CVRx, Inc. Q2 FY2023 Earnings Call

Greetings, and welcome to the CVRx Q2 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Vallie. Thank you, Mike. You may begin.

Good afternoon. Thank you for joining us today for CVRx's second quarter 2023 earnings conference call. Joining me on today's call are the company's President and Chief Executive Officer, Nadim Yared; and Chief Financial Officer, Jared Oasheim. The remarks today will contain forward-looking statements, including statements about financial guidance. The statements are based on plans and expectations as of today, which may change over time. In addition, actual results could differ materially due to a number of risks and uncertainties, including those identified in the earnings release issued prior to this call and in the company's SEC filings, including the upcoming Form 10-Q that will be filed with the SEC. I would now like to turn the call over to CVRx's President and Chief Executive Officer, Nadim Yared.

Thank you, Mike, and thanks to everyone for joining us. I'll begin today's call by providing an overview of our second quarter performance, followed by an operational update and a review of our financial results by our CFO, Jared Oasheim. Then I will conclude with our thoughts for the rest of the year before turning to Q&A. We are thrilled to share that we had another excellent quarter. The nearly 120% year-over-year growth that we delivered in the U.S. exceeded our expectations and is highlighted by the strength in volumes, the expansion of the new U.S. active implanting centers and the development of our new customer pipeline. Importantly, we are continuing to receive very positive feedback from physicians regarding their own experience when using our Barostim therapy on their patients. Our financial performance continues to demonstrate the quality of the Barostim procedure, the robust demand for Barostim in the market and our ability to execute. Now let's dive into the details of our performance during the quarter. Worldwide revenue was $9.5 million, an 89% increase over the second quarter of 2022. This was primarily due to the continued execution within our U.S. heart failure business, which grew by 119% over the prior year. These results came from the ongoing utilization of Barostim within our existing customer base, our successful expansion into new territories and the elevated physician and patient awareness. We are encouraged that following our February announcement of the preliminary results of the BeAT-HF trial, adoption and utilization of Barostim has continued to grow. In each of the four months following that announcement, the business has been strong and physicians have seen the data at scientific meetings and have had positive reactions. Turning to an update on our operational progress during the second quarter. As a reminder, our focus areas are the continued expansion of our commercial infrastructure, and the expansion of our clinical body of evidence. Starting with the continued expansion of our commercial infrastructure. As expected, we added three new U.S. sales territories, bringing the total to 32. The talent we have been able to attract and put into the field is impressive, and we look forward to continuing to leverage their abilities to educate and train physicians and healthcare providers on Barostim. Also during the second quarter, we further progressed our marketing initiatives, including our direct-to-consumer and patient education programs, which we will continue to optimize to support our commercial strategy. Moving to our second focus area, the expansion of our clinical body of evidence. As announced in June, we submitted the PMA supplement to FDA, which included data collected as part of the post-market BeAT-HF study. As a reminder, the PMA supplement is seeking a potential label expansion for Barostim, in line with the recommendation of the executive steering committee of the BeAT-HF trial. We fully agree with the committee's assessment that the totality of evidence strongly supports Barostim as a safe and effective treatment option for heart failure. We are currently undergoing the normal review process with FDA and expect to receive a response from FDA by the end of the year. We remain committed to closely monitoring the progress and will provide updates when we have significant developments to share. One last update, CMS recently released the proposed outpatient prospective payment system, or OPPS, for 2024, along with the proposed physician fee schedule for the same period. Of particular note was the absence of any mention of our March submission requesting assignment to one of the new technology APC payment codes as our transitional pass-through additional payment expires at the end of 2023. We anticipate submitting formal comments on the proposed OPPS package and advocate for inclusion in the final document later this year. However, please remember that our base case for 2024 is the status quo, which would lead to a reduction in our expected average selling price across the U.S. to approximately $26,000. This has been the assumption in our model that is guiding us to be able to reach cash flow breakeven without the need to complete an equity financing. We are very excited about what we have been able to accomplish during the second quarter and throughout the first half of 2023. Through the first six months of the year, we have grown our U.S. heart failure revenue by 124% as compared to 2022. We look forward to continuing to build on this momentum for the balance of the year and I want to thank our team for their dedication to our mission of improving the lives of patients suffering from heart failure. I'll now turn the call over to Jared to review our financials.

