stent, and you send the invoice after it. Now we have to go through a contracting process that includes the value assessment committee. Now the only pushback that we see at this often comes from heart failure specialists. Surprising, isn't it? We have a heart failure therapy, and you just wonder why heart failure specialist might push back against the therapy. Well, heart failure specialist focuses mostly on LVADs in heart transplants. What Novartis has done over the past 5, 6 years, is train all the general cardiologists to prescribe Entresto. So now most of the heart failure patients with Class II, Class III are treated by general cardiologists, sent directly from the GCs to the electrophysiology department to get CRT or ICD devices and brought back to them. What's in it for the heart failure specialist, nothing. Why are they invited when they have the heart failure risk factor and what do they believe in -- mortality, not even morbidity. Why? They deal with Class IV heart failure subjects who are at the edge of passing out, they are dying, [indiscernible] LVAD or heart transplant, that's their focus. We don't have a mortality benefit. We don't have data to even suggest one. And that's the pushback we received from some heart failure specialist. Of course, after we go through the education and we walk them through the data, they understand it. But just on paper, if we're not there, they will push back on this. From the administration, so far, they look at the financials, there is some misunderstanding of what TPT is. You would be surprised how many CFOs have no idea what a TPT or transitional pass-through or what add-on payment is. And some of them have been hurt in previous cardiovascular therapies like WATCHMAN or CardioMEMS. So they raised this to us. And then they say, well, okay, we'll approve it, but only for 1 or 2 implants, let's see what the payment comes back, and then we'll do it. So what Jared has done is an interesting analysis. We looked at all of the implants from day 1 with them all in all of the sites, all of their first implant from day 1 of the first implant, and you see the blip 1, 2 and a silence for 3, 4 months and then the growth. These 3, 4 months administration waiting for the payment to come back and the doctor is waiting to see the impact on their first 2 patients to feel good about the therapy and then it picks up. It's not really a pushback, but kind of push we're up against.

Yes, just to my question, and what is the payment rate? What's the rate of denials that you're getting on reimbursement?

For private payers, we have not disclosed this. For CMS, it's paid. Yes, we would not have a denial.

Got it. Maybe if we look to the guidance, $35 million to $38 million, walk us through what that assumes at the low end, what that assumes at the high end? And how does the mortality readout picture into this?

So one thing we've been consistent about since the IPO is that our base case model assumes what we have today into the future, that any readout from the morbidity-mortality data would be neutral at best, right, without any additional indication expansion. That's not based on us being pessimistic. This is just us taking a conservative approach in building the long-term model for the business. And so as we look into 2023, we see continued growth in the U.S. heart failure business, where we're making investments in the U.S. heart failure team, the sales team. but not investing significantly on the European side. We've continued to see headwinds there, both from an FX perspective and an adoption perspective as we haven't made as many investments in that sales and marketing organization. So if we think about the low end, it's assuming we're going to start to see high single-digit adds in the U.S. heart failure new centers. On the high end, we're going to see mid-double digits, maybe high double digits to be able to achieve those growth targets that we had set at the U.S. business.

What about in terms of territory managers?

Yes, we've been adding at a consistent pace of about three per quarter since the IPO. We feel like that's a pretty good pace to continue on to be able to achieve the numbers that we put out for 2023.

When you look out over your long-term plan, you talked about a $1.5 million rep productivity per year. Do you have any reps up there? I mean where do you sit right now. I can do the math. But if there is a really -- what's the spread of rep productivity? Is it some at the high end? Is it some at the low end?

Yes. I mean we've been adding reps at such a fast clip. We went from 14 at the end of 2021, all the way up to 26 at the end of 2023, right? So there is a wide spectrum of productivity out of the rep classes that we've carved out territories for. So we're not there yet. We have some that have achieved the long-term targets. But again, the idea is to get the whole business up to that average that we can reach cash flow breakeven. So we're going to continue to make investments to add to the team, which will obviously drive the average rate down, right, as we have those newer reps coming on board. But longer term, we see them all getting up to that $1.5 million target.

Similar question, but on the physician user base. How does that look if you plotted everyone out in terms of utilization? Is it very clustered at the high end? Is it a lot of people at the low end? What does it look like?

Yes. And again, something we've talked about in the last couple of quarters is we have more than a handful that have started exceeding that expectation of treating more than 1 patient per month on average. But the rest of them are kind of falling into that group of "I'm going to treat a patient this month, maybe take a month off as I'm looking for the right patient, treat a patient the next month" so about 2 per quarter. And so it's still kind of in that spectrum of trying to push them to that long-term average of 1 or more per month.

If we switch to the readout that we should be getting in the next couple of months, there are other therapies, not too far off from yours, that had $1 billion plus in sales with just a quality of life benefit that didn't eventually got an outcomes label, but it took many years. It was already north of $1 billion in sales. So can your therapy be very successful with just the quality of life benefit? Or do you need a mortality benefit in order to see the sales that we'd like?