Item 1. Financial Statements.
SHOCKWAVE MEDICAL, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
(1)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
218,296
|
|
|
$
|
139,045
|
|
Short-term investments
|
|
|
13,109
|
|
|
|
56,304
|
|
Accounts receivable, net
|
|
|
6,365
|
|
|
|
7,377
|
|
Inventory
|
|
|
23,427
|
|
|
|
12,074
|
|
Prepaid expenses and other current assets
|
|
|
3,117
|
|
|
|
1,897
|
|
Total current assets
|
|
|
264,314
|
|
|
|
216,697
|
|
Operating lease right-of-use assets
|
|
|
8,130
|
|
|
|
8,825
|
|
Property and equipment, net
|
|
|
13,287
|
|
|
|
4,910
|
|
Other assets
|
|
|
1,622
|
|
|
|
1,506
|
|
TOTAL ASSETS
|
|
$
|
287,353
|
|
|
$
|
231,938
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,562
|
|
|
$
|
2,790
|
|
Term notes, current portion
|
|
|
—
|
|
|
|
6,667
|
|
Accrued liabilities
|
|
|
14,381
|
|
|
|
13,777
|
|
Lease liability, current portion
|
|
|
798
|
|
|
|
774
|
|
Total current liabilities
|
|
|
17,741
|
|
|
|
24,008
|
|
Lease liability, noncurrent portion
|
|
|
7,903
|
|
|
|
8,125
|
|
Term notes, noncurrent portion
|
|
|
16,286
|
|
|
|
7,152
|
|
TOTAL LIABILITIES
|
|
|
41,930
|
|
|
|
39,285
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
—
|
|
|
|
—
|
|
Common stock
|
|
|
34
|
|
|
|
31
|
|
Additional paid-in capital
|
|
|
460,235
|
|
|
|
370,561
|
|
Accumulated other comprehensive income
|
|
|
21
|
|
|
|
35
|
|
Accumulated deficit
|
|
|
(214,867
|
)
|
|
|
(177,974
|
)
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
245,423
|
|
|
|
192,653
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
287,353
|
|
|
$
|
231,938
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(1)
|
The consolidated balance sheet as of December 31, 2019 is derived from the audited consolidated financial statements as of that date.
|
4
SHOCKWAVE MEDICAL, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
10,286
|
|
|
$
|
10,012
|
|
|
$
|
25,483
|
|
|
$
|
17,282
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
3,592
|
|
|
|
4,133
|
|
|
|
9,243
|
|
|
|
7,205
|
|
Gross profit
|
|
|
6,694
|
|
|
|
5,879
|
|
|
|
16,240
|
|
|
|
10,077
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,101
|
|
|
|
6,926
|
|
|
|
19,991
|
|
|
|
14,410
|
|
Sales and marketing
|
|
|
11,206
|
|
|
|
6,961
|
|
|
|
21,617
|
|
|
|
12,831
|
|
General and administrative
|
|
|
5,398
|
|
|
|
3,245
|
|
|
|
11,622
|
|
|
|
6,247
|
|
Total operating expenses
|
|
|
24,705
|
|
|
|
17,132
|
|
|
|
53,230
|
|
|
|
33,488
|
|
Loss from operations
|
|
|
(18,011
|
)
|
|
|
(11,253
|
)
|
|
|
(36,990
|
)
|
|
|
(23,411
|
)
|
Interest expense
|
|
|
(306
|
)
|
|
|
(250
|
)
|
|
|
(583
|
)
|
|
|
(495
|
)
|
Change in fair value of warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
(609
|
)
|
Other income, net
|
|
|
220
|
|
|
|
913
|
|
|
|
724
|
|
|
|
1,133
|
|
Net loss before taxes
|
|
|
(18,097
|
)
|
|
|
(10,590
|
)
|
|
|
(36,849
|
)
|
|
|
(23,382
|
)
|
Income tax provision
|
|
|
21
|
|
|
|
18
|
|
|
|
44
|
|
|
|
25
|
|
Net loss
|
|
$
|
(18,118
|
)
|
|
$
|
(10,608
|
)
|
|
$
|
(36,893
|
)
|
|
$
|
(23,407
|
)
|
Unrealized gain/(loss) on available-for-sale securities
|
|
|
(82
|
)
|
|
|
75
|
|
|
|
(14
|
)
|
|
|
75
|
|
Total comprehensive loss
|
|
$
|
(18,200
|
)
|
|
$
|
(10,533
|
)
|
|
$
|
(36,907
|
)
|
|
$
|
(23,332
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.56
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(1.16
|
)
|
|
$
|
(1.25
|
)
|
Shares used in computing net loss per share, basic and diluted
|
|
|
32,156,476
|
|
|
|
28,002,887
|
|
|
|
31,900,259
|
|
|
|
18,735,307
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Shockwave Medical, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
|
|
Convertible Preferred
Stock
|
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance — December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
31,446,787
|
|
|
$
|
31
|
|
|
$
|
370,561
|
|
|
$
|
35
|
|
|
$
|
(177,974
|
)
|
|
$
|
192,653
|
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
356,128
|
|
|
|
1
|
|
|
|
1,112
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,113
|
|
|
Issuance of common stock under
employee stock purchase plan
|
|
|
—
|
|
|
|
—
|
|
|
|
|
24,691
|
|
|
|
—
|
|
|
|
842
|
|
|
|
—
|
|
|
|
—
|
|
|
|
842
|
|
|
Unrealized gain on available-for-
sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
68
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,871
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,871
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,775
|
)
|
|
|
(18,775
|
)
|
|
Balance — March 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
|
31,827,606
|
|
|
|
32
|
|
|
|
374,386
|
|
|
|
103
|
|
|
|
(196,749
|
)
|
|
|
177,772
|
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
137,178
|
|
|
|
—
|
|
|
|
480
|
|
|
|
—
|
|
|
|
—
|
|
|
|
480
|
|
|
Issuance of common stock in connection with public offering, net of issuance costs of $6.1 million
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,955,000
|
|
|
|
2
|
|
|
|
83,380
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83,382
|
|
|
Issuance of common stock in connection with vesting of restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
|
41,229
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Restricted stock units withheld in net settlement for tax
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(15,456
|
)
|
|
|
—
|
|
|
|
(616
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(616
|
)
|
|
Unrealized loss on available-for- sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(82
|
)
|
|
|
—
|
|
|
|
(82
|
)
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,605
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,118
|
)
|
|
|
(18,118
|
)
|
|
Balance — June 30, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
33,945,557
|
|
|
$
|
34
|
|
|
$
|
460,235
|
|
|
$
|
21
|
|
|
$
|
(214,867
|
)
|
|
$
|
245,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Shockwave Medical, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
|
|
Convertible Preferred
Stock
|
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Accumulated
|
|
|
Total
Stockholders'
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Balance — December 31, 2018
|
|
|
18,670,328
|
|
|
$
|
152,806
|
|
|
|
|
1,824,852
|
|
|
$
|
2
|
|
|
$
|
4,275
|
|
|
$
|
—
|
|
|
$
|
(126,865
|
)
|
|
$
|
(122,588
|
)
|
|
Exercise of common stock warrants
for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
|
50,331
|
|
|
|
—
|
|
|
|
110
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110
|
|
|
Issuance of common stock upon net exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
101,744
|
|
|
|
—
|
|
|
|
133
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133
|
|
|
Conversion of preferred stock to common stock upon initial public
offering
|
|
|
(18,670,328
|
)
|
|
|
(152,806
|
)
|
|
|
|
18,670,328
|
|
|
18
|
|
|
|
152,788
|
|
|
|
—
|
|
|
|
—
|
|
|
|
152,806
|
|
|
Conversion of Series A-1 warrants to common stock warrants upon
initial public offering
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
789
|
|
|
|
—
|
|
|
|
—
|
|
|
|
789
|
|
|
Issuance of common stock in connection with initial public
offering, net of issuance costs of $11.3 million
|
|
|
—
|
|
|
|
—
|
|
|
|
|
6,555,000
|
|
|
7
|
|
|
|
100,132
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,139
|
|
|
Issuance of common stock in
connection with private placement
|
|
|
—
|
|
|
|
—
|
|
|
|
|
588,235
|
|
|
1
|
|
|
|
9,999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
80,515
|
|
|
|
—
|
|
|
|
169
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169
|
|
|
Vesting of early exercised options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
412
|
|
|
|
—
|
|
|
|
—
|
|
|
|
412
|
|
|
Settlement of fractional shares resulting from reverse stock split
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(114
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,799
|
)
|
|
|
(12,799
|
)
|
|
Balance — March 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
|
27,870,891
|
|
|
|
28
|
|
|
|
268,822
|
|
|
|
-
|
|
|
|
(139,664
|
)
|
|
|
129,186
|
|
|
Issuance of common stock upon net exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
79,208
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
73,608
|
|
|
|
—
|
|
|
|
148
|
|
|
|
—
|
|
|
|
—
|
|
|
|
148
|
|
|
Vesting of early exercised options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
Offering cost related to the initial public offering
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(215