Thanks, Nadim. In the second quarter, total revenue generated was $9.5 million, representing an increase of $4.5 million or 89% compared to the same period last year. Revenue generated in the U.S. was $8.3 million in the current quarter, reflecting growth of 111% over the same period last year. Heart failure revenue in the U.S. totaled $8.3 million in the current quarter on a total of 265 revenue units compared to $3.8 million in the second quarter of last year on 128 revenue units. The increases were primarily driven by continued growth in the U.S. heart failure business, as a result of the expansion into new sales territories, new accounts and increased physician and patient awareness of Barostim. At the end of the current quarter, we had a total of 140 active implanting centers compared to 71 on June 30, 2022, and 122 on March 31, 2023. We also had 32 sales territories in the U.S. at the end of the current quarter compared to 20 on June 30, 2022, and 29 on March 31, 2023. Revenue generated in Europe was $1.2 million in the current quarter representing an increase of 10% compared to the same period last year. Total revenue units in Europe increased from 52% in Q2 of 2022 to 56 in the current quarter. The number of sales territories in Europe remained consistent at six for the three months ended June 30, 2023. Gross profit for the three months ended June 30, 2023, was $8.0 million, an increase of $4.2 million compared to the three months ended June 30, 2022. Gross margin for the current quarter increased to 84% compared to 76% for the same period last year. Gross margin for the three months ended June 30, 2023, improved primarily due to a decrease in the cost per unit driven by increased production volumes. Research and development expenses for the current quarter were $3.3 million, reflecting an increase of 39% compared to the same period last year. This change was driven by a $0.6 million increase in compensation expenses as a result of increased headcount, a $0.1 million increase in noncash stock-based compensation expense and a $0.1 million increase in consulting fees. SG&A expenses for the current quarter were $16.5 million, representing an increase of 32% compared to the same period last year. This change was primarily driven by a $2.5 million increase in compensation expenses, mainly as a result of increased headcount, a $0.8 million increase in marketing and advertising expenses associated with the commercialization of Barostim in the U.S., a $0.4 million increase in travel expenses and a $0.3 million increase in noncash stock-based compensation expense. Interest expense increased by $0.5 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. This increase was driven by the interest expense on the borrowings under the loan agreement entered into on October 31, 2022. Other income net was $0.6 million in the current quarter compared to other expense net of $34,000 for the same period last year. The income in the second quarter of 2023 was primarily driven by interest income on our interest-bearing accounts. Net loss for the current quarter was $11.7 million or $0.56 per share compared to a net loss of $11.1 million or $0.54 per share for the same period last year. Net loss per share was based on 20.7 million weighted average shares outstanding for the second quarter of 2023 and 20.5 million weighted average shares outstanding for the second quarter of 2022. At the end of the second quarter, cash and cash equivalents were $90.8 million. Net cash used in operating and investing activities was $12.95 million for the second quarter, which included our annual premium for our directors and officers insurance of approximately $2 million. This is compared to net cash used in operating and investing activities of $10.5 million for the three months ended March 31, 2023. Now turning to guidance. For the full year of 2023, we now expect total revenue between $37.0 million and $38.5 million, up from $35.5 million to $38 million. We now expect full-year gross margins between 83% and 84%, up from 80% to 83%, and we now expect operating expenses between $78 million and $80 million, up from $76 million to $80 million. For the third quarter of 2023, we expect to report total revenue between $9.5 million and $10.2 million.

Thanks, Jared. We had a fantastic first half of 2023. Our strategy for driving the adoption of Barostim while continuing to deliver improving financial performance is working, which has resulted in increased revenue guidance for the second consecutive quarter. We are particularly pleased that the business has continued to flourish, especially since the announcement of our BeAT-HF data in February, and we remain optimistic about our plans to continue to grow. We look forward to building on our success during the back half of this year. And now, I would like to open the line for questions.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from Robbie Marcus with JPMorgan. Please proceed with your question.

