CVRx Inc

NASDAQ:CVRX

Earnings Call Analysis

Revenue Jumps Amid Label Expansion, Higher Guidance

The company's worldwide revenue soared to $11.3 million, a growth of 58%, driven by a 380% expansion in the U.S. Heart Failure business. Improved reimbursement rates, with the average CMS payment for Barostim rising from $29,000 to $45,000, and expanded FDA-approved labeling will likely enhance sales team effectiveness. The U.S. market opportunity has escalated to $2.2 billion, up 60%. Gross margin increased to 85%, and net loss decreased to $9.2 million or $0.44 per share. Cash reserves stand at $90.6 million, with a net cash use of $39.6 million in 2023. Projected total revenue for 2024 lies between $53 million and $57 million with a gross margin range of 83% to 84%, and operating expenses are anticipated to be $86 million to $90 million. First quarter 2024 revenue forecast is $11 million to $12 million.

Pride in Team Achievements and Strong Revenue Growth in 2023

CVS Health wrapped up 2023 with immense pride in its team's achievements, leading to significant progress in strategic initiatives and adoption of Barostim. The company observed impressive worldwide revenue growth, especially in the U.S. Heart Failure business, with a particularly strong fourth quarter where revenue surged to $11.3 million, a 58% increase year-over-year.

Commercial and Clinical Advances Underpinning Market Expansion

The expansion of commercial infrastructure added three new sales territories in the U.S., and efforts to grow clinical evidence drove both reimbursement and regulatory progress. In a significant development, Medicare services reclassified Barostim to a new payment category, APC 1580, with an average payment of $45,000. This change aims to simplify the reimbursement process and improve accessibility for heart failure patients.

FDA Approval Leads to a Larger Market Potential

Late in the year, the FDA approved expanded labeling for Barostim, incorporating long-term clinical trial data that supports its safety and efficacy. This update has paved the way for an increased U.S. annual market opportunity, now estimated to be $2.2 billion, and potentially serving 76,000 new patients annually.

Leadership Transition amidst Strategic Achievements

CVRx announced a leadership transition with the current CEO deciding to retire following recent clinical successes and expanded labeling. The transition is planned to be seamless, ensuring continuity and momentum as the company embarks on its next growth phase.

Geographical Revenue and Margin Performance

U.S. revenue grew by 72% reaching $10.3 million, while revenue growth in Europe declined by 15% to $1 million. Overall, the gross profit for the quarter increased significantly with margins hitting 85%. Notably, the U.S. saw a rise in active implanting centers from 106 to 178.

Financial Prudence with Reduced R&D and Increased SG&A Expenses

The company experienced a 26% decrease in R&D expenses but saw a 21% increase in SG&A expenses largely due to rises in compensation, marketing, and non-cash stock-based compensation. Also, there was a notable increase in interest expenses reflecting new borrowings under a loan agreement.

Lower Net Loss and Strong Liquidity Position

CVS Health reported a net loss of $9.2 million or $0.44 per share, which is an improvement from the prior year. The company maintains a solid liquidity position with $90.6 million in cash and cash equivalents and has reduced cash used in operating and investing activities from $43.4 million in 2022 to $39.6 million in 2023.

Guidance for 2024: Set for Revenue Growth and Managed Spending

Looking ahead to 2024, CVS Health anticipates total revenue between $53 million and $57 million with gross margins between 83% and 84%. Operating expenses are expected to range from $86 million to $90 million. For the first quarter specifically, the revenue is forecasted to be between $11 million and $12 million, illustrating continued growth expectations.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings, and welcome to the CVRx Fourth Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Valley, Investor Relations for CVRx. Thank you. You may begin.

[Unknown Executive]

Good afternoon. Thank you for joining us today for CVRx's Fourth 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-K 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.

[Nadim Yared, executive]

Thank you, Mike, and thanks, everyone, for joining us. I'll begin today's call by providing an overview of our fourth quarter performance, followed by our 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 immensely proud of the achievements of our team in 2023. It's been an important year for CVRx, marked by significant progress in all our strategic initiatives, which have driven increased adoption and utilization of Barostim. This is reflected in our worldwide revenue, which has shown substantial growth, primarily attributed to the impressive 97% annual expansion in our U.S. Heart Failure business.

As we wrapped up 2023, we did so on a strong note, showcasing consistent and effective execution across various aspects of our business in the fourth quarter. This underscores our team's skill in accelerating the adoption of Barostim through our commercial and marketing efforts.