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(215
|
)
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
818
|
|
|
|
—
|
|
|
|
—
|
|
|
|
818
|
|
|
Unrealized gain on available-for-sale securities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
|
|
75
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,608
|
)
|
|
|
(10,608
|
)
|
|
Balance — June 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
28,023,707
|
|
|
$
|
28
|
|
|
$
|
269,582
|
|
|
$
|
75
|
|
|
$
|
(150,272
|
)
|
|
$
|
119,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
SHOCKWAVE MEDICAL, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(36,893
|
)
|
|
$
|
(23,407
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
877
|
|
|
|
516
|
|
Stock-based compensation
|
|
|
4,262
|
|
|
|
1,230
|
|
Amortization of right-of-use assets
|
|
|
734
|
|
|
|
496
|
|
Accretion of discount on available-for-sale securities
|
|
|
201
|
|
|
|
(354
|
)
|
Loss on write down of fixed assets
|
|
|
—
|
|
|
|
88
|
|
Change in fair value of warrant liability
|
|
|
—
|
|
|
|
609
|
|
Amortization of debt issuance costs
|
|
|
313
|
|
|
|
212
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,012
|
|
|
|
(2,392
|
)
|
Inventory
|
|
|
(10,965
|
)
|
|
|
(3,160
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,220
|
)
|
|
|
(841
|
)
|
Other assets
|
|
|
(116
|
)
|
|
|
5
|
|
Accounts payable
|
|
|
(282
|
)
|
|
|
713
|
|
Accrued and other current liabilities
|
|
|
(41
|
)
|
|
|
1,848
|
|
Lease liabilities
|
|
|
(237
|
)
|
|
|
(496
|
)
|
Net cash used in operating activities
|
|
|
(42,355
|
)
|
|
|
(24,933
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of available-for-sale securities
|
|
|
(16,020
|
)
|
|
|
(82,784
|
)
|
Proceeds from maturities of available-for-sale securities
|
|
|
59,000
|
|
|
|
—
|
|
Purchase of property and equipment
|
|
|
(8,952
|
)
|
|
|
(1,191
|
)
|
Net cash provided by (used in) investing activities
|
|
|
34,028
|
|
|
|
(83,975
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock upon initial public
offering, net of issuance costs paid
|
|
|
—
|
|
|
|
100,762
|
|
Proceeds from issuance of common stock in private placement
|
|
|
—
|
|
|
|
10,000
|
|
Payments of offering costs
|
|
|
(179
|
)
|
|
|
—
|
|
Proceed from issuance of common stock from public offering, net of issuance cost paid
|
|
|
83,784
|
|
|
|
—
|
|
Payments of taxes withheld on net settled vesting of restricted stock units
|
|
|
(616
|
)
|
|
|
—
|
|
Principal payments of term loan
|
|
|
(1,111
|
)
|
|
|
—
|
|
Net proceeds from term loan
|
|
|
3,265
|
|
|
|
—
|
|
Proceeds from stock option exercises
|
|
|
1,593
|
|
|
|
317
|
|
Proceeds from issuance of common stock under employee stock purchase plan
|
|
|
842
|
|
|
|
—
|
|
Proceeds from warrant exercises
|
|
|
—
|
|
|
|
110
|
|
Net cash provided by financing activities
|
|
|
87,578
|
|
|
|
111,189
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
79,251
|
|
|
|
2,281
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
140,495
|
|
|
|
40,093
|
|
Cash, cash equivalents and restricted cash equivalents at end of period
|
|
$
|
219,746
|
|
|
$
|
42,374
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
256
|
|
|
$
|
276
|
|
Income tax paid
|
|
$
|
10
|
|
|
$
|
8
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Common stock issued on conversion of convertible preferred stock
|
|
$
|
—
|
|
|
$
|
152,806
|
|
Common stock issued upon net exercise of warrants
|
|
$
|
—
|
|
|
$
|
133
|
|
Common stock warrants issued on conversion of preferred stock
warrants and the reclassification of the warrant liability
|
|
$
|
—
|
|
|
$
|
789
|
|
Offering costs included in accounts payable and accrued liabilities
|
|
$
|
402
|
|
|
$
|
215
|
|
Right-of-use asset obtained in exchange for lease liability
|
|
$
|
39
|
|
|
$
|
73
|
|
Property and equipment purchases included in accounts payable and accrued liabilities
|
|
$
|
501
|
|
|
$
|
93
|
|
Transfer of fixed assets to inventory
|
|
$
|
174
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
1. Organization and Basis of Presentation
Shockwave Medical, Inc. (the “Company”) was incorporated on June 17, 2009. The Company is primarily engaged in the development of Intravascular Lithotripsy (“IVL”) technology for the treatment of calcified plaque in patients with peripheral vascular, coronary vascular and heart valve disease. Built on a balloon catheter platform, the IVL technology uses lithotripsy to disrupt both superficial and deep vascular calcium, while minimizing soft tissue injury, and an integrated angioplasty balloon to dilate blockages at low pressures, restoring blood flow.
In 2016, the Company began commercial and manufacturing operations, and began selling catheters based on the IVL technology. The Company’s headquarters are in Santa Clara, California. The Company is located and operates primarily in the United States and has a subsidiary in Germany.
Need for Additional Capital
The Company has incurred significant losses and has negative cash flows from operations. As of June 30, 2020, the Company had an accumulated deficit of $214.9 million. Management expects to continue to incur additional substantial losses for the foreseeable future.
As of June 30, 2020, the Company had cash, cash equivalents and short-term investments of $231.4 million, which are available to fund future operations. The Company believes that its cash, cash equivalents and short-term investments as of June 30, 2020, will be sufficient for the Company to continue as a going concern for at least 12 months from the date the unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (“SEC”). The Company’s future capital requirements will depend on many factors, including its growth rate, the timing and extent of its spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities and the scope, duration and continuing impact of the COVID-19 pandemic.
Risk and Uncertainties
The Company is subject to risks and uncertainties as a result of the ongoing effects of the COVID-19 pandemic. There are many uncertainties regarding the current COVID-19 pandemic, and the Company is continuing to closely monitor the impact of the pandemic on all aspects of its business, including how it is impacting and how it may continue to impact its customers, patients that would benefit from procedures utilizing the Company’s products, employees, suppliers, vendors, business partners and distribution channels. The capital markets and economies worldwide continue to be negatively impacted by the COVID-19 pandemic, including U.S. and global economic recessions. As such the Company's future results of operations and liquidity may continue to be adversely impacted by a variety of factors related to the COVID-19 pandemic, including those discussed or referred to in the section entitled “Risk Factors” of this Quarterly Report on Form 10-Q.
As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain. Given the ongoing uncertainty of the scope and duration of the COVID-19 pandemic, the Company is currently unable to accurately estimate the scale and duration of the impact on its business, including procedure volumes, clinical activities and product development, and by extension the Company’s financial results.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of SEC regarding interim financial reporting.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date. The unaudited condensed consolidated
9
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020.
Reclassifications
Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts.
Restricted cash as of June 30, 2020 and December 31, 2019 relates to a letter of credit established for the Company’s office lease and is recorded as other assets on the condensed consolidated balance sheets.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
218,296
|
|
|
$
|
139,045
|
|
Restricted cash
|
|
|
1,450
|
|
|
|
1,450
|
|
Total cash, cash equivalents, and restricted cash
|
|
$
|
219,746
|
|
|
$
|
140,495
|
|
Short-Term Investments
Short-term investments have been classified as available-for-sale and are carried at estimated fair value based upon quoted market prices or pricing models for similar securities. The Company determines the appropriate classification of its investments in debt securities at the time of purchase. Available-for-sale securities with original maturities beyond three months at the date of purchase are classified as current based on their availability for use in current operations.
Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss, except for credit-related impairment losses. The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary and if they are related to deterioration in credit risk. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. The Company also assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on marketable securities are included in other income, net. Effective January 1, 2020, any unrealized losses on available-for-sale debt securities that are attributed to credit risk are recorded to earnings through an allowance for credit losses. The cost of investments sold is based on the specific-identification method. Interest on marketable securities is included in other income, net.
Fair Value of Financial Instruments
The Company’s cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. Management believes that its term notes bear interest at the prevailing market rates for instruments with similar characteristics; accordingly, the carrying value of this instrument approximates its fair value.
10
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
Revenue
The Company records product revenue primarily from the sale of its IVL catheters. The Company sells its products to hospitals, primarily through direct sales representatives, as well as through distributors in selected international markets. Additionally, a significant portion of the Company’s revenue is generated through a consignment model under which inventory is maintained at hospitals.
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which 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 performs 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.
For products sold through direct sales representatives, control is transferred upon delivery to customers. For products sold to distributors internationally and products sold to customers that utilize stocking orders, control is transferred upon shipment or delivery to the customer’s named location, based on the contractual shipping terms. For consignment inventory, control is transferred at the time the IVL catheters are consumed in a procedure.
In the United States the Company generally provides for the use of an IVL generator and connector cable under an agreement to customers at no charge to facilitate use of the IVL catheters. These agreements do not contain contractually enforceable minimum commitments and are generally cancellable by either party with 30 days’ notice.
Recently Adopted Accounting Pronouncements
Effective January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments. Unrealized losses on available-for-sale debt securities that are attributed to credit risk are recorded through earnings rather than to other comprehensive income. Credit losses relating to available-for-sale debt securities are now recorded through an allowance for credit losses. The adoption of this guidance did not result in a cumulative effect adjustment as of the date of the adoption.
In addition, Topic 326 also provides new guidance related to the measurement of expected credit losses on the Company’s allowance for bad debt for accounts receivable, which is estimated upon assessment of various factors including historical collection experience, current and future economic market conditions and a review of the current aging status and financial condition of the Company’s customers. During the six months ended June 30, 2020, the Company recorded an additional allowance for bad debt in response to an assessment of the evolving credit environment under the COVID-19 pandemic. The Company will continue to update its estimate of credit losses from accounts receivable in future periods in response to the uncertainties caused by the COVID-19 pandemic.
11
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
3. Financial Instruments and Fair Value Measurements
The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy:
|
|
June 30, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
10,063
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,063
|
|
Money market funds
|
|
|
135,214
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135,214
|
|
Corporate bonds
|
|
|
—
|
|
|
|
3,046
|
|
|
|
—
|
|
|
|
3,046
|
|
Total assets
|
|
$
|
145,277
|
|
|
$
|
3,046
|
|
|
$
|
—
|
|
|
$
|
148,323
|
|
|
|
December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
43,245
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,245
|
|
Money market funds
|
|
|
29,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,386
|
|
Reverse repurchase agreements
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
10,000
|
|
Commercial paper
|
|
|
—
|
|
|
|
6,958
|
|
|
|
—
|
|
|
|
6,958
|
|
Corporate bonds
|
|
|
—
|
|
|
|
8,096
|
|
|
|
—
|
|
|
|
8,096
|
|
Total assets
|
|
$
|
72,631
|
|
|
$
|
25,054
|
|
|
$
|
—
|
|
|
$
|
97,685
|
|
The Company’s convertible preferred stock warrants were converted into common stock warrants upon the closing of an initial public offering of the Company’s common stock (“IPO”) in March 2019. The change in the fair value of the warrant liability for the three months ended March 31, 2019 is summarized below (in thousands):
Balance at December 31, 2018
|
|
$
|
313
|
|
Change in fair value of warrant liability
|
|
|
609
|
|
Net exercise of warrants
|
|
|
(133
|
)
|
Conversion of Series A preferred stock warrants to common
stock warrants upon the closing of the IPO
|
|
|
(789
|
)
|
Balance at March 31, 2019
|
|
$
|
—
|
|
The valuation of the Company’s convertible preferred stock warrant liability contains unobservable inputs that reflect the Company’s own assumptions for which there is little, if any, market activity for at the measurement date. Accordingly, the Company’s convertible preferred stock warrant liability is measured at fair value on a recurring basis using unobservable inputs and are classified as Level 3 inputs, and any change in fair value is recognized as change in fair value of warrant liability in the condensed consolidated statements of operations and comprehensive loss.
The fair value of the warrants was determined using the Black-Scholes option pricing model and the following assumptions:
|
|
March 31,
2019
|
|
Expected term (in years)
|
|
|
5.3
|
|
Expected volatility
|
|
43.9%
|
|
Risk-free interest rate
|
|
2.5%
|
|
Expected dividend yield
|
|
0%
|
|
12
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
4. Cash Equivalents and Short-Term Investments
The following is a summary of the Company’s cash equivalents and short-term investments:
|
|
June 30, 2020
|
|
|
|
Amortized
Cost Basis
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
U.S. Treasury securities
|
|
$
|
10,043
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
10,063
|
|
Money market funds
|
|
|
135,214
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135,214
|
|
Corporate bonds
|
|
|
3,045
|
|
|
|
1
|
|
|
|
—
|
|
|
|
3,046
|
|
Total
|
|
$
|
148,302
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
148,323
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135,214
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,109
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,323
|
|
|
|
December 31, 2019
|
|
|
|
Amortized
Cost Basis
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
U.S. Treasury securities
|
|
$
|
43,219
|
|
|
$
|
27
|
|
|
$
|
(1
|
)
|
|
$
|
43,245
|
|
Money market funds
|
|
|
29,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,386
|
|
Reverse repurchase agreements
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
Commercial paper
|
|
|
6,958
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,958
|
|
Corporate bonds
|
|
|
8,087
|
|
|
|
9
|
|
|
|
—
|
|
|
|
8,096
|
|
Total
|
|
$
|
97,650
|
|
|
$
|
36
|
|
|
$
|
(1
|
)
|
|
$
|
97,685
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,381
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,304
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,685
|
|
The Company recognized no material gains or losses on its cash equivalents and short-term investments in the periods presented. As of June 30, 2020, the remaining contractual maturities for available-for-sale securities were less than one year.
5. Balance Sheet Components
Inventory
Inventory consists of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Raw material
|
|
$
|
4,138
|
|
|
$
|
2,501
|
|
Work in progress
|
|
|
2,682
|
|
|
|
1,364
|
|
Finished goods
|
|
|
14,850
|
|
|
|
6,642
|
|
Consigned inventory
|
|
|
1,757
|
|
|
|
1,567
|
|
Total inventory
|
|
$
|
23,427
|
|
|
$
|
12,074
|
|
13
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Accrued Liabilities
Accrued liabilities consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Accrued employee compensation
|
|
$
|
7,300
|
|
|
$
|
8,139
|
|
Accrued asset purchases
|
|
|
633
|
|
|
|
—
|
|
Accrued research and development costs
|
|
|
3,734
|
|
|
|
3,090
|
|
Accrued professional services
|
|
|
1,152
|
|
|
|
804
|
|
Other
|
|
|
1,562
|
|
|
|
1,744
|
|
Total accrued liabilities
|
|
$
|
14,381
|
|
|
$
|
13,777
|
|
6. Term Notes
Loan and Security Agreement
In February 2018, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (the “Loan and Security Agreement”). The terms of the Loan and Security Agreement included a term loan of $15.0 million and a revolving line of credit of $2.0 million. The term loan was available in two tranches, of which the first tranche of $10.0 million was funded in June 2018 and the second tranche of $5.0 million was funded in December 2018.
The term loan accrued interest at a floating per annum rate equal to the greater of the Wall Street Journal prime rate minus 1.75% and 2.75%. There was a final payment equal to 6.75% of the original aggregate principal amount, or $1.0 million, of the term loan advances, which was being accrued over the expected term of the loan using the effective-interest method.