Hi, this is Alan on for Robbie. Congrats on the good quarter. Just starting with some of the momentum that you saw through the first quarter and second quarter, we really saw that translating into better active implanting centers and I think originally contemplated. So what are you seeing in the third quarter so far when it relates to that? And how sustainable do you think that level of more mid to high-teen center adds will be into the third quarter, fourth quarter, and then beyond that?

Hi Alan, this is Jared. I can take that one. Thanks for the question. So we’ve seen really strong numbers for active implanting center additions over the last few quarters. We talked about this back in 2022 as COVID moved to the wayside and hospital staffing shortages were resolved, we started to see more interest from hospitals to get these programs off the ground, and that’s allowed us to activate these centers. We remind everybody that the contracting process does take time and therefore we do have some insight into the pipeline of new centers that are on contract through value assessment and champions identified. And then the next step in the process to be identified as an active implanting center is to get that first patient treated. And that’s where some of the hospital staffing shortage issues could come into play in the future. But I think as we look forward into Q3 and Q4 and out into 2024, we’re still expecting to see about 12 to 13 new active implanting centers per quarter just based on the volume and the current pipeline that we’re seeing today. So because of the beat in the second quarter, it doesn’t necessarily mean that we’re going to see a slowdown in the new center adds in Q3 and Q4.

Got it. That’s good to hear. And then when I look at the guidance for $9.5 million to $10.2 million, kind of an implied $10.0 million to $10.8 million in the fourth quarter, it seems like pretty measured improvement given the increases we’ve seen so far this year. So why is that the appropriate level of increase we should forecast going forward? I think the general sense is that staffing and those dynamics have gotten better so far this year, so why shouldn’t we see room for more upside in the back half? Thank you.

Yes. I’m happy to take that one again, Alan. Yes. I mean, we’re really happy with the results that we’ve seen to date. I think as we look to provide guidance for Q3, we take into consideration what the current funnel is looking like, what the new active implanting center implant rates are starting to look like, and then also what’s on the horizon. The other thing that we take into consideration is the results we’ve seen so far in the quarter and what we’ve seen in July. I think as we march ahead into Q3, historically coming out of COVID, we have seen slowdowns in the month of August, where people take long vacations. Now there have been no signals of that for us yet. And we did just see our biggest jump ever from one quarter to the next from Q1 to Q2 just in a pure dollar amount of revenue. And so we didn’t want to get ahead of ourselves with increasing the guidance too much and feel pretty comfortable with that range we gave of $9.5 million to $10.2 million for Q3.

Thank you. Our next question comes from Matthew O’Brien with Piper Sandler. Please proceed with your question.

Great. Thanks for taking the question. So Nadim, this one’s for you. You’ve got a lot of experience on the reimbursement side of things and just help us get a sense for your potential to get this APC code here in the final rule. Because if you don’t, the $26,000 ASP is the first time I’ve heard that number specifically. Maybe I missed it, but based on what you’re going to do this year from an ASP perspective, that’s a pretty meaningful like 15% headwind just on the pricing side as we go into next year. So that’s obviously you’re still going to be able to grow nicely on the unit side, but you’re going to have to deal with that headwind potentially on the ASP side of things. So just help us think about that dynamic and the impact on the business both on the top line and even gross profit line because gross profits are great, but ASPs are down 15%, that’s going to be impactful to gross margins. So just help us think about the potential to get that extra code or get the code that you’re looking for and then the impact on the business if that doesn’t happen.

Sure, Matthew. Thanks for the question, by the way. I will ask Jared to answer the second half of the question. Let me answer the first one about the CMS and how to think about the process. We don’t have much experience in this, but we looked at what happened last year with a similar process followed by another small company that’s now part of Zoll. Their application was not mentioned in the summer’s proposed ops, then they went in front of a panel, made the case for it, and they got it at the end of the year. What does it tell us? Not much because every case is different. And no matter how much we can find similarities and try to find solace in here that it worked for them, why wouldn’t it work for us? That’s not how CMS necessarily will be looking at things. And we don’t understand the parameters that they will utilize to define whether they take our request into account or not. That’s why we have been modeling internally that the ASP will be lower in the future. And actually, let me turn here to Jared to walk you through how we’re thinking about it from a gross margin and ASP perspective.

