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

Hi, everyone. My name is Rohin Patel. I work on the Medical Devices and research team at JPMorgan. I just want to say it's my pleasure to introduce CEO, Nadim Yared, of CVRx, to provide his opening remarks.

Thank you, Rohin. Thanks JPMorgan for the opportunity here to speak. It's been a couple of years in here in a row, but this is the first time we're sitting at the adult table in this big room. It is impressive. Thank you, Rohin. Our forward-looking statements in here. We are here to talk about CVRx. It's a great company. We'll be talking about the product, about the technology, and we're only limited to 20 minutes. So I'll try to go as fast as possible, try to shrink it even further so that we can answer more questions towards the end. So be ready with your questions. Our company CVRx developed the first FDA-approved neuromodulation device that is addressing a cardiovascular disease. We have a solid management team in place, almost 200 employees, actually more than 200 employees, and we manufacture the device ourselves in our facility in Minnesota. The device looks like a pacemaker. But unlike a pacemaker, we don't put anything inside the heart or inside the arteries or vessels. It says IPG, implantable pulse generator, implanted in chest and the carotid sinus lead, which is the wire connected. So in the next few slides, I'll talk about how the device works, who's this for, how do we find those patients? How do we treat them? How is the device getting paid for and give you an update here on the regulatory environment, particularly with the news that we shared with you in between Christmas and New Year's Eve. The device, as I mentioned earlier, stimulates, has active implantable device. It use electricity, goes through the wire, stimulates receptors that we all have on the wall of our carotid artery. Those are called baroreceptors. Baro is Latin for pressure. The baroreceptors when they are activated, they trigger a mechanism called the Baroreflex. The Baroreflex has been studied now for 70 or 80 years. And it's a well-known mechanism that when it's triggered, you have signaling coming from the brain to the organs to dilate the artery, slow down the heart and dialysis the kidneys. That's a very simple mechanism, well documented for decades, yet when you look at it, this is exactly the 3 axis of therapeutic targets that you need for multiple cardiovascular diseases because as you know, we prescribe diuretics to dose kidney, beta-blockers, slowdown the heart, ACE or other vasodilators to dilate the arteries. Who is this for? It's a large patient population of heart failure patients, but we narrowed it down to the segment of patients that we believe will be addressed by this device, not only within the FDA labeling, but even narrower than this. For example, if a patient is too old, we do not believe that physicians are going to prescribe this device. So we do not include them into our total addressable market. In the recent update, we shared with the world that we believe that there are 76,000 new patients in the United States every year. Those are new patients every year, incidence model that are addressable by our device with the current [ played link ]. When you multiply this number by an average selling price point of $29,000, that translates to $2.2 billion annual. Finding these patients is not that difficult. When you look at our indication for user, it's very similar to an ICD indication for use for heart failure. So patients being considered for ICD or has received an ICD, they need to do one test. It's a blood assay called NT-proBNP. And if it's below 1,600 picogram per milliliter, which is about 2/3 of the patients, then the patient is a candidate for Barostim. And the procedure starts like a carotid endarterectomy, and there are hundreds of thousands of those procedures done every year, and it ends like a pacemaker with 2 exceptions. We do not go into the carotid unlike a carotid endarterectomy, and we do not go inside the heart like a pacemaker, we just do the pockets. It's done by a vascular surgeon, one single operator, it takes about an hour. The economics of the procedure are favorable to the hospital. We've had a transitional pass-through payments that adds on to the existing code up to December 31 of last year. We presented data at CMS last year that shows that hospitals in average were charging about $45,000. CMS accepted our request to move the code from the Level 5 neurostimulator that used to pay $30,000 plus the TPT to a code called APC1580, that pays $45,000. That simplifies the process. It's the same payment. Where is the upside? You will ask me. Well, in all of our assumptions, we assume that in 2024, the payment level will go down, so our ASP will be lower. Now we don't have to lower the ASP. It will continue in the same direction. We assume it will be around $29,000 to $30,000. We currently do not have explicit coverage decisions. So 67% of heart failure patients are covered by Medicare. We are authorized now to do the procedure, and it will be a claim-by-claim adjudication after the procedure for Medicare patients. For commercial patients, it's a prior auth process, and we have a team in-house that supports patients and their physicians. And if you've been following our study, you know that we issued a press release right after Christmas that FDA looked and analyzed our data from the post-market study. And you may ask me, why am I paying so much attention to a post-market study, nobody does. Well, when we designed our trial, where the pivotal trial is a pre-market that led to an FDA approval in 2019, that trial met all of the safety and efficacy endpoint at the time. We got approved. But we continued with the post market to confirm this data in the long run and whether moonshot, what if we can improve mortality and morbidity. This paragraph is from the final section of our clinical report that has been approved by FDA a couple of weeks ago. But we basically are saying in here that the primary safety endpoint in the pre-market phase and in the post-market space was met, okay? So the product is safe. In the premarket phase, all of the effectiveness endpoints were met, okay, the product was approved, the benefit outweigh the risk. We continue saying so while the post-market phase affect us from an endpoint of cardiovascular death and heart hospitalization was not met, additional post-market phase effectiveness analysis such as the win ratio and freedom from all-cause mortality suggested a favorable effect of Barostim therapy, and we continued with the data. So I'm going to show you the data and explain why this is important for us and why everybody made a big deal when we said that we failed the endpoint back in February and why everybody thought it's also a big deal when FDA finally gave us the approval to be able to show this data to patients. I will show a couple of slides in here data. The way to read those slides, the first dark bar is the patients who received the device. That's the results in them. The blue bar are the patients who did not receive the device and the purple bar is the difference. So you see here in the exercise capacity using the 6-minute hall walk in this trial, we had 56 meter improvement at 6 months and 44 meter improvement at 1 year, which compares very favorably with the clinical threshold of 25 that is deemed to be what is clinically meaningful to patients. In the quality of life measure using the -- living with heart failure questionnaire, so 14, 17 and 18 point -- I'm sorry, 14, 17, 18 in the device arm, but the difference 14, 8 and 10 points, which is much higher, almost 2 times more than the threshold of 5 points, that is deemed to be clinically meaningful 4 points, and this was 24 months. Same with the functional status. 