In connection with the execution of the Loan and Security Agreement, the Company issued warrants to Silicon Valley Bank to purchase 34,440 shares of the Company’s common stock. Upon issuance, the fair value of the warrants of $0.1 million was recorded as a debt issuance cost. The debt issuance cost was being amortized to interest expense, net over the expected repayment period of the loan.
In February 2020, the Company entered into a First Amendment to its Loan and Security Agreement (the “Amended Credit Facility”) to, among other things, refinance its existing term loan, which is accounted for as a modification of the Loan and Security Agreement. Under the Amended Credit Facility, the existing revolving line of credit of $2.0 million was terminated and the termination fee of less than $0.1 million was waived. The Amended Credit Facility provides the Company with a supplemental term loan in the amount of $16.5 million. After repayment of the outstanding amount of the term loan, the Company received net proceeds of $3.3 million, which reflects an additional $4.3 million in principal as of the date of the modification less the final balloon payment fee of $1.0 million. The principal amount outstanding under the supplemental term loan accrues interest at a floating per annum rate equal to the greater of the Prime Rate minus 1.25% and 3.5% (3.5% as of June 30, 2020).
The supplemental term loan matures on December 1, 2023. The Amended Credit Facility provides an interest-only payment period which will end on (a) June 30, 2021, if the Company’s revenue for the trailing 12 month period ended June 30, 2021 is not at least 75% of the Company’s projections; (b) December 31, 2021, if the Company achieves the financial performance target referred to in clause (a), but does not obtain premarket approval of the Company’s C2 catheters from the FDA by such date and/or the Company’s trailing 12-month revenue for the period ending December 31, 2021 is not at least 75% of the Company’s projections; or (c) June 30, 2022, if the Company achieves the milestones referred to in clauses (a) and (b).
The additional final payment for the Amended Credit Facility is $1.6 million, which will be accrued over the term of the supplemental term loan using an effective interest rate that reflects the revised cash flows of the modified term loan.
14
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
The supplemental term loan is secured by all of the Company’s assets, excluding intellectual property and certain other assets. The loan contains customary affirmative and restrictive covenants, including with respect to the Company’s ability to enter into fundamental transactions, incur additional indebtedness, grant liens, pay any dividend or make any distributions to its holders, make investments, merge or consolidate with any other person or engage in transactions with the Company’s affiliates, but does not include any financial covenants.
Long-term debt and net discount or premium balances are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Principal amount of term note
|
|
$
|
16,500
|
|
|
$
|
13,334
|
|
Net (discount) premium associated with accretion of final payment,
issuance of common stock warrants, and other debt issuance costs
|
|
|
(214
|
)
|
|
|
485
|
|
Term note, current and noncurrent
|
|
|
16,286
|
|
|
|
13,819
|
|
Less term note, current portion
|
|
|
—
|
|
|
|
(6,667
|
)
|
Term note, noncurrent portion
|
|
$
|
16,286
|
|
|
$
|
7,152
|
|
Future minimum payments of principal and estimated payments of interest on the Company’s outstanding variable rate borrowings as of June 30, 2020 are as follows:
Year ending December 31:
|
|
(in thousands)
|
|
2020 (remainder)
|
|
$
|
294
|
|
2021
|
|
|
3,861
|
|
2022
|
|
|
6,961
|
|
2023
|
|
|
8,294
|
|
Total future payments
|
|
|
19,410
|
|
Less amounts representing interest
|
|
|
(1,342
|
)
|
Less final payment
|
|
|
(1,568
|
)
|
Total principal amount of term note payments
|
|
$
|
16,500
|
|
7. Stock-Based Compensation
Total stock-based compensation was as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Cost of product revenue
|
|
$
|
39
|
|
|
$
|
48
|
|
|
$
|
141
|
|
|
$
|
75
|
|
Research and development
|
|
|
650
|
|
|
|
204
|
|
|
$
|
1,138
|
|
|
|
276
|
|
Sales and marketing
|
|
|
837
|
|
|
|
201
|
|
|
$
|
1,396
|
|
|
|
309
|
|
General and administrative
|
|
|
924
|
|
|
|
365
|
|
|
$
|
1,587
|
|
|
|
570
|
|
Total stock-based compensation
|
|
$
|
2,450
|
|
|
$
|
818
|
|
|
$
|
4,262
|
|
|
$
|
1,230
|
|
15
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
Determination of Fair Value
The Company estimates the grant-date fair value of the Company’s option awards using the Black-Scholes option pricing model. The assumptions for the Black-Scholes model for the six months ended June 30, 2020 and 2019 were as follows:
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Expected term (in years)
|
|
|
—
|
|
|
6.08
|
|
Expected volatility
|
|
|
—
|
|
|
42.4% - 42.9%
|
|
Risk-free interest rate
|
|
|
—
|
|
|
2.5% - 2.6%
|
|
Expected dividend yield
|
|
|
—
|
|
|
0%
|
|
2009 Equity Incentive Plan and 2019 Equity Incentive Plan
On June 17, 2009, the Company adopted the 2009 Equity Incentive Plan (the “2009 Plan”) under which the Board had the authority to issue stock options to employees, directors and consultants.
In February 2019, the Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”), which became effective in connection with the IPO. As a result, effective as of March 6, 2019, the Company may not grant any additional awards under the 2009 Plan. The 2009 Plan will continue to govern outstanding equity awards granted thereunder. The Company initially reserved 2,000,430 shares of common stock for the issuance of a variety of awards under the 2019 Plan, including stock options, stock appreciation rights, awards of restricted stock and awards of restricted stock units. In addition, the number of shares of common stock reserved for issuance under the 2019 Plan will automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2020, in an amount equal to 3% of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s Board of Directors. As of June 30, 2020, there were 2,671,201 shares available for issuance under the 2019 Plan.
Stock Options
Option activity under the 2009 Plan and 2019 Plan is set forth below:
|
|
Shares
Available
for Grant
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in years)
|
|
|
(in thousands)
|
|
Balance, December 31, 2019
|
|
|
1,704,244
|
|
|
|
3,315,001
|
|
|
$
|
5.08
|
|
|
|
7.28
|
|
|
$
|
128,774
|
|
Awards authorized
|
|
|
943,345
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
—
|
|
|
|
(493,306
|
)
|
|
|
3.23
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
23,612
|
|
|
|
(23,612
|
)
|
|
|
3.95
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
|
2,671,201
|
|
|
|
2,798,083
|
|
|
$
|
5.42
|
|
|
|
7.17
|
|
|
$
|
117,380
|
|
Vested and exercisable, June 30, 2020
|
|
|
|
|
|
|
1,693,886
|
|
|
$
|
4.18
|
|
|
|
6.75
|
|
|
$
|
73,156
|
|
Vested and expected to vest, June 30, 2020
|
|
|
|
|
|
|
2,798,083
|
|
|
$
|
5.42
|
|
|
|
7.17
|
|
|
$
|
117,380
|
|
Restricted Stock Units
Restricted stock units (“RSUs”) are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs generally vest over a four-year period with straight-line annual vesting, provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.
16
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
RSU activity under the 2019 Plan is set forth below:
|
|
Number
of Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
Balance, December 31, 2019
|
|
|
280,904
|
|
|
$
|
38.12
|
|
RSUs granted
|
|
|
517,515
|
|
|
|
42.40
|
|
RSUs vested
|
|
|
(41,229
|
)
|
|
|
36.25
|
|
RSUs forfeited
|
|
|
(13,750
|
)
|
|
|
40.40
|
|
Balance, June 30, 2020
|
|
|
743,440
|
|
|
$
|
41.16
|
|
Employee Stock Purchase Plan
In February 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective as of March 6, 2019. The Company initially reserved 300,650 shares of common stock for purchase under the ESPP. Each offering period during which participating employees may purchase stock under the ESPP begins on each September 1 and March 1 and ends on the following February 28 or 29 and August 30, respectively. The first offering period began on September 1, 2019 and ended on February 29, 2020. On each purchase date, which falls on the last date of each offering period, ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of (1) the fair market value per share of the common stock on the offering date or (2) the fair market value of the common stock on the purchase date. The occurrence and duration of offering periods under the ESPP are subject to the determinations of the Compensation Committee of the Company’s Board of Directors, in its sole discretion.