Yes, Matt. I mean, this has been on the horizon for several years now, right? We knew the expiration of this add-on payment was going to be December 31, 2023. So we tend to take the conservative route when building these longer-term models. And so we wanted to take that into consideration to what our average selling price would be in 2024 and beyond. As we look out to 2024 with our base case, assuming we are in the same APC that we are today, that average selling price would be between $25,000 and $26,000. Now it doesn’t drop off a cliff overnight. That number probably comes down over time, but I think the nice thing that we’ve shown here in 2023 with volume, we can see that cost per unit drop pretty dramatically. That’s allowed us to achieve gross margins of 84% in the current quarter. Even with a decrease in the revenue or in the average selling price in 2024, we still believe gross margins of 80% in the short term would be attainable just based on volume and seeing that cost per unit drop.

Got it. Okay. Appreciate that. And then BeAT-HF came out recently, I’m just curious if you saw any pause from some of your centers as they were digesting that information? Did anyone say, I don’t like that or was it potentially negatively impactful to the business? I know you still did well in Q2, but did you see any of that? And then just help us think about if you’re able to get this indication for the treatment of heart failure, I know it helps validate the technology some more, but what does that do from a selling perspective? Is it going to make it easier for new centers or just to go deeper in existing centers? Thanks.

Yes, excellent question. So let’s start first with a reminder: where we are right now, the manuscript is not yet published, and FDA has not given us the authorization to make any claims based on the data. We as a company are not allowed to proactively share with healthcare providers or patients the result of BeAT-HF. We can only answer questions when these questions are asked. So whatever impact we have seen so far has been limited to the physicians or other healthcare providers who have seen the BeAT-HF data presented at a scientific meeting. What’s the percent of sites that have seen the data and commented on it? I don’t have that split exactly. Nevertheless, we have not seen any slowdown, even at the height of the uncertainty between February 21 and March 21 when we went out publicly and mentioned that we did not meet the primary endpoint of the trial without sharing the data until a month later when the data were presented at the late breaker at THT. During that month of uncertainty, even then we had not seen or observed any slowdown of activities at the site. That also kind of moved us into providing some level of directionality of revenue on a monthly basis in Q2 to alleviate any of that concern and give confidence that we are still on the right track. Now, can I say for sure that those who have seen the results are implanting more patients or treating more patients or not? That’s hard to quantify and hard to link our current growth with the results, per se, of BeAT-HF. To our second part of the question, what do we expect if we get the labeling? Well, the total addressable market should increase a little bit based on the expansion of labeling. Remember when we did this, it’s disclosed in our S-1 and subsequent filings, and you go through the funnel. At the last step in the funnel, we eliminated from the total addressable market many patients who have other comorbid diseases, assuming that when a therapy is assumed to be only treating symptoms, it may not be prescribed to patients who have other comorbidities. So we went a little bit conservative on our assessment of the total addressable market. Now, if we get the treatment labeling from FDA, we believe that some of this market will be addressable. Therefore, the total addressable market will increase. We are not at the point yet to disclose what the new number will be of new patients eligible for our therapy on a yearly basis yet, but at the right time, once we have clarity from FDA on what label they’re allowing us, then we will perform that exercise and we’ll come back to everyone with it. Will we see an increase? Will we see an impact? Possibly, but that will be next year. Will it be sufficient to alleviate your previous concerns about the drop in ASP? I believe so, but we’re not there yet. We’re not at the point where we’re giving guidance for 2024.

Got it. Understood. Thanks so much.

Thank you, Matt.

Thank you. Our next question comes from Margaret Kaczor with William Blair. Please proceed with your question.

Hey, good afternoon guys. Thanks for taking the question. I wanted to see if you could provide any additional details in terms of the cadence of cases throughout the summer months and maybe into July and how that might compare to traditional summer seasonality.

Yes. Hey, Margaret, this is Jared. I know we’ve discussed month-to-month results here over the last few months; after we came out with the Q1 results, we talked about how momentum was continuing into April. We also gave the update, I know at your conference about how May was continuing to be pretty strong just from a procedural perspective. But now that we’ve gotten through this process of disclosing the clinical data around BeAT-HF, where there was maybe some uncertainty from investors about what was going to happen with the business, we’re trying to get back into the traditional approach of sharing results on a quarterly basis and then giving that guidance for one quarter forward. So this is not in any way to indicate that we have concerns about what we’re seeing in July; this is just us getting back to the normal cadence of delivering a quarter, giving the guidance and moving forward. So I think we’re going to pass on the question today to give any updates on July.