27% of the patients at 2 year had an improvement of at least 1 class of NYJ compared to the control arm. I mentioned earlier that we said about the all-cause mortality and the win ratio suggesting favorable benefits. This chart exists right now in the labeling of our device. This has been, this chart is part of the labeling that has been approved by FDA as part of our instruction for use. What does it say? It says that patients who were enrolled in the trial that received the device, so this is the black line, the dark blue, had 34% less death LVAD transplant as compared to patients who did not receive the device in the trial. And you see at the bottom here, the hazard ratio. Is this significant? Well, it's an important fact that we need to communicate to patients and their physicians so that they can make the decision if this data is important to them. And I can ask you, is it important for you to know about the patients in trial, how they did compared to the patients who did not receive the device in the trial. That's why this is important. The second element I mentioned that our ratio, what is our ratio? It's a way to calculate this mortality and morbidity, but using a hierarchical composite as compared with the flat composite that we had established as a primary endpoint. The hierarchical composite, we had good data, relatively speaking in here, the way it works when you take comparison every pair of possible patients, device versus control arm and you compare who did better. But you do it in a hierarchical way, meaning are both alive. If one is dead, that last, if both are alive, then you compare, has anybody seen LVAD transplant, and you keep going in this way hierarchically. And in this test, the results were 26% more wins for the patients with the BAT as compared with our device, Barostim reflex as compared with patients who did not receive it in this trial. So it is important data. Now even without this data, as you can look at this graph, this is our US sales over the quarters starting from Q1 '21. You can see it's a nice progression. But even without this data, we were having good traction. We announced the data in February 2023. A lot of people got a little bit concerned about what does this mean, yet our market was not concerned. As you can see here, Q2 had a significant uptick from Q1 after the data was presented at the public meeting, which meant physicians and their patients for those who had the opportunity to see the data that was presented at THG reacted favorably to it. Now that we have the FDA blessing to show this data, we can show it to anybody. We can be proactive showing this data, not waiting for questions to be able to answer it. All right. Back to the preliminary results of Q4. We had 38 active territories, correct me Jared when I do something wrong. Thank you. And 178 active implanting centers right now in the United States, those generated above $10 million in Q4 in the United States. Now if I put this with the rest of the world, we got in Q4 $11.2 million, $11.3 million in Q4. When you look at this bar, the dark blue is what matters to us. This is where we're investing in the money is the U.S. heart failure markets. The light blue is our European market where we've been talking about that we stabilized this for $1 million a quarter. We are not investing there. You may ask me why. Every dollar we have right now, we prefer to invest in the United States, the return on investment right now is much higher in the U.S., and we're limited in how much we can spend to stay within our core of profitability. We've mentioned the ASP $29,000 is an estimate for the future. However, in Q4, this past year, it's about $30,800, almost $31,000. And we have, as I mentioned earlier, 178 center and $91 million still in the balance sheet. You might say, how is that bigger than last quarter? Well, we withdrew another $15 million on our debt facility that would have expired if we didn't do it by December 15. That's why we still have $91 million of cash. If you do the math, we burn about $7 million in Q4, which is less than the $8-plus million that we burn in Q3, which is better than the double digits million that we burn in Q2 and so forth. So we've been shrinking gradually our cash burn quarter-over-quarter. For the year, we estimate for 2023, $39.2 million to $39.3 million. The US portion of this is about $34.6 million, which is about doubling the business year-over-year, 97% growth year-over-year in the US, and our ASP for the full year was $30.8 million. Turning my attention here to the guidance, which is the slide before the last. For 2024, we expect total revenue between $53 million and $57 million worldwide. Gross margin, we estimate we expected or we're guiding towards 83% to 84% for 2024. And our operating expenses, we're estimating them to be between $86 million to $90 million for 2024. For the first quarter of 2024, we're also expecting total revenue of somewhere between $11 million to $12 million. So my last slide here is a summary we are targeting an underserved population with a very morbid disease with a proven proprietary platform technology. We have a very large market, $2.2 billion annual. The patients are easy to identify with an actionable elements. You have a number, you are below this number, above the number, you know what you need to do. You need to get a Barostim. We have a successful commercial launch now since the IPO. We have favorable reimbursement as you've seen. We've proven that we can manufacture this device. We have not delayed a single procedure since we started manufacturing the device ourselves in our facility in 2009. We have an attractive financial profile. I mentioned the gross margin, the balance sheet, and we have an experienced leadership running the company. And with this, I think we have now 5 more minutes for questions. I hope that you're ready with your questions. Rohin, back to you.