The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model. The Company recorded $207,000 and $398,000 of stock-based compensation expense related to the ESPP for the three and six months ended June 30, 2020, respectively. At June 30, 2020, a total of 590,407 shares were available for issuance under the ESPP.
8. Net Loss Per Share
The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Common stock options issued and outstanding
|
|
|
2,798,083
|
|
|
|
3,896,360
|
|
Restricted stock units
|
|
|
743,440
|
|
|
|
173,750
|
|
Total
|
|
|
3,541,523
|
|
|
|
4,070,110
|
|
17
SHOCKWAVE MEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
9. Segment and Geographic Information
The following table represents the Company’s product revenue based on the location to which the product is shipped:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
United States
|
|
$
|
5,537
|
|
|
$
|
5,172
|
|
|
$
|
13,306
|
|
|
$
|
8,808
|
|
Germany
|
|
|
825
|
|
|
|
873
|
|
|
|
1,736
|
|
|
|
1,516
|
|
Rest of Europe
|
|
|
3,107
|
|
|
|
3,309
|
|
|
|
8,215
|
|
|
|
6,045
|
|
All other countries
|
|
|
817
|
|
|
|
658
|
|
|
|
2,226
|
|
|
|
913
|
|
Product revenue
|
|
$
|
10,286
|
|
|
$
|
10,012
|
|
|
$
|
25,483
|
|
|
$
|
17,282
|
|
As of June 30, 2020 and 2019, the Company’s long-lived assets were all held in the United States with the exception of certain equipment on loan to customers held internationally, which was not material as of each period end.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth under “Special Note Regarding Forward-Looking Statements”, in the “Risk Factors” section of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, our actual results could differ materially from the results described in, or implied, by those forward-looking statements.
Overview
We are a medical device company focused on developing and commercializing products intended to transform the way calcified cardiovascular disease is treated. We aim to establish a new standard of care for medical device treatment of atherosclerotic cardiovascular disease through our differentiated and proprietary local delivery of sonic pressure waves for the treatment of calcified plaque, which we refer to as intravascular lithotripsy (“IVL”). Our IVL system (our “IVL System”), which leverages our IVL technology (our “IVL Technology”), is a minimally invasive, easy-to-use and safe way to significantly improve patient outcomes. Our Shockwave M5 IVL catheter (“M5 catheter”) was CE-Marked in April 2018 and cleared by the U.S. Food and Drug Administration (“FDA”) in July 2018 for use in our IVL System for the treatment of peripheral artery disease (“PAD”). Our Shockwave C2 IVL catheter (“C2 catheter”), which we are currently marketing in select locations outside of the United States, was CE-Marked in June 2018 for use in our IVL System for the treatment of coronary artery disease (“CAD”). In August 2019, we received Breakthrough Device designation from the FDA for our C2 catheters using our IVL System for the treatment of CAD. The second version of our Shockwave S4 IVL catheter (“S4 catheter”) was cleared by the FDA in August 2019. We also have ongoing clinical programs across several products and indications, which, if successful, will allow us to expand commercialization of our products into new geographies and indications. Importantly, we are undertaking ongoing clinical trials of our C2 catheter intended to support a pre-market application (“PMA”) in the United States and a Shonin submission in Japan for the treatment of CAD. In October 2018, we received staged IDE approval for our DISRUPT CAD III global study. We began enrollment in the DISRUPT CAD III global study in 2019 and completed enrollment in April 2020. This study is designed to support U.S. PMA approval for our C2 catheters. We anticipate having final data from these ongoing clinical trials intended to support a U.S. launch of our C2 catheter in the first half of 2021 and a Japan launch in the first half of 2022.
The first two indications we are targeting with our IVL System are PAD, the narrowing or blockage of vessels that carry blood from the heart to the extremities, and CAD, the narrowing or blockage of the arteries that supply blood to the heart. In the future, we see significant opportunity in the potential treatment of aortic stenosis, a condition where the heart’s aortic valve becomes increasingly calcified with age, causing it to narrow and obstruct blood flow from the heart.
We have adapted the use of lithotripsy to the cardiovascular field with the aim of creating what we believe can become the safest, most effective means of addressing the growing challenge of cardiovascular calcification. Lithotripsy has been used to successfully treat kidney stones (deposits of hardened calcium) for over 30 years. By integrating lithotripsy into a device that resembles a standard balloon catheter, physicians can prepare, deliver and treat calcified lesions using a familiar form factor, without disruption to their standard procedural workflow. Our differentiated IVL System works by delivering shockwaves through the entire depth of the artery wall, modifying calcium in the medial layer of the artery, not just at the superficial most intimal layer. The shockwaves crack this calcium and enable the stenotic artery to expand at low pressures, thereby minimizing complications inherent to traditional balloon dilations, such as dissections or tears. Preparing the vessel with IVL facilitates optimal outcomes with other therapies, including stents and drug-eluting technologies. Using IVL also avoids complications associated with atherectomy devices such as dissection, perforation and embolism. When followed by an anti-proliferative therapy such as a drug-coated balloons or drug-eluting stents, the micro-fractures may enable better drug penetration into the arterial wall and improve drug uptake, thereby improving the effectiveness of the combination treatment.
We market our products to hospitals whose interventional cardiologists, vascular surgeons and interventional radiologists treat patients with PAD and CAD. We have dedicated meaningful resources to establish a direct sales capability in the United States, Germany, Austria and Switzerland, which we have complemented with distributors in 47 countries. We are actively expanding our international field presence through new distributors, additional sales and clinical personnel and are adding new U.S. sales territories.
For the three months ended June 30, 2020 and 2019, we generated product revenue of $10.3 million and $10.0 million, respectively, and a loss from operations of $18.0 million and $11.3 million, respectively. For the three months ended June 30, 2020 and 2019, 46% and 48%, respectively, of our product revenue was generated from customers located outside of the United States.
19
For the six months ended June 30, 2020 and 2019, we generated product revenue of $25.5 million and $17.3 million, respectively, and a loss from operations of $37.0 million and $23.4 million, respectively. For the six months ended June 30, 2020 and 2019, 48% and 49%, respectively, of our product revenue was generated from customers located outside of the United States.
Impact of the COVID-19 pandemic
The global COVID-19 pandemic presents significant risks to us and may have far reaching impacts on our business, operations, and financial results and condition, directly and indirectly, including, without limitation, impacts on: the health of our management and employees; manufacturing, distribution, marketing and sales operations; research and development activities, including clinical activities; and customer and patient behaviors.
Beginning in March 2020, the COVID-19 pandemic began impacting our operations and financial results. For example, on March 19, 2020, the Executive Department of the State of California issued Executive Order N-33-20, ordering all individuals in the State of California to stay at home or at their place of residence except as needed to maintain continuity of operations of federal critical infrastructure sectors. Our primary operations are located in Santa Clara, California. We have taken a variety of steps to address the impact of the COVID-19 pandemic, while attempting to minimize business disruption. Essential staff in manufacturing and limited support functions have continued to work from our Santa Clara office following appropriate hygiene and social distancing protocols. To reduce the risk to our employees and their families from potential exposure to COVID-19, all other staff in our Santa Clara office have been required to work from home. We have restricted non-essential travel to protect the health and safety of our employees and customers.
Moreover, beginning in March 2020, access to hospitals and other customer sites was restricted to essential personnel, which has negatively impacted our ability to promote the use of our products with physicians. In addition, hospitals and other therapeutic centers suspended many elective procedures, resulting in a significantly reduced volume of procedures using our products. The COVID-19 pandemic reduced our IVL catheter sales for the second quarter of 2020 as compared to our sales during the first quarter of 2020.
We are continuing to monitor the impact of the COVID-19 pandemic on our employees and customers and on the markets in which we operate, and will take further actions that we consider prudent to address the COVID-19 pandemic, including reducing spending, while ensuring that we can support our customers and continue to develop our products.
The ultimate extent of the impact of the COVID-19 pandemic on us remains highly uncertain and will depend on future developments and factors that continue to evolve, most of which are outside of our control, and could exist for an extended period of time even after the pandemic might end.
Quarantines, shelter-in-place and similar government orders have also impacted and may continue to impact, our third-party manufacturers and suppliers, and could in turn adversely impact the availability or cost of materials, which could disrupt our supply chain.