Now let's dive into the details of our performance. Starting with the review of the quarter, worldwide revenue was $11.3 million, a 58% increase over the fourth quarter of 2022. This was primarily due to the execution within our U.S. Heart Failure business. The increase was primarily driven by continued growth as a result of the expansion into new sales territories and new accounts as well as increased physician and patient awareness of Barostim.

Turning to an update on our operational progress during the fourth quarter. As a reminder, our focus areas for 2023 were the continued expansion of our commercial infrastructure and the expansion of our clinical body of evidence, starting with the expansion of our commercial infrastructure. We've grown our commercial reach by adding three new sales territories in the United States as expected, bringing our total to 38. We continue to add high-caliber talent, which we believe is due to the enthusiasm around Barostim in the market.

Additionally, we've been making continued and consistent headway with our marketing efforts, including our direct-to-consumer and patient education programs. As we press forward, we continue to expect refining these initiatives to drive awareness among both patients and health care providers.

Shifting to our second focus area, which is the growth of our clinical evidence which has driven both reimbursement and regulatory progress. In November, the Center for Medicare and Medicaid Services, CMS, reassigned Barostim to new technology APC 1580 with an average payment of $45,000, which went into effect on the first of January 2024. As a reminder, in 2023, Barostim was under the APC 5465 with an average payment of $29,000 plus the transitional pass-through payment. We believe that this reassignment to APC 1580 will make the Barostim therapy more accessible for Medicare patients dealing with heart failure by simplifying the reimbursement landscape and ensuring fair reimbursement for facilities offering the procedure.

In late December, the FDA approved expanded labeling for Barostim by revising the instructions for use for Barostim and incorporating key long-term clinical data from the BeAT-HF randomized clinical trial. The new labeling includes the following conclusion in the clinical section. In both premarket and postmarket phases, the primary safety endpoint was met and confirmed. The premarket phase showed positive results across all effectiveness endpoint, indicating 6-month improvements and 6-month [ Holewa ] Quality of Life, [ NYJ class ] and [ NT Pro BNP ]. The post market faced effectiveness endpoint of cardiovascular mortality and heart failure morbidity was not met, but additional post-market phase analysis, such as the win ratio in freedom from all-cause mortality analysis suggested the favorable effect of Barostim therapy. The totality of 6-, 12- and 24-month data demonstrated symptomatic improvements for heart failure patients. All of this data is now included in the instruction store use and can be used by our sales team when educating physicians on our therapy.

The updated indication statement in the instruction for us now specifies that Barostim is indicated for patients who are [ NYJ ] Class III or Class II with the recent history of Class III despite treatment with guideline-directed medical therapies who have a less [indiscernible] injection fraction of less than or equal to 35% and and an NT Pro BNP less than 1,600 picograms per milliliter. Barostim delivers battery flax activation therapy to improve patients' heart failure functional status, 6-month hole walk and quality of life.

As a result of these changes, we estimate that the U.S. annual market opportunity for Barostim has increased to include patients considered by physicians based on this new long-term safety and efficacy data as well as our commercial experience and to account for the new reimbursement assignment for Barostim.

We believe the U.S. annual market opportunity is now $2.2 billion or 76,000 new patients annually as compared to our earlier estimate of $1.4 billion or 55,000 new patients, representing increases of approximately 60% and 38%, respectively.

I want to express my gratitude to all the patients, investigators, research teams, the executive steering committee and FDA personnel who have supported our efforts in conducting the study over 7 years especially considering the challenges encountered during the COVID-19 pandemic.

Looking back at 2023, it was a great year for CVRx. Throughout the year, we continue to support the growth of Barostim in the United States through our commercial and marketing efforts, underscoring the benefits that Barostim can provide to health care professionals and patients dealing with cardiovascular disease. The year wrapped up on a positive note, including the expanded Barostim labeling and CMS' decision to reassign Barostim to a new APC code.

Before turning the call over to Jared, I want to address my decision to retire from CVRx, while that is never a perfect time for a leadership transition, the recent completion of BeAT-HF, the expanded labeling and the recent reimbursement decision, there is a window that now exists before the company embarks on the next phase of growth. I believe now is the right time to bring in a CEO who can build on the achievements of the company and steer CVRx to great success. I'm confident in CVRx future given the proven benefits of Barostim therapy, our strong commercial traction and our outstanding leadership team. The Board and I are committed to a seamless transition, and I will continue in my current role until a new CEO is appointed. The Board has engaged a leading executive search firm to assist in this process. I'll now turn the call over to Jared to review our financials. Jared?

