UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
par value $0.01 per share |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
☒ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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As of August 02, 2021, there were
TABLE OF CONTENTS
2
CVRx, Inc.
Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 2021
Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements regarding our future results of operations and financial position, business strategy, the impact of the ongoing and global COVID-19 pandemic on our business, financial results and financial position, clinical trial results, prospective products, product approvals, research and development costs, timing and likelihood of success, and the plans and objectives of management for future operations.
In some cases, you can identify forward-looking statements by terms such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘anticipate,’’ ‘‘could,’’ ‘‘intend,’’ ‘‘target,’’ ‘‘project,’’ ‘‘contemplate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘predict,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including, but not limited to, the important factors discussed in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, which are summarized below. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include, but are not limited to, the following:
● | we have a history of significant losses, which we expect to continue, and we may not be able to achieve or sustain profitability; |
● | our principal stockholders, management and directors (four of whom are affiliated with our principal stockholders) own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval; |
● | we have a limited history operating as a commercial company and are highly dependent on a single product, BAROSTIM NEO, and the failure to obtain market acceptance in the U.S. for BAROSTIM NEO would negatively impact our business, liquidity and results of operations; |
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● | we have limited commercial sales experience marketing and selling our BAROSTIM NEO, and if we are unable to establish and maintain sales and marketing capabilities, we will be unable to successfully commercialize our BAROSTIM NEO or generate sustained and increasing product revenue; |
● | we must demonstrate to physicians and patients the merits of our BAROSTIM NEO; |
● | if third-party payors do not provide adequate coverage and reimbursement for the use of BAROSTIM NEO, our revenue will be negatively impacted; |
● | our industry is competitive; if our competitors, many of which are large, well-established companies with substantially greater resources than us and have a long history of competing in the HF market, are better able to develop and market products that are safer, more effective, less costly, easier to use or otherwise more attractive than BAROSTIM NEO, our business will be adversely impacted; |
● | if we fail to receive access to hospitals, our sales may decrease; |
● | we are dependent upon third-party manufacturers and suppliers, and in some cases a limited number of suppliers, making us vulnerable to supply shortages, loss or degradation in performance of the suppliers and price fluctuations, which could harm our business; |
● | manufacturing risks may adversely affect our ability to manufacture our product and could reduce our gross margin and profitability; |
● | a pandemic, epidemic or outbreak of an infectious disease in the U.S. or worldwide, including the outbreak of the novel strain of coronavirus disease, COVID-19, could adversely affect our business; |
● | we may face product liability claims that could be costly, divert management’s attention and harm our reputation; |
● | we may in the future become involved in lawsuits to protect or enforce our intellectual property, which could be expensive and time consuming, and ultimately unsuccessful, and could result in the diversion of significant resources, thereby hindering our ability to effectively commercialize our existing or future products; |
● | if we fail to retain our key executives or recruit and hire new employees, our operations and financial results may be adversely affected while we attract other highly qualified personnel; and |
● | we will continue to obtain long-term clinical data regarding the safety and efficacy of our products, which could impact future adoption and regulatory approvals. |
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PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
CVRx, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
| June 30, |
| December 31, | |||
2021 | 2020 | |||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Other non-current assets |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses |
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Warrant liability |
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Current portion of long-term debt | | | ||||
Total current liabilities |
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Long-term debt |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies |
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Convertible preferred stock, $ |
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Stockholders’ equity (deficit): |
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Common stock, $ |
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Additional paid-in capital, common stock |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ deficit |
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Total liabilities, convertible preferred stock, and stockholders’ deficit | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CVRx, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(Unaudited)
| Three months ended | Six months ended | ||||||||||
June 30, | June 30, | |||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
Revenue | $ | | $ | | $ | | $ | | ||||
Cost of goods sold |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Loss from operations |
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Interest expense |
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Other income (expense), net |
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Loss before income taxes |
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| ( |
| ( |
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Provision for income taxes |
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Net loss |
| ( |
| ( |
| ( |
| ( | ||||
Cumulative translation adjustment |
| ( |
| ( |
| ( |
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Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted-average common shares used to compute net loss per share, basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CVRx, INC.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit
(In thousands, except share data)
(Unaudited)
Accumulated | Total | |||||||||||||||||||||
Convertible | Additional | other | stockholders’ | |||||||||||||||||||
preferred stock | Common stock | paid-in | Accumulated | comprehensive | (deficit) | |||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| deficit |
| loss |
| equity | |||||||
Balances as of March 31, 2021 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Exercise of stock options |
| — |
| — |
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| — |
| — |
| — | |||||
Employee stock compensation |
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| — |
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| — |
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Net loss for the three months ended June 30, 2021 |
| — |
| — |
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| — |
| ( |
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Cumulative translation adjustment |
| — |
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| — |
| ( |