Components of Our Results of Operations
Product revenue
Product revenue is primarily from the sale of our IVL catheters.
We sell our products to hospitals, primarily through direct sales representatives, as well as through distributors in select international markets. For products sold through direct sales representatives, control is transferred upon delivery to customers. For products sold to distributors internationally and products sold to customers that utilize stocking orders, control is transferred upon shipment or delivery to the customer’s named location, based on the contractual shipping terms. Additionally, a significant portion of our revenue is generated through a consignment model under which inventory is maintained at hospitals. For consignment inventory, control is transferred at the time the catheters are consumed in a procedure.
The COVID-19 pandemic reduced sales of our IVL catheters during the second quarter of 2020 as compared to our sales in the first quarter of 2020, although we did see an increase in daily sales volume towards the end of the second quarter of 2020. We are continuing to monitor the potential impact of COVID-19 in certain U.S. and international markets, and the potential positive impact of the decline of COVID-19 in other U.S. and international markets, on our product sales and on elective procedures using our products, during the third quarter of 2020.
20
Cost of product revenue
Cost of product revenue consists primarily of costs of components for use in our products, the materials and labor that are used to produce our products, the manufacturing overhead that directly supports production and the depreciation relating to the equipment used in our IVL System that we loan to our hospital customers without charge to facilitate the use of our IVL catheters in their procedures. We depreciate equipment over a three-year period. We expect cost of product revenue to increase in absolute terms as our revenue grows.
Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of direct materials, product mix, geographic mix, discounting practices, manufacturing costs, product yields, headcount and cost-reduction strategies. We expect our gross margin percentage to increase over the long term to the extent we are successful in increasing our sales volume and are therefore able to leverage our fixed costs. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which, if successful, we believe will reduce costs and enable us to increase our gross margin percentage. While we expect gross margin percentage to increase over the long term, it will likely fluctuate from quarter to quarter as we continue to introduce new products and adopt new manufacturing processes and technologies. In addition, if the increase in elective procedures using our products and the corresponding increase in sales that we experienced towards the end of the second quarter of 2020, continues in the third quarter of 2020, we would expect to realize an increase in our gross margin percentage due to fixed costs being allocated over higher sales volume; however, the impact of the COVID-19 pandemic on our sales and procedures using our products in the third quarter of 2020 remains uncertain.
Research and development expenses
Research and development (“R&D”) expenses consist of applicable personnel, consulting, materials and clinical trial expenses. R&D expenses include:
|
•
|
certain personnel-related expenses, including salaries, benefits, bonus, travel and stock-based compensation;
|
|
•
|
cost of clinical studies to support new products and product enhancements, including expenses for clinical research organizations and site payments;
|
|
•
|
materials and supplies used for internal R&D and clinical activities;
|
|
•
|
allocated overhead including facilities and information technology expenses; and
|
|
•
|
cost of outside consultants who assist with technology development, regulatory affairs, clinical affairs and quality assurance.
|
R&D costs are expensed as incurred. In the future, we expect R&D expenses to increase in absolute dollars as we continue to develop new products, enhance existing products and technologies and perform activities related to obtaining additional regulatory approvals. The increase in engineering and clinical expenditures may be partially offset in the near term by delayed clinical projects and streamlined product development due to COVID-19 cost reduction efforts.
Sales and marketing expenses
Sales and marketing expenses consist of personnel-related expenses, including salaries, benefits, sales commissions, travel and stock-based compensation. Other sales and marketing expenses consist of marketing and promotional activities, including trade shows and market research. We expect to continue to grow our sales force and increase marketing efforts as we continue commercializing products based on our IVL Technology. As a result, we expect sales and marketing expenses to increase in absolute dollars over the long term. We expect certain costs will increase in the third quarter of 2020 as compared to the second quarter of 2020, such as travel and related expenses as sales personnel are able to visit customer hospitals. However, we are continuing to monitor the impact of COVID-19 on our sales and on elective procedures utilizing our products, and such impact in the third quarter of 2020 remains uncertain.
General and administrative expenses
General and administrative expenses consist of personnel-related expenses, including salaries, benefits, bonus, travel and stock-based compensation. Other general and administrative expenses consist of professional services fees, including legal, audit and tax fees, insurance costs, outside consultant fees and employee recruiting and training costs. Moreover, we expect to incur additional expenses associated with operating as a public company, including legal, accounting, insurance, exchange listing and SEC compliance and investor relations. As a result, we expect general and administrative expenses to increase in absolute dollars in future periods. These increases may be partially offset in the near term by measures taken to control discretionary items due to the COVID-19 pandemic.
21
Results of Operations
Comparison of the Three Months Ended June 30, 2020 and 2019
The following table shows our results of operations for the three months ended June 30, 2020 and 2019:
|
|
Three Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
$
|
|
|
Change
%
|
|
|
|
(in thousands, except percentages)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
10,286
|
|
|
$
|
10,012
|
|
|
$
|
274
|
|
|
3%
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
3,592
|
|
|
|
4,133
|
|
|
|
(541
|
)
|
|
(13)%
|
|
Gross profit
|
|
|
6,694
|
|
|
|
5,879
|
|
|
|
815
|
|
|
14%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,101
|
|
|
|
6,926
|
|
|
|
1,175
|
|
|
17%
|
|
Sales and marketing
|
|
|
11,206
|
|
|
|
6,961
|
|
|
|
4,245
|
|
|
61%
|
|
General and administrative
|
|
|
5,398
|
|
|
|
3,245
|
|
|
|
2,153
|
|
|
66%
|
|
Total operating expenses
|
|
|
24,705
|
|
|
|
17,132
|
|
|
|
7,573
|
|
|
44%
|
|
Loss from operations
|
|
|
(18,011
|
)
|
|
|
(11,253
|
)
|
|
|
(6,758
|
)
|
|
60%
|
|
Interest expense
|
|
|
(306
|
)
|
|
|
(250
|
)
|
|
|
(56
|
)
|
|
22%
|
|
Other income, net
|
|
|
220
|
|
|
|
913
|
|
|
|
(693
|
)
|
|
(76)%
|
|
Net loss before taxes
|
|
|
(18,097
|
)
|
|
|
(10,590
|
)
|
|
|
(7,507
|
)
|
|
71%
|
|
Income tax provision
|
|
|
21
|
|
|
|
18
|
|
|
|
3
|
|
|
17%
|
|
Net loss
|
|
$
|
(18,118
|
)
|
|
$
|
(10,608
|
)
|
|
$
|
(7,510
|
)
|
|
71%
|
|
Product revenue
Product revenue increased by $0.3 million, or 3%, from $10.0 million during the three months ended June 30, 2019 to $10.3 million during the three months ended June 30, 2020. The increase in revenue was less than expected due to the reduction in elective procedures performed utilizing our products and the corresponding decrease in sales due to the COVID-19 pandemic during the second quarter of 2020.
Product revenue consisted primarily of the sale of our IVL catheters. Product revenue, classified by the major geographic areas in which our products are shipped, was $5.5 million within the United States and $4.8 million for all other countries in the three months ended June 30, 2020 compared to $5.2 million within the United States and $4.8 million for all other countries in the three months ended June 30, 2019.
Cost of product revenue, gross profit and gross margin percentage
Cost of product revenue decreased by $0.5 million, or 13%, from $4.1 million during the three months ended June 30, 2019 to $3.6 million during the three months ended June 30, 2020. Gross margin percentage improved to 65.1% for the three months ended June 30, 2020, compared to 58.7% for the three months ended June 30, 2019. This change in gross margin percentage was primarily due to lower fixed costs per unit from increased in production volume of our IVL catheters and increased manufacturing efficiencies.
22
Research and development expenses
The following table summarizes our R&D expenses incurred during the periods presented:
|
|
Three Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Compensation and personnel-related costs
|
|
$
|
4,344
|
|
|
$
|
3,173
|
|
Clinical-related costs
|
|
|
2,010
|
|
|
|
2,257
|
|
Material and supplies
|
|
|
445
|
|
|
|
481
|
|
Facilities and other allocated costs
|
|
|
743
|
|
|
|
577
|
|
Outside consultants
|
|
|
425
|
|
|
|
260
|
|
Other research and development costs
|
|
|
134
|
|
|
|
178
|
|
Total research and development expenses
|
|
$
|
8,101
|
|
|
$
|
6,926
|
|
R&D expenses increased by $1.2 million, or 17%, from $6.9 million during the three months ended June 30, 2019 to $8.1 million during the three months ended June 30, 2020. The change was primarily due to a $1.2 million increase in compensation and personnel-related costs due to increase in head count to support clinical trials and a $0.2 million increase in facilities and other allocated costs due to increased rent and building expenditures. This was partially offset by a $0.2 million decrease in clinical-related costs during the three months ended June 30, 2020.