[Jared Oasheim, executive]

Thanks, Nadim. In the fourth quarter, total revenue generated was $11.3 million, representing an increase of $4.1 million or 58% compared to the same period last year. Revenue generated in the U.S. was $10.3 million in the current quarter, reflecting growth of 72% over the same period last year. Heart failure revenue in the U.S. totaled $10.2 million in the current quarter on a total of 330 revenue units compared to $6 million in the fourth quarter of last year on 193 revenue units. The increase was primarily driven by continued growth as a result of the expansion into new sales territories and new accounts as well as increased physician and patient awareness of Barostim.

At the end of the current quarter, we had a total of 178 active implanting centers compared to 106 on December 31, 2022 and 159 on September 30, 2023. We also had 38 sales territories in the U.S. at the end of the current quarter compared to 26 on December 31, 2022, and 35 on September 30, 2023. The Revenue generated in Europe was $1 million in the current quarter, representing a decrease of 15% compared to the same period last year. Total revenue units in Europe decreased from 68% in Q4 of 2022 to 52% in the current quarter. The number of sales territories in Europe remained consistent at six for the 3 months ended December 31, 2023.

Gross profit for the 3 months ended December 31, 2023, was $9.6 million an increase of $3.9 million compared to the 3 months ended December 31, 2022. Gross margin for the current quarter increased to 85% compared to 79% for the same period last year. Gross margin for the 3 months ended December 31, 2023, was higher due to a decrease in the cost per unit and an increase in the average selling price. Research and development expenses for the current quarter were $2.2 million, reflecting a decrease of 26% compared to the same period last year. This change was primarily driven by a $0.7 million decrease in clinical study expenses and a $0.6 million decrease in consulting expenses, partially offset by a $0.3 million increase in compensation expenses, mainly as a result of increased head count and a $0.1 million increase in noncash stock-based compensation expense.

SG&A expenses for the current quarter were $17 million, representing an increase of 21% compared to the same period last year. This change was driven by a $1.7 million increase in compensation expenses, a $0.7 million increase in marketing and advertising expenses, a $0.4 million increase in noncash stock-based compensation expense and a $0.4 million increase in consulting expenses, partially offset by a $0.1 million decrease in D&O insurance costs and a $0.1 million decrease in professional fees. Interest expense increased $0.4 million for the 3 months ended December 31, 2023, compared to the 3 months ended December 31, 2022. This increase was driven by the interest expense on borrowings under the loan agreement entered into on October 31, 2022. Other income net was $1.1 million for each of the 3 months ended December 31, 2023 and 2022. Other income net consisted primarily of income on our interest-bearing accounts.

Net loss for the current quarter was $9.2 million or $0.44 per share compared to a net loss of $10.5 million or $0.51 per share for the same period last year. Net loss per share was based on 20.8 million weighted average shares outstanding for the fourth quarter of 2023 and 20.6 million weighted average shares outstanding for the fourth quarter of 2022.

At the end of the fourth quarter, cash and cash equivalents were $90.6 million. Net cash used in operating and investing activities was $39.6 million in 2023. This is compared to net cash used in operating and investing activities of $43.4 million in 2022. Now turning to guidance. For the full year of 2024, we expect total revenue between $53 million and $57 million. We expect full year gross margin between 83% and 84%. And and we continue to expect operating expenses between $86 million and $90 million. For the first quarter of 2024, we expect to report total revenue between $11 million and $12 million. I would now like to turn the call back over to Nadim.

[Nadim Yared, executive]

Thanks, Janet. As we set our sights on 2024, I'm excited about the opportunities that lie ahead for CVRx, and the continued expansion of Barostim. Our company is in a fantastic position to capitalize on the opportunities in front of us, thanks to our outstanding leadership team and the consistent execution of our strategic initiatives over the last 2 years. I believe CVRx is well prepared to continue to execute our strategic plans and drive sustained commercial growth.

Reflecting on my 17 years as CEO, it has been an incredible experience and a true honor. I am proud of what we have accomplished and believe the future for CVRx holds immense promises. And now I would like to open the line for questions. Operator?

[Operator]

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Margaret Andrew with William Blair.

[Margaret Kaczor, analyst]

Nadim, you've heard my comments to JPMorgan, but I'll just say them publicly. Obviously, it's been a pleasure to know you, and glad to have seen CVRx become what it is today. Maybe just to start out with, you guys are coming off an exceptional year of 70% plus growth overall, 95% of U.S. Heart Failure . And yet you kind of look at the first quarter and you're at $11 million to $12 million. So maybe just walk us through the assumptions within that what are the conservative pieces that you guys use to drive to that guidance range?