Thanks, Nadim, for that presentation. And also, I'm sure that most of you in the room have seen Nadim's plans to retire most likely within the year. And so I just wanted to wish you congratulations on your success at CVRx over 17 years, truly a phenomenal legacy you've built. But I guess another follow-up question is why do you think that now is a good time to retire given I think there's a lot of positive momentum in the business, obviously, with the reimbursement as well as the new label. So I just wanted to hear your thoughts on your journey.

Yes. Jared is very good for this question. So yes, it's presumptuous of me to talk about the need to retire or not and the timing to retire or not. But the fact is all of us will retire one day. And the choice of that date is tricky. It depends on multiple factors, some depending on us as person, some on the business, sometimes they're voluntary or involuntary and so forth. In this situation, I've been given some thoughts to the timing of a transition. What would be the least worrisome time where we can transition the leadership at CVRx. And there is no good time that are just less worse periods of time where the transition could happen with less disruption to the team. We just finished a very successful program called BeAT-HF that started in 2015 that follow the Phase II of that same indication that followed the Phase I. So since 2011, we've been on this journey of getting this heart failure program. So now we're finishing Phase I, Phase II, Phase III premarket and the post-market study, getting reimbursement and FDA done. Before we jump on the next adventure. I think this is a lull time in terms of product development or clinical development that one can change. So that's one access or one dimension that we need to look at. The second dimension is the growth. We've been growing the business. We've demonstrated now that this business model works that we add reps, they go, they open accounts, they teach them how to do the procedure. They help them build their [ refiling ] network, they get more implants and they grow. While they're farming this account, they go hunting for the next account and we keep adding more reps, create more territories and so forth. What we have not demonstrated yet is that we have a leader that can take this business to a $1 billion business. Can I do it? I think I can. I have the experience back in the days with GE Medical and Medtronic running large businesses. But am I the only one outside in this world who can do this. Am I the best one who can do this? I don't know. So that's another question mark here that we can look at. So at the same time, we have 2 components. Timing from a product or a clinical development ideal from a growth development, when you reach that $40 million to $50 million, it sometimes requires a different skill set and is this the most ideal time to get us the best CEO that one can hope for, for a company like CVRx to take this to its full potential. I am a large shareholder of CVRx and it is in my best interest to ensure that when we are transitioning, we positioned the CEO that can take this to a new height, much higher than I could have ever taken it in my life. So this is very personal to me. I'm on this journey. I'm not leaving CVRx. I'm looking for a replacement who can do a better job than I did, who can continue with this journey, and I'm here to support now until we find this person, during the transition and after the transition in any way, shape or form that the Board of Director and the new CEO would want me to help with. So sorry for the long answer. Jared could have said it better than me.