Sales and marketing expenses
Sales and marketing expenses increased by $4.2 million, or 61%, from $7.0 million during the three months ended June 30, 2019 to $11.2 million during the three months ended June 30, 2020. The change was primarily due to a $4.1 million increase in compensation and personnel-related costs, which included a $1.1 million increase in commission expense, as a result of increased headcount. There was also a $0.2 million increase in facilities and other allocated costs due to increased rent and building expenditures and a $0.1 million increase in outside professional cost. This was partially offset by a $0.3 million decrease in travel related expense due to the COVID-19 pandemic.
General and administrative expenses
General and administrative expenses increased by $2.2 million, or 66%, from $3.2 million during the three months ended June 30, 2019 to $5.4 million during the three months ended June 30, 2020. The change was primarily due to a $1.3 million increase in compensation and personnel-related costs, a $0.4 million increase in professional services and consulting cost, a $0.3 million increase in legal fees, a $0.1 million increase in business insurance and a $0.1 million increase in other allocated costs due to increased rent and building expenditures.
23
Comparison of the Six Months Ended June 30, 2020 and 2019
The following table shows our results of operations for the six months ended June 30, 2020 and 2019:
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
$
|
|
|
Change
%
|
|
|
|
(in thousands, except percentages)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$
|
25,483
|
|
|
$
|
17,282
|
|
|
$
|
8,201
|
|
|
47%
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
9,243
|
|
|
|
7,205
|
|
|
|
2,038
|
|
|
28%
|
|
Gross profit
|
|
|
16,240
|
|
|
|
10,077
|
|
|
|
6,163
|
|
|
61%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
19,991
|
|
|
|
14,410
|
|
|
|
5,581
|
|
|
39%
|
|
Sales and marketing
|
|
|
21,617
|
|
|
|
12,831
|
|
|
|
8,786
|
|
|
68%
|
|
General and administrative
|
|
|
11,622
|
|
|
|
6,247
|
|
|
|
5,375
|
|
|
86%
|
|
Total operating expenses
|
|
|
53,230
|
|
|
|
33,488
|
|
|
|
19,742
|
|
|
59%
|
|
Loss from operations
|
|
|
(36,990
|
)
|
|
|
(23,411
|
)
|
|
|
(13,579
|
)
|
|
58%
|
|
Interest expense
|
|
|
(583
|
)
|
|
|
(495
|
)
|
|
|
(88
|
)
|
|
18%
|
|
Change in fair value of warrant liability
|
|
|
-
|
|
|
|
(609
|
)
|
|
|
609
|
|
|
(100)%
|
|
Other income, net
|
|
|
724
|
|
|
|
1,133
|
|
|
|
(409
|
)
|
|
(36)%
|
|
Net loss before taxes
|
|
|
(36,849
|
)
|
|
|
(23,382
|
)
|
|
|
(13,467
|
)
|
|
58%
|
|
Income tax provision
|
|
|
44
|
|
|
|
25
|
|
|
|
19
|
|
|
76%
|
|
Net loss
|
|
$
|
(36,893
|
)
|
|
$
|
(23,407
|
)
|
|
$
|
(13,486
|
)
|
|
58%
|
|
Product revenue
Product revenue increased by $8.2 million, or 47%, from $17.3 million during the six months ended June 30, 2019 to $25.5 million during the six months ended June 30, 2020. The change was primarily due to an increase in the number of customers and an increase in purchase volume of our products both within the United States and internationally. We sold to a greater number of customers in the United States and to a greater number of distributors internationally for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.
Product revenue consisted primarily of the sale of our IVL catheters. Product revenue, classified by the major geographic areas in which our products are shipped, was $13.3 million within the United States and $12.2 million for all other countries in the six months ended June 30, 2020 compared to $8.8 million within the United States and $8.5 million for all other countries in the six months ended June 30, 2019.
Cost of product revenue and gross margin percentage
Cost of product revenue increased by $2.0 million, or 28% from $7.2 million during the six months ended June 30, 2019 to $9.2 million during the six months ended June 30, 2020. The increase was primarily due to growth in sales volume. Gross margin percentage improved to 63.7% for the six months ended June 30, 2020, compared to 58.3% for the six months ended June 30, 2019. This change in gross margin percentage was primarily due to lower fixed costs per unit from increased sales volume of our IVL catheters and efficiencies from improvements to operations and production.
24
Research and development expenses
The following table summarizes our R&D expenses incurred during the periods presented:
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Compensation and personnel-related costs
|
|
$
|
8,319
|
|
|
$
|
5,886
|
|
Clinical-related costs
|
|
|
6,598
|
|
|
|
4,989
|
|
Material and supplies
|
|
|
1,297
|
|
|
|
967
|
|
Facilities and other allocated costs
|
|
|
1,440
|
|
|
|
1,275
|
|
Outside consultants
|
|
|
924
|
|
|
|
790
|
|
Other research and development costs
|
|
|
1,413
|
|
|
|
503
|
|
Total research and development expenses
|
|
$
|
19,991
|
|
|
$
|
14,410
|
|
R&D expenses increased by $5.6 million, or 39%, from $14.4 million during the six months ended June 30, 2019 to $20.0 million during the six months ended June 30, 2020. The change was primarily due to a $2.4 million increase in compensation and personnel-related costs due to an increase in headcount to support clinical trials and a $1.6 million increase in clinical related costs. Clinical-related costs during the six months ended June 30, 2020, were primarily related to the CAD III, CAD IV and PAD III clinical trials. There was also a $1.1 million increase in software license expense related to R&D, a $0.3 million increase in material and supplies, and a $0.2 million increase in other allocated costs due to increased rent and building expenditures.
Sales and marketing expenses
Sales and marketing expenses increased by $8.8 million, or 68%, from $12.8 million during the six months ended June 30, 2019 to $21.6 million during the six months ended June 30, 2020. The change was primarily due to a $7.2 million increase in compensation and personnel-related costs, which included a $1.8 million increase in commission expense, as a result of increased headcount and increased sales of our products. There was also a $0.5 million increase in facilities and other allocated costs due to increased rent and building expenditures, a $0.4 million increase in outside professional cost, a $0.3 million increase in general corporate expense, a $0.1 million increase marketing and promotional expenses to support the commercialization of our products, a $0.2 million increase in travel related expense and a $0.1 million increase in recruitment and training expense.
General and administrative expenses
General and administrative expenses increased by $5.4 million, or 86%, from $6.2 million during the six months ended June 30, 2019 to $11.6 million during the six months ended June 30, 2020. The change was primarily due to a $2.3 million increase in compensation and personnel-related costs, a $1.4 million increase in legal fees, a $0.8 million increase general corporate expense (includes tax and license fees, supplies, software, and bad debt expense), a $0.4 million increase in professional services and consulting cost, a $0.3 million increase in other allocated costs due to increased rent and building expenditures, and a $0.2 million increase in recruitment and training expense.
Liquidity and Capital Resources
To date, our principal sources of liquidity have been the net proceeds we received through the sales of our common stock in our public offerings, private sales of our equity securities, payments received from customers purchasing our products and to a lesser extent proceeds from our debt financings. On March 11, 2019, we completed our initial public offering, including the underwriters’ full exercise of their over-allotment option, selling 6,555,000 shares of our common stock at $17.00 per share. Upon completion of our initial public offering, we received net proceeds of $99.9 million, after deducting underwriting discounts and commissions and offering expenses. Concurrent with the initial public offering, we issued 588,235 shares of common stock in a private placement for net proceeds of $10.0 million (the “Private Placement”). On November 15, 2019, we completed a follow-on offering of 2,854,048 shares of our common stock, including 372,267 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares at a public offering price of $36.25 per share. Upon completion of our follow-on offering, we received net proceeds of $96.7 million, after deducting underwriting discounts and commissions and offering expenses. On June 19, 2020, we completed an offering of 1,955,000 shares of our common stock, including 255,000 shares sold pursuant to the underwriters’ exercise of their option to purchase additional shares at a public offering price of $45.75 per share. Upon completion of the June 2020 offering, we received net proceeds of $83.4 million, after deducting underwriting discounts and commissions and offering expenses.