[Jared Oasheim, executive]

Margaret, this is Jared. I'll take that one, maybe Nadim can add some color later. So when we put together our guidance, we're looking at how we've been growing the number of territories over the last few quarters and also how the additions for new active implanting centers have been coming on board. And then also taking into consideration the utilization we've seen from those centers as they get more and more experienced. So after taking all of that into consideration, we came out with the guidance for Q1 of $11 million to $12 million, again, seeing a step-up from what we delivered in the fourth quarter of 2023.

The other thing I'll just talk about a little bit is seasonality. It's not something that we've seen historically at CVRx, but we have seen other companies that have gone through a similar ramp that we have that start seeing seasonality play a factor as you go into Q1. Again, I don't think we took that into consideration here for the first quarter guidance. but rather just trying to set the bar at a level that we think we can go out and deliver in the first quarter.

When I think about the components of being able to hit the full year guidance, the $53 million to $57 million that we had talked about -- something we talked about at the JPMorgan conference was really towards the low end of that range, we're targeting adding about 14 new active implanting centers on a quarterly basis and at the high end, targeting adding about 18 new active implanting centers on a quarterly basis.

And then from an ASP perspective, in 2023, we were seeing results of about $31,000 for an ASP in the U.S. heart failure side. And as we go into 2024, the range we're looking at is around $29,000 to $30,000, thinking that as we continue to see more and more volume from our implanting centers that we may see some pressure on pricing and see the request for some bigger rebates. And then from a territory perspective, we've been adding at about 3% per quarter since the IPO, we feel like that is a pretty good pace to continue on, and that's what was factored into that $53 million to $57 million guidance for 2024.

[Margaret Kaczor, analyst]

Okay. And so if we take that into context, and I appreciate your comments on kind of the center and and so on. But you guys are armed with both a better reimbursement rate as well as the new clinical data. So I know it's early. Maybe there hasn't been a big clinical conference at this point in time yet for you guys to start more actively presenting on that. But where are you, I guess, in terms of sales force training as well as putting together an educational -- education program, excuse me, as it relates to pushing the new label.

[Nadim Yared, executive]

Yes. Mike, I'll take this question. So first, thank you for your previous comments. I am going to miss these interactions for sure when I retire, I'm not there yet. Was it committed to the transition in here as long as how long it takes? I used to remember that I resented some of the difficult questions that you guys would ask me. But for the time, I understood all of the hardware that you put into this and to understanding our business.

And I end up enjoying these interactions. To answer your question, yes, now that we have in between Christmas and , we got the approval from FDA to be able to communicate all of our efforts right now in January has been about how do we get out and educate patients and physicians. And we have our global sales meeting actually next week to make sure that all of our sales force is trained and equipped with all of these tools. So this is an ongoing process right now to get the world out to patients and providers and payers about the new data. We're very excited about this next phase.

[Margaret Kaczor, analyst]

Okay. Great. And just one last question for me. I saw the $7 million burn on a cash rate this past quarter. How should we think about that going forward? Are you guys going to step on the gas panel in terms of expenses with the label and et cetera? Are you going to continue to try to maintain that cash burn around 7% or better.

[Jared Oasheim, executive]

Yes. Thanks for the question. We gave guidance around spend on OpEx, seeing an increase there to get us up to about $86 million to $90 million. The vast majority of that growth in spend from '23 to '24 will go into the sales and marketing organization, specifically in the U.S. So we're going to continue to be opportunistic where we can to invest in the business to be able to help more and more patients gain access to this therapy. And then I think it's a bit of a wait and see, right? Let's see how physicians, let's see how patients react to the new clinical data. If the new payment code is a little bit easier for centers to come on board at a little bit of a faster rate, then we'll consider making some additional investments. But the guidance we put out, I think, is being a little prudent in making sure that we're able to maintain that cash burn at or below the levels we've seen historically. And Overall, we believe the trend will continue where that burn will come down so that we can use the cash we have on hand to get cash flow breakeven without needing to go out and raise more money.

[Operator]

Our next question comes from the line of Robbie Marcus with JPMorgan.

Our next question comes from the line of Matthew O'Brien with Piper Sandler.

[Matthew O'Brien, analyst]

Can you guys hear me okay? .

[Nadim Yared, executive]

Yes.