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Balances as of June 30, 2021 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Balances as of March 31, 2020 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Employee stock compensation |
| — |
| — |
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Net loss for the three months ended June 30, 2020 |
| — |
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| ( |
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Cumulative translation adjustment |
| — |
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| — |
| ( |
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Balances as of June 30, 2020 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Accumulated | Total | |||||||||||||||||||||
Convertible | Additional | other | stockholders’ | |||||||||||||||||||
preferred stock | Common stock | paid-in | Accumulated | comprehensive | (deficit) | |||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| capital |
| deficit |
| loss |
| equity | |||||||
Balances as of December 31, 2020 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Exercise of stock options | — |
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Employee stock compensation |
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Net loss for the six months ended June 30, 2021 |
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| ( |
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Cumulative translation adjustment |
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Balances as of June 30, 2021 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Balances as of December 31, 2019 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Repurchase of common stock |
| — |
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| ( |
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Employee stock compensation |
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Net loss for the six months ended June 30, 2020 |
| — |
| — |
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| — |
| ( |
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Cumulative translation adjustment |
| — |
| — |
| — |
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| — |
| — |
| ( |
| ( | |||||
Balances as of June 30, 2020 |
| | $ | |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CVRx, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Six months ended | |||||
June 30, | ||||||
2021 |
| 2020 | ||||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation of property and equipment |
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Amortization of deferred financing costs and loan discount |
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Changes in fair value of convertible preferred stock warrants |
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Changes in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Inventory |
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Prepaid expenses and other current assets |
| ( |
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Accounts payable |
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Accrued expenses |
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Net cash used in operating activities |
| ( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
| ( |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from the exercise of common stock options |
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Net cash provided by financing activities |
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Effect of currency exchange on cash and cash equivalents |
| ( |
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Net change in cash and cash equivalents |
| ( |
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Cash and cash equivalents at beginning of year |
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Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental Information: |
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Cash paid for interest | $ | | $ | | ||
Cash paid for income taxes |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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CVRx, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. | Business organization |
CVRx, Inc. (the “Company”) was incorporated in Delaware and is headquartered in Minneapolis, Minnesota. The Company has developed and is marketing a medical device, BAROSTIM NEO, for heart failure (“HF”) and resistant hypertension. The Company is focused on the sale of its product in the U.S. and Europe.
Management expects that operating losses and negative cash flows from operations could continue in the foreseeable future. There is no assurance that the Company will generate sufficient product sales to produce positive earnings or cash flows.
The Company anticipates that the existing cash balance together with cash generated from the collections of existing accounts receivable and revenue resulting from new and existing customers will be adequate to meet its working capital requirements for at least the next twelve months.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
2. | Summary of significant accounting policies |
Statement presentation and basis of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) applicable to interim financial statements. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company’s statements of financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole or any other future period.
The condensed consolidated financial statements include the accounts of CVRx, Inc., its wholly owned subsidiary, CVRx Switzerland LLC, and its sales branch in Italy. All intercompany balances and transactions have been eliminated in consolidation.
JOBS Act accounting election
The Company is an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, the Company has elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.
Use of estimates
Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
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Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. As of June 30, 2021 and 2020, cash equivalents consisted of money market funds, which are stated at cost and approximate fair value.
Inventory
Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.
Revenue recognition
The Company sells its products primarily through a direct sales force and to a lesser extent through a combination of sales agents and independent distributors. The Company’s revenue consists primarily of the sale of its BAROSTIM NEO, which consists of two implantable components: a pulse generator and a stimulation lead.
Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performed the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company recognizes net revenue on product sales when the customer obtains control of the Company’s product, which generally occurs at a point in time upon delivery based on the contractual shipping terms of a contract.
Recent accounting pronouncements
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases (“Topic 842”). The purpose of Topic 842 is to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet, including those previously classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. Topic 842 is effective for private companies and smaller reporting companies for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted, and the Company must elect whether the date of initial application is the beginning of the earliest comparative period presented in the financial statements, or the beginning of the period of adoption. While the Company is still in the process of determining the effect that the new standard will have on its financial position and results of operations, the Company expects to recognize additional assets and corresponding liabilities on its condensed consolidated balance sheets, as a result of its operating lease portfolio as disclosed in Note 10 — Commitments and Contingencies.