No, understood. So I’ll take a second crack at a slightly different question. But I’m just curious, as you look at the utilization growth that we’ve seen, you’ve now got some more tenured accounts, you’ve got some newer accounts online. Any surprises there? Or can you talk about the profile of accounts that are growing faster, slower, and if things are kind of on track, I guess, with your expectations?

Yes, excellent question, Margaret. This is Nadim, by the way. Listen, two things. Number one, we’ve said previously that accounts that have been treating patients with Barostim for more than two years are treating more patients on average per quarter than those who have been treating patients from 12 to 24 months ago. These accounts are also treating more patients per quarter than the most recent accounts that started treating patients with Barostim in the last 12 months. So that led us at the time, and we still stand behind the statement to conclude that the longer a site is treating patients with Barostim, the more they see the positive impact on their patients, the more they can spread the word around the institution to build more referral networks, and the more they end up treating patients with Barostim per quarter. So that stands. The second dynamic that is interesting, just like in politics, everything is played at the local level. It depends a lot on the local competition between hospitals at a specific geography. The more you have accounts in the geography, the more the competition starts ramping up, and hospitals try to market the new therapies that they’re offering their patients to the community, and to the general cardiologists around them. The more we see the buzz augmenting in that geography, the more we see more sites wanting to come in or the fear of missing out on something big. So that bandwagon effect is real and it happens at the local level, not at the national level. And that is very exciting for us to see.

Yes. Okay. That’s very helpful. And then I’ll sneak one more in since the first one was a little bit of a bust. But any kind of back and forth discussions you’re having with the FDA on label expansion recently? Any color on concerns, requests, and whether you’re confident that they won’t convene a panel? Thank you.

You’re always able to get me to share some new things. Yes, we did have discussions with the FDA prior to the submission. And if you recall at your conference, I mentioned publicly that we submitted the PMA supplement to the FDA after having a few discussions or interactions with the FDA. We became comfortable with where we stood with them, we prepared the dossier with all of the evidence, the totality of evidence, and submitted. Now the process is for the FDA to take 100 days and then come back with questions. We are in this period right now where we are waiting for them to do all of the analysis they need and come back to us with questions. That does not mean that we are not having other conversations with the FDA in parallel, but not specific on the labeling of the PMA supplement.

Got it. Appreciate that. Congrats guys.

Thank you, Margaret.

Thank you. Our next question comes from Bill Plovanic with Canaccord Genuity. Please proceed with your question.

Great. Thanks. Good evening. A couple questions for you here. Just want to understand the reimbursement. When we read through the OPS, I guess we saw a T code 0266T that was reimbursing $30,400, and you’re referencing $26,000, I think, on reimbursement. What code are you referencing on that in the OPS? I’m just trying to figure that one out, what we missed.

Yes. Bill, this is Nadim, by the way, and let me pronounce your name correctly, Plovanic. Listen, great question. Yes, it is the 0266T that is the reimbursement for the device and the procedure. What Jared is mentioning is the ASP of the device net of the procedure. Now, when you say $30,400, that’s a national average, so sites in major cities are more expensive, and reimbursement could go up all the way to $40,000. Smaller hospitals in rural areas in the United States where the cost of living is lower might go lower than $30,000. This drives companies to be strategic in the account targeting, and that’s why you see often novel therapies targeting the big metropolitan areas because the reimbursement is higher there. So when we are quoting $30,000, when you look at the average in the sites where Barostim is currently utilized, it’s probably higher than $30,400. I’m sorry; will we be next year talking about 2024? Jared, do you want to add something?

And remind us what’s the reimbursement today?

Yes, today is slightly below $30,000, but we have on top of it the transitional pass-through payment that adds another $10,000 or $15,000 on top of it. This transitional pass-through has expired at the end of this year. We’ve been granted this for three years, and that helps novel therapies to be adopted. That’s the process in the U.S. Now, if I compare and contrast with another product similar to ours, take the example of Inspire Medical, right? They did not have a transitional pass-through when they started their product, and they learned to live within that $30,000 envelope that we’re talking about today. In our case, we got lucky. We received that transitional pass-through payment, but it’s only for three years, and now it’s arriving toward the end of it by the close of this year.