No, that was great. I guess I had a quick follow-up about the time line for succession and how the search is going so far. Obviously, we just heard of the news, but I'm assuming you've kind of maybe even in the process for a few months now and kind of what does that time line look like for a new CEO?

Yes. We have signed Egon Zehnder as search firm to help us with the support, so they are actively looking for candidates as we speak. And we have a search committee in place in the Board who are supporting the search committee in this regard. I will add one more thing. If anybody knows anyone who could be interested who you think have experience scaling businesses from $50 million to $1 billion, please, [ including myself ] on the search committee.

I guess just shifting gears, want to just start with the quarter. You had a nice quarter. Sales of $11.2 million to $11.3 million came in above consensus and our own expectations as well. And these were primarily driven by U.S. heart failure sales of $10.2 million. I guess, just wanted to get your thoughts on more of the qualitative trends in the quarter, how kind of you see these translating into 2024 and so far in first quarter? I know it's really early, but kind of any preliminary thoughts on what you're seeing on the ground in terms of procedures.

Jared, you want to take it?

Yes, happy to take it. So I think there's a few components that go into those numbers that we put out on a quarterly basis. Number one, how many new territories or how many fully ramped account managers we were able to activate in a given quarter. Nadim mentioned, we added 3 more here in the fourth quarter going from 35 to 38. That has been very consistent adds since we went public back in the middle of 2021. We've been adding 3 per quarter, like clockwork every single quarter. So we were able to bring on 3 more reps to get them fully trained that we could carve-out those territories for them here in the fourth quarter. The second piece is the number of new centers that signed up and actually treated the first patient in the quarter. We added 19 net new centers here in the fourth quarter, bringing us up to 178. When we started the year, I think we were guiding, the Street start thinking about 12 or 13 new center adds on a quarterly basis. And throughout 2023, we were able to exceed that expectation. The nice thing is we have a long process, well, maybe not the nice thing, but there is a long process to get a new customer through the contracting phase to get them to a point where they can actually start searching for patients to be treated. The nice part of that is it gives us a lot of visibility to that funnel, where every single one of those customers are in the process. From champion identification, all the way to contracts being signed, maybe going through that value assessment committee and then searching for that first patient, they want to be the right one to be treated. So the last part of that is the part that's a little bit harder to predict when we find that right patient to get treated and be the first one. But adding 19 in the quarter was again exceeding expectations, allowing us to beat the top end of the range we had put out in the quarter. And then the last thing is just utilization. And I think we've seen about, on average, 2 revenue units per active implanting center per quarter throughout 2023. That number has stayed pretty flat, but a lot of that is driven by more new customers coming on board. The trend continues that the longer on average a center has been activated, the more patients they're treating. That means the more patients they see get treated with this device, the happier these physicians are and the more they want to use it for their other patients. So I think we saw that trend continue as we saw 2023 come to a close.

Did you, I guess, see any disruption probably earlier in the quarter as physicians may have been waiting for the updated reimbursement to take effect or was that just not something that was seen in the quarter at all?

Yes, I'll take that one. What we had talked about was we were going to be mapped to this new code, APC1580 as we move into 2024. We knew that answer was going to be coming out in the final OPPS ruling that was announced at the beginning of November. We gave guidance for Q4 towards the end of October, along with the rest of our earnings release. And we just talked about we've never gone through this before, right? Not too many companies lose an add-on payment and then get mapped to a new code in the coming months. And so we didn't know necessarily how physicians were going to react to that news. I don't think, as we dug into the details that we saw any physicians holding back patients, thinking they wanted a more firm code as they go into 2024. Because remember, it's a similar reimbursement level, whether it was the old code with the add-on payment in 2023 or the new code as we march into 2024. So I think the positive news we got in November didn't really disrupt the business.

Great. Yes, I definitely want to jump back into that a little bit later on the reimbursement. But just moving on to guidance. So your first time guidance for 2024 was $53 million to $57 million. Just wanted to get a sense for what's assumed in there as far as territories, revenue units. Just maybe a little bit more color about that as well as how much conservatism is baked in here?