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3. | Selected balance sheet information |
Inventory consists of the following on:
| June 30, |
| December 31, | |||
(in thousands) | 2021 | 2020 | ||||
Raw material | $ | | $ | | ||
Work-in-process |
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Finished goods |
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$ | | $ | |
Property and equipment, net consists of the following on:
| June 30, |
| December 31, | |||
(in thousands) | 2021 | 2020 | ||||
Office furniture and equipment | $ | | $ | | ||
Lab equipment |
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Computer equipment and software |
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Leasehold improvements |
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Capital equipment in process |
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Less: Accumulated depreciation and amortization |
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$ | | $ | |
Depreciation expense was $
Accrued expenses consist of the following on:
| June 30, |
| December 31, | |||
(in thousands) | 2021 | 2020 | ||||
Clinical trial and other professional fees | $ | | $ | | ||
Bonuses |
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Paid time off |
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Other |
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$ | | $ | |
4. | Fair value measurements |
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
● | Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities. |
● | Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. |
● | Level 3 — Inputs are unobservable for the asset or liability. |
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The following table sets forth the Company’s liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy:
(in thousands) | ||||||||||||
Balance as of June 30, 2021 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Liabilities: |
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Convertible preferred stock warrant liability | $ | | $ | | $ | | $ | | ||||
Total liabilities | $ | | $ | | $ | | $ | |
Balance as of December 31, 2020 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Liabilities: |
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Convertible preferred stock warrant liability | $ | | $ | | $ | | $ | | ||||
Total liabilities | $ | | $ | | $ | | $ | |
The Company’s recurring fair value measurements using significant unobservable inputs (Level 3) relate solely to the Company’s convertible preferred stock warrant liability. In connection with the loan and security agreement entered into by the Company in September 2014 and the amendment in July 2015, the Company issued a warrant to purchase shares of Series F-2 convertible preferred stock. In connection with the loan and security agreement entered into in May 2016, the Company issued a warrant to purchase shares of Series G convertible preferred stock (“Series G Preferred Shares”). The Company issued to Biosense Webster, Inc. (“BWI”), an affiliate of Johnson & Johnson Innovation — JJDC, Inc., a warrant to purchase shares of Series E-2 convertible preferred stock that only becomes exercisable in the event of an acquisition or asset transfer involving the Company and it expires on the earlier of (i) a qualifying public company transaction, as defined, and (ii)
The fair value of the convertible preferred stock warrant liability was determined using the Black-Scholes option pricing model with the following inputs during the six months ended:
June 30, | ||||
| 2021 |
| 2020 | |
Expected life in years |
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Expected volatility |
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Expected dividend yield |
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Risk-free interest rate |
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12
The following table sets forth a summary of changes in the estimated fair value of the Company’s convertible preferred stock warrants during the six months ended:
June 30, | ||||||
(in thousands) |
| 2021 |
| 2020 | ||
Beginning of the period | $ | | $ | | ||
Issued |
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Change in fair value |
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| ( | ||
End of the period | $ | | $ | |
There were
5. | Debt |
Horizon loan agreement
In September 2019, the Company entered into a loan and security agreement with Horizon Technology Finance Corporation (“Horizon loan agreement”) under which it could borrow up to a total of $
In August 2020, the Company entered into an amended agreement with Horizon to extend the interest only period through April 2022, followed by
In connection with the Horizon loan agreement, the Company recorded $
The annual principal maturities of debt as of June 30, 2021 are as follows (in thousands):
2021 |
| $ | |
2022 |
| | |
2023 |
| | |
2024 |
| | |
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Less: Unamortized debt costs and discounts |
| ( | |
Long-term debt | $ | |
13
6. | Stockholders’ equity |
Reverse Stock Split
In connection with the IPO, the Company’s Board of Directors and stockholders approved a 1-for-
reverse stock split of the Company’s common stock. The reverse stock split became effective on June 22, 2021. The par value of the common stock was not adjusted as a result of the reverse stock split. Adjustments corresponding to the reverse stock split were made to the ratio at which the convertible preferred stock will convert into common stock in connection with the closing of the IPO. Accordingly, all share and per-share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and the adjustment of the conversion ratio of the convertible preferred stock.Series G Preferred stock issuance
During 2016, the Company issued
In July of 2020, the Company issued
On May 31, 2016, holders of the requisite number of the Company’s then-outstanding convertible preferred stock approved the conversion of all preferred stock into shares of the Company’s common stock in connection with a new equity financing. Accordingly, all of the Company’s then-outstanding preferred stock was converted on a
As of June 30, 2021, convertible preferred stock consists of the following (in thousands, except share data):
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|
| Aggregate | ||||||
Issued and | Liquidation | |||||||||
Authorized | Outstanding | Carrying Value | Preference | |||||||
Series A‑2 |
| |
| | $ | | $ | | ||
Series B‑2 |
| |
| |
| |
| | ||
Series C‑2 |
| |
| |
| |
| | ||
Series D‑2 |
| |
| |
| |
| | ||
Series E‑2 |
| |
| |
| |
| | ||
Series F‑2 |
| |
| |
| |
| | ||
Series G |
| |
| |
| |
| | ||
| |
| | $ | | $ | |
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Conversion
All Preferred Shares were automatically converted into common stock upon the closing of the IPO on July 2, 2021. Series G Preferred Shares were converted into common stock on a
As of June 30, 2021, the Company had reserved
Voting rights
The holders of Preferred Shares were entitled to a number of votes equal to the number of shares of common stock into which such shares of Preferred Shares are convertible. In addition, an affirmative vote of the holders of a majority of the outstanding Preferred Shares, on an as-converted basis, is required to, among other things, sell the Company and approve certain amendments to the Company’s Certificate of Incorporation. Furthermore, each series of Preferred Shares has certain series voting rights on matters affecting that series.