Okay. And then I was wondering if you could talk about the BATwire. Now that you’ve had the submission and you’re in the 100 days. Your regulatory team, I would assume had a weekend off and then – are you kind of re-energized around BATwire or how should we think about that program?

As a company, yes, we’re super energized. But the reality on the ground is more nuanced and more difficult than this. The enrollment rate for BATwire has been more challenging than we have anticipated. I think post-COVID, patients are a little bit worried regarding experimental approaches. When they have a choice for a given indication between an FDA approved product like Barostim that is already minimally invasive and enrolling in a clinical trial with an uncertain outcome because it's not FDA approved for BATwire, it seems that the majority of the patients right now prefer to go the safer route and select Barostim. We’ve seen this in the numbers and growth in Barostim, but the price we’re paying right now is a slower enrollment in BATwire. That said, while we remain blinded to the efficacy of BATwire, we see the safety on a daily basis, and we report on the safety of patients to the FDA every five or 10 patients. So far we’re super, super happy with how safe that approach is for patients. But again, let me remind everyone, we’re still blinded to the efficacy of this. We’ll provide more updates when we have something more to say about this.

On that topic, do you have any updated thoughts on when you might complete enrollment or how far through enrollment you are just to give us an idea? And thanks for taking my questions.

Yes, let me table this. We’ll provide a longer update. I believe next quarter we’ll learn more about the trend in the study regarding enrollment. The concern about the fact that enrollment has been more challenging than we anticipated is warranted.

Okay, great. We look forward to seeing you at our conference in two weeks. Thanks.

I look forward to it, Bill. Thank you for the invite.

Thank you. Our next question comes from Alex Nowak with Craig-Hallum. Please proceed with your question.

Okay. Great. Good afternoon, everyone. I wanted to follow up on the proposed HOPPS that was out there. We talked a bit on pricing, but I actually want to pivot just a little bit, just trying to understand how Medicare is thinking about Barostim? Were you surprised that there was no plain mention of Barostim anywhere within the documents? I’m trying to understand if that’s an outright denial of getting Barostim a new APC code, or is it simply that the proposal for the new APC code just didn’t make it into the proposed documents yet?

Alex, how are you? It’s a great question by the way. I wish I knew the answer. Would I prefer to have a negative comment explicit, which often what they do is they will say, 'Yep, we received this request and nope, we won’t give it to you,' or have them stay silent on it. I don’t know which one is better. Seriously, I think silent is better. It leaves the door open to have a dialogue with the panel in August. But it’s hard to know. It is really hard to know, Alex.

Well, getting a new indication or an upgraded label expansion at the FDA, will that have any influence at all on the APC code that Medicare will ultimately choose in the final document?

The way Medicare is structured, think of it as three different pillars that are independent. You have the coding, the payment, and the coverage. The labeling expansion will impact coverage discussions. It would not impact payment and it won’t impact coding. Payment under the CMS regulations is driven almost entirely by the cost of charges that hospitals report back to CMS, which CMS analyzes. CMS tries to assign therapies into buckets so that they don’t have to price each device or different types of devices independently. They put them in bands or buckets, and they try to price these buckets based on the generic average of the claim data they receive from hospitals. It’s not linked to efficacy data or labeling or anything like that unfortunately.

Okay. That makes sense. And then obviously, we’ve seen some really strong sales results this year, last year as well. You’ve been adding sales territories three on average per quarter. What is the right number? What is the sales leadership team asking for? And then this might be a little bit of a follow-up question for cash flow breakeven; just provide some more insights on how we get there with the capital and the resources on hand? When do we start to see the OpEx growth start to slow? I think it sounds like 2024, but just current thoughts there.