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On February 11, 2020, we entered into the Amended Credit Facility to the Loan and Security Agreement to refinance our existing term loan, which is accounted for as a modification. The Amended Credit Facility provided us with a supplemental term loan in the amount of $16.5 million. We received net proceeds of $3.3 million, which reflects an additional $4.3 million in principal as of the date of the modification less the final balloon payment fee of $1.0 million.
We believe that our cash, cash equivalents and short-term investments as of June 30, 2020 will be sufficient to fund our operations for at least the next 12 months from the date of this filing. As of June 30, 2020, we had $231.4 million in cash, cash equivalents, and short-term investments and an accumulated deficit of $214.9 million.
We have a number of ongoing clinical trials, and expect to continue to make substantial investments in these trials and in additional clinical trials that are designed to provide clinical evidence of the safety and efficacy of our products. Although we have limited our hiring in response to the COVID-19 pandemic, as it is prudent to do so, we intend to continue to make significant investments in our sales and marketing organization by increasing the number of U.S. sales representatives. We also intend to continue expanding our international marketing programs to help facilitate further adoption among existing hospital accounts and physicians as well as broaden awareness of our products to new hospitals. We also expect to continue to make investments in R&D, regulatory affairs and clinical studies to develop future generations of products based on our IVL Technology, support regulatory submissions and demonstrate the clinical efficacy of our products. Moreover, we expect to continue to incur expenses associated with operating as a public company, including legal, accounting, insurance, exchange listing and SEC compliance, investor relations and other expenses. Because of these and other factors, we expect to continue to incur substantial net losses and negative cash flows from operations for the foreseeable future.
Our future capital requirements will depend on many factors, including:
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•
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the cost, timing and results of our clinical trials and regulatory reviews;
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•
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the cost and timing of establishing sales, marketing and distribution capabilities;
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•
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the terms and timing of any other collaborative, licensing and other arrangements that we may establish including any contract manufacturing arrangements;
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•
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the timing, receipt and amount of sales from our current and potential products;
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|
•
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the degree of success we experience in commercializing our products;
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•
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the emergence of competing or complementary technologies;
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|
•
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the cost of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights; and
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•
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the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
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In addition, as a result of the COVID-19 pandemic, we expect to continue to experience reduced cash flow from operations as a result of decreased revenues, extended payment terms on sales and increased cost of product revenue as a percentage of product revenue. Moreover, we are focused on ensuring that we have adequate supplies on hand given the potential disruption of the COVID-19 pandemic to our suppliers and their supply chain and, accordingly, we expect to continue to increase inventory during the third quarter of 2020 and beyond.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
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Six Months Ended
June 30,
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2020
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2019
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(in thousands)
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Cash used in operating activities
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$
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(42,355
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)
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|
$
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(24,933
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)
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Cash provided by (used in) investing activities
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|
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34,028
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|
|
|
(83,975
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)
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Cash provided by financing activities
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|
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87,578
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|
|
|
111,189
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|
Net increase in cash, cash equivalents and restricted cash
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|
$
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79,251
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|
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$
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2,281
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Operating activities
During the six months ended June 30, 2020, cash used in operating activities was $42.4 million, attributable to a net loss of $36.9 million and a net change in our net operating assets and liabilities of $11.8 million, partially offset by non-cash charges of $6.4 million. Non-cash charges primarily consisted of $4.3 million in stock-based compensation, $0.9 million in depreciation and amortization, $0.7 million in amortization of right-of-use assets, $0.3 million in amortization of debt issuance costs, and $0.2 million in accretion of discount on available-for-sale securities. The change in our net operating assets and liabilities was primarily due to a $11.0 million increase in inventory and $1.2 million increase in prepaid expenses and other current assets, a $1.0 million decrease in accounts receivable, a $0.3 million decrease in accounts payable and a $0.2 million decrease in lease liability.
During the six months ended June 30, 2019, cash used in operating activities was $24.9 million, attributable to a net loss of $23.4 million and a net change in our net operating assets and liabilities of $4.3 million, partially offset by non-cash charges of $2.8 million. Non-cash charges primarily consisted of $1.2 million in stock-based compensation, $0.5 million in depreciation and amortization, $0.6 million in change in fair value of warrant liability, $0.5 million in amortization of right-of-use assets and $0.2 million in amortization of debt issuance costs, partially offset by $0.4 million in accretion of discount on available-for-sale securities. The change in our net operating assets and liabilities was primarily due to a $3.2 million increase in inventory and $2.4 million increase in accounts receivable due to an increase in sales, a $0.8 million increase in prepaid and other current assets and a $0.5 million decrease in lease liabilities. These changes were partially offset by a $2.6 million increase in accrued and other current liabilities and accounts payable resulting primarily from expansion in our operating activities and accrued professional services fees.
Investing activities
During the six months ended June 30, 2020, cash provided by investing activities was $34.0 million, attributable to proceeds from maturities of available-for-sale investments of $59.0 million, partially offset by purchase of available-for-sale investments of $16.0 million and purchase of property and equipment of $9.0 million.
During the six months ended June 30, 2019, cash used in investing activities was $84.0 million, attributable to the purchase of available-for-sale securities of $82.8 million and purchase of property and equipment of $1.2 million.
Financing activities
During the six months ended June 30, 2020, cash provided by financing activities was $87.6 million, attributable to net proceeds of $83.8 million from the public offering of our common stock, a $3.3 million from borrowings under new credit facility entered on February 11, 2020, proceeds of $1.6 million from stock option exercises and proceeds of $0.8 million from issuance of shares under our employee stock purchase plan, partially offset by principal payment on our term loan of $1.1 million and a 0.6 million payment of taxes withheld on net settled vesting of restricted stock units.
During the six months ended June 30, 2019, cash provided by financing activities was $111.2 million, attributable to net proceeds of $100.8 million from the IPO, net proceeds of $10.0 million from the private placement of our common stock and proceeds of $0.4 million from stock option exercises and warrant exercises.
Contractual Obligations and Commitments
During the three months ended June 30, 2020, there have been no material changes to our contractual obligations as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of
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assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
In our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, we disclosed our critical accounting policies and the assumptions and estimates associated with the greatest potential impact on our consolidated financial statements in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” During the three and six months ended June 30, 2020, as a result of the COVID-19 pandemic, we believe that the assumptions and estimates associated with credit losses of accounts receivable and net realizable value of inventory associated with product shelf life and potential expiration may also have a material impact to our consolidated financial statements in future periods.
Accounts receivable – allowance for bad debt
We are exposed to credit losses through our receivables from customers. Our expected loss allowance methodology for receivables is developed using our historical collection experience, current and future economic market conditions and a review of the current aging status and financial condition of our customers. Specific allowance amounts are established to record the appropriate allowance for customers that have an identified risk of default. General allowance amounts are established based upon our assessment of expected credit losses for our receivables by aging category. Balances are written off when they are ultimately determined to be uncollectible. We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic, however, no additional reserve was required for the three months ended June 30, 2020. We will continue to monitor the impact of COVID-19 pandemic and we may need to make further adjustments to this estimate in future periods.
Inventories – expiration risk
Inventories are valued at the lower of cost, computed on a first-in, first-out basis, or net realizable value. We produce our IVL catheters at our facilities in Santa Clara, California. At the time of manufacture, our IVL catheters generally have a two-year shelf life prior to expiration. We maintain finished goods inventory at our facilities in Santa Clara, with our sales representatives, with our third-party logistics provider in the Netherlands, and on consignment at hospital locations. Each reporting period, we update provisions for excess and obsolete inventory based on our estimates of forecast demand and, where applicable, product expiration. As of June 30, 2020, the substantial majority of our finished goods inventory had expiration dates in second half of 2021 or later. We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic, however, no additional reserve was required for the three months ended June 30, 2020. We will continue to monitor the impact of COVID-19 pandemic and we may need to make further adjustments to this estimate in future periods.