Dividends
The holders of Preferred Shares were entitled to receive noncumulative dividends in preference to any dividend on the common stock. The dividend rate for the Preferred Shares is
Liquidation preference
In the event of any liquidation, dissolution or winding up of the Company, including a merger, acquisition or reorganization, where the beneficial owners of the Company’s common stock and Preferred Shares do not own a majority of the outstanding shares of the surviving, purchasing or newly resulting corporation, or where a sale occurs of all or substantially all of the assets of the Company, holders of Series G Preferred Shares are entitled to a per share distribution in preference to other holders of Preferred Shares and the common stockholders equal to $
15
The Company’s Board of Directors approved a Sale Bonus Plan (the “Plan”). Pursuant to the terms of the Plan, in certain circumstances constituting a change in control and/or partial sale or license of assets of the Company, the Company’s employees may be entitled to the payment of a bonus. This Plan is terminated upon the completion of an initial public offering. The payments under the Plan shall be made prior to the determination of any liquidation preferences payable to the holders of Preferred Shares. In connection with the IPO, which took place on July 2, 2021, this Plan was terminated.
7. | Stock-Based compensation |
Summary of plans and activity
In June 2001, the Company’s Board of Directors and stockholders established the 2001 Stock Incentive Award Plan (“2001 Plan”). Under the 2001 Plan, as amended,
In connection with the IPO in 2021, the Company’s Board of Directors and stockholders established the 2021 Equity Incentive Plan (“2021 Plan”). The number of shares of common stock initially reserved for issuance under the 2021 Plan was
Options are granted at exercise prices not less than the fair market value (as determined by the Board of Directors) of the Company’s common stock on the date of grant.
During the years 2008 through June 30, 2021, the Board of Directors authorized the grant of stock options for the purchase of shares of common stock to the employers of certain nonemployee directors. The options were not granted under the 2001 Plan, but terms are substantially the same as the Company’s standard form of option agreement for nonemployee directors as they have an exercise price not less than the fair market value on the grant date and vest over
The following is a summary of stock option activity:
|
| Weighted |
| ||||||
Number | Average | Aggregate | |||||||
of | Exercise | Intrinsic | |||||||
Options | Price | Value | |||||||
| (in thousands) | ||||||||
Balance as of December 31, 2020 |
| | $ | |
|
| |||
Granted |
| |
| |
|
| |||
Cancelled / Forfeited |
| ( |
| |
|
| |||
Exercised |
| ( |
| |
|
| |||
Balance as of June 30, 2021 |
| | $ | | $ | | |||
Options exercisable as of June 30, 2021 |
| | $ | | $ | |
16
As of June 30, 2021, stock options outstanding included
In connection with the IPO, the Company’s Board of Directors and stockholders also established an Employee Stock Purchase Plan (the “ESPP”). The number of shares of common stock initially reserved for issuance under the ESPP was
Stock-Based compensation expense
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options on the grant date. The Company measures stock-based compensation expense based on the grant date fair value of the award and recognizes compensation expense over the requisite service period, which is generally the vesting period. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates.
The following table provides the weighted average fair value of options granted to employees and the related assumptions used in the Black-Scholes option pricing model for the six months ended June 30, 2021.
| June 30, |
| ||
2021 |
| |||
Weighted average fair value of options granted |
| $ | ||
Expected term (in years) — non-officer employees |
| |||
Expected term (in years) — officer employees |
| |||
Expected volatility |
| % | ||
Expected dividend yield |
| | % | |
Risk-free interest rate |
| % |
The Company reviews these assumptions on a periodic basis and adjusts them, as necessary. The expected term of an award was determined based on the Company’s analysis of historical exercise behavior while taking into consideration various participant demographics and option characteristics. The expected volatility is based upon observed volatility of comparable public companies. The expected dividend yield is assumed to be
17