Sure. Happy to take that one, too. So revenue, we talked about seeing $53 million to $57 million throughout 2024. It's growth of about 50% from 2023 to 2024. When we look at the range of what that revenue number includes, a lot of it assumes very similar results that we saw in 2023. So I'll go through a little bit of that. So if you look at the low end of the range for new center adds, we're talking about maybe adding about 14 new centers on a quarterly basis. The top end of that range is looking a little bit more like what we were able to deliver in 2023, which was about 18 new center adds on a quarterly basis. So ranging between that 14 and 18 number for new centers per quarter. When we look at the ASPs, focusing on the U.S. heart failure business, in 2023 we saw average selling prices of about $31,000. We are expecting to see some pricing pressure as we move into 2024 where that ASP might come down to the range of $29,000 to $30,000, again factoring those numbers into the low end and the high end of the range. And then the last piece on the revenue component is around the productivity. So if we look at how many revenue units, each one of those active implanting centers was using or buying in 2023, it was about 2 per quarter. And throughout the top end and the low end of that range, we're still assuming about 2 revenue units per active implanting center as we march into 2024. The final piece you mentioned is the territories. We've been adding at 3 per quarter. We feel like that's a good number. We continue to add as we march into 2024 on a quarterly basis. But again, we're going to be opportunistic. If the physicians look at this new clinical data and really start to adopt at a faster pace or they see this reimbursement as a positive tailwind and want to start treating more and more patients, then we'll be open to adding more reps at a faster pace, but making sure that we're being thoughtful about how we're using that cash we have on the balance sheet. Just, I mean, touching on the rest of the guidance quickly. Gross margin is looking very similar to what we saw in 2023, margins around 83% to 84%. And then OpEx growing at a slower rate than what we're expecting to see from top line growth.

And then just last question on the guidance and specifically on OpEx. How do you see it kind of being split relatively between SG&A and R&D?

Yes. Vast majority of the growth in OpEx is going to be going towards sales and marketing. Nadim mentioned it, we see a high return on investment when we're putting it towards the U.S. sales and marketing organization, and that is the plan for 2024 at this point.

Okay, great. I guess moving on to the interesting stock now. So just turning to the label. I guess if you could just recap what exactly has changed in the label versus before? And then I did want to follow-up and talk a little bit more about the new market opportunity.

Yes. So the world label is actually often confused with the instruction for used document, which is a 78 page document in our case that you can all find on www.cvrx.com/ifu, the letter of instruction for use or sometimes confused with the indication for use, which is the Section 3 in that document, which is the one paragraph that described, who is this indicated for. So let me comment on the indication for use about that one paragraph. It used to say previously that this device improves symptoms in patients with Class III heart failure or recent history of Class III that induce injection fraction below 35% despite guideline-directed medical therapy, NT-proBNP below 1600, excluding patients who are indicated for CRT according to the guidelines. We changed the new labeling with the agreement with the FDA to split it into 2 sections. One section is who is this indicated for and the second, the sentence below it is what does it do? So who is it indicated for right now, it says this device is indicated for patients with heart failure who have symptoms despite being on guideline directed medical therapies, in parenthesis, devices and medications. We have Class III or Class II with recent mixture of Class II, LVEF less than 35% and NT-proBNP less than 1,600. The benefit was just talking about the symptoms. Now what was the difference? Why did you not hear me say excluding patients who are indicated for CRT in the new indication and what does this mean? Well, when you look at the guidelines for heart failure, there is a Class I indications for patients who have an LVEF less of 35% and a QRS above 150 and left bundle branch block to receive a CRT. And in those patients CRT had a mortality benefit. It is in the guideline. The same way, in the guidelines, those same patients, there is a benefit if they get interest to a mortality benefit, and there is a benefit if they get an SGLT2 inhibitor. Why in the world are we treating them different in the previous indication for use. It's a long history. And the new indication for use is the same way we are asking the physician gently, please doctor, consider first all of the guideline directed therapies, the 4 classes of medications, starting with the blocker, ACE-R or Entresto and then the SGLT2 inhibitors, consider as well the devices and the guidelines, ICD and CRT. But after you've considered all of this, whether you do it or not, it's up to you, of course, you're the doctor. But after you consider all of this, then you may want to consider Barostim. And that's easier to understand for physicians. It's also easier to understand to payers. When a payer used to receive a patient who had a CRT device and the patients could have received the CRT device without a Class I indication because they didn't have anything else. Yet because this patient had a CRT device, the payer will say, well, it's excluded, we cannot reimburse for that. Now that is eliminated. Okay? So that simplifies on the indication for use. Was this part of your question?