Excellent. Two questions, Alex. Let me take the easy one, and I’ll leave the difficult one to Jared. So yes, we believe the right number is three per quarter. As we looked into our path to getting to cash flow breakeven without needing to raise dilutive capital; it’s a cone of possibilities. But if we go too slow in the growth rate, we will never get there. And if we go too fast, we’ll burn the cash way too soon before getting there. Why is that? Because when you hire a rep, it takes six months, nine months, or twelve months for the rep to be trained to start creating the relationships in the field and to take the accounts through the contracting process that we know takes many months until they can treat their first patients. During that period, you’re carrying the cost of the rep and territory manager without getting real benefits from additional sales in that first year. If you load it up too much upfront, you burn through the cash sooner without being able to reach cash flow breakeven. If we were having this conversation five years ago where the market was rewarding growth irrespective of the need to raise capital, maybe that would’ve been our strategy. But today, in this current environment where investors are focusing on the ability of companies to generate cash flow, it did not appear to be the right strategy for us to grow faster than this. But let me turn to Jared to walk you through the thinking process.

Yes, Alex, it’s something we’ve been talking about for a while. 2023 was the flatlining year from a cash burn perspective. The expectation was that we would be burning a number that was very similar to that in 2023 based on the guidance that we had put out at the beginning of the year. As we march into 2024 and beyond, that’s where we see that cash burn number come down and leverage in the model start to play out where the growth in OpEx is a smaller dollar amount than the growth in revenue. That’s how we get to that cash flow breakeven number.

Appreciate the update. Thank you.

Thank you, Alex.

Thank you. Our next question comes from Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

Great. Thanks for taking the questions. Wanted to ask slightly differently related to the BHF data. I know it came up that, was there any negative impact from that data, and fully understanding it’s not on label right now, so it can’t be marketed. And it’s technically off-label, but was there on the flip side, any positive impact that you potentially saw from active implanting centers that were familiar with the data? I know as a patient, if you can find your way to a 34% reduction in death, LVAD transplant, that’s probably something you ask your physician about despite whether or not it is on label. So maybe any tailwind as it relates to that that you may have seen at some of your active implanting centers.

Hey Frank, excellent question. When we unblinded the data and presented it at the late breaker, it’s common practice for the steering committee to present the data as well to the investigators who participated in the trial as a courtesy. Many of those investigators are current Barostim customers. The feedback we received at that time was very positive and super encouraging. Yes, there were questions about what it means not to have met the primary endpoint, but the focus on the long-term safety, the durability of the symptomatic improvement, and when you look at the totality of evidence, particularly compounded with the win ratio analysis that was positive and the trend in the mortality data, people felt very good about the effect. While we spoke about it publicly back then, it might have appeared a bit defensive when we were trying to convey a positive message. The positive messaging we believe has helped carry the day for us and is the reason we’re seeing that trajectory change slightly this year versus last year in terms of growth. Yes, we believe it had a positive impact on our growth. We are talking about the same patient population. We estimated that there were, even with our conservative method, about 55,000 new patients every year eligible for our therapy. Those are new patients yearly. If you don’t treat them this year, there’ll be another 55,000 next year and so forth, and right now what are we talking about? Less than a thousand patients or 2,000 patients we’re treating every year; that’s still a single-digit percentage of this population. The key here is to give more ammunition to the sites treating patients with Barostim when they, in turn, preach to the referring physicians about the virtues of Barostim. That’s the key element here.

Yes, that’s perfect. And then maybe just one other one on utilization. I was hoping you could maybe approximate what percentage of your 140 or so are running at 12 or more implants per year, just trying to get a sense of how that average is computed and how many of your centers are really contributing to bringing that average up?

Yes. Hey, Frank, I’ll take that one. We have 140 active implanting centers just based on the additions we’ve done over the last four quarters or so. Half of them were added in the last year. So that means only 70 of the centers have been with us for more than 12 months as of the end of June this year. We don’t have a lot of centers that have reached that two-plus year marker, but we are seeing really good signs for the centers that have treated patients for two-plus years to see their average implanting ratio reach that long-term average of one per month or 12 per year. We’re not going to go into the exact number, but it’s more than a handful of centers that have started reaching that average in the more recent quarters.

Great. That’s helpful. I’ll stop there. Thanks for taking the questions.

Thank you so much. Thanks, Frank.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Nadim for closing comments.

Oh, yes. Thank you, operator. And thanks everyone for joining us for our second quarter earnings call. We appreciate your ongoing support and we look forward to updating you on our progress on our next update.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.