[Matthew O'Brien, analyst]

Fantastic. And Nadim, yes, best of luck to you in the future. Hopefully, it takes a long, long time to find a replacement for you, I say that selfishly. So just two questions here, and I'll ask them both together. They're a little bit that's long-winded, so forgive me. But just on the pricing side, Jared, are we assuming pricing essentially flat versus 2023? Or can you take that up given how healthy that code is? I guess I'm not sure why it would go down. And then the second piece is just on the -- as I look at the guidance and I look at where the stock is trading and the aftermarket is down a little bit, I think it's on the guide. It's assuming a pretty meaningful slowdown in growth in terms of units sold this year. It's actually about the same number of units at the midpoint of the range or the math that I have anyway.

But it seems like expanded label and more centers and everything else like that, the absolute number of units should go up this year versus what you did last year in terms of growing total number of units. So why would that be the case? Why wouldn't it be even faster? And why wouldn't growth in the U.S. be a little bit more healthy given all these tailwinds that you're seeing.

[Jared Oasheim, executive]

Yes, Matt, on the pricing piece, I think goes a little bit easier to cover first. So we had talked about U.S. Heart Failure average selling prices being around 31,000 in 2023 and setting expectations with this guidance to be around $29,000 to $30,000. I will add, we have also seen a list price increase in 2024 for Barostim. And so there are opportunities for the price to go up as we go into 2024 from what we saw in 2023. But our assumption from the beginning was that as we continue to see more and more volume, we are going to continue to see more and more pressure from our customers to see bigger discounts and bigger rebates. And so I think we're just being a little prudent on that price expectations at the beginning of the year, to see how it actually plays out with this new code for customers throughout 2024. So I'm sure we'll continue to monitor what that average is coming in at here in the first quarter and the second quarter and then be able to make some updates if it's necessary for the rest of the year.

And then for the guide as far as per units, yes, we will continue to see growth in the number of patients that are getting treated between -- from '23 to '24. Seen it, like I said, a slight down tick in that average selling price. When we come out at the beginning of the year with our guidance, we want to feel confident being able to go out and meet these numbers. And so when we put together the model, we were looking at productivity staying flat because we were able to achieve these levels of about 2 revenue units per active implanting center per quarter throughout 2023. So that's a number that we've been able to achieve in the past, and that's a number that we thought was pretty good to set for expectations as we move into 2024. And then same thing on the new center ads when building out the model, we've been able to deliver about 18 new center adds on a quarterly basis throughout 2023. And I think when you factor that into the model, that's towards the top end of that guidance for the U.S. as well.

One thing I'd just like to address as well as Europe, where we've been seeing a flat quarterly revenue of about $1 million for the last 4 to 6 quarters. And so when you look at the overall growth rate for revenue worldwide, that does hinder us a little bit with expectations that there is no growth, just hoping for a flat result from '23 to '24 with that European revenue. I hope that answers your question. .

[Operator]

Our next question comes from the line of Robbie Marcus with JPMorgan.

[Robert Marcus, analyst]

Great. Thanks. This time, I'll not hit the hangup button instead of the talk button. First off, Nadim will -- congratulations on the retirement. We'll miss you. For the question, I was wondering if you could just walk us through what the change, if any, in hospitals has been since the reimbursement has been finalized end of last year. Has it -- have you seen any easier times getting into hospitals, talking about reimbursement, getting doctors excited initiation of potential new programs at hospitals. Just any change in the sentiment out there.

[Nadim Yared, executive]

Thank you, first, for your nice words. And great question. The answer is going to be qualitative at this stage because the code just entered right, January 1, and we are now couple of weeks, and we're not commenting on the results in January at this stage. But qualitatively, we expect it to help, particularly with the site activation which would lead to the -- possibly in the future, the less delay between the first 2 patients they do at a site and patient #3, #4.

I don't know if you recall, but earlier when -- after we did the IPO, we tried to explain that phenomenon that we are observing and we kept observing over the past couple of years. which is what a site becomes an actively implanting centers after doing their first one or two implants. We noticed a pause of 3, 4 months before they start considering patient #3, 4 and 5. And that part was driven by 2 elements. One is seeing the effect of the device on their own patients. But second, most importantly, and we did not understand the impact of that. was understanding the payment level because the TPT is still seen as an obscure way of getting payment hospitals. The calculation for [indiscernible] is very complicated and very few administrators at hospitals understand how the accounting works for that TPT. So after doing a couple of patients, they wanted to wait to see the payment coming back. So at least one of those two elements, we expect would be alleviated by having a code with a simple code, a simple number, just adjusted for the ZIP code, which has they understand how it works. So I cannot answer quantitatively yet. At this stage, it would be the answer will be on the qualitative Robbie.

[Robert Marcus, analyst]

Great. No, that's helpful. And maybe as you think about balancing, as you talked about in prior questions, balancing your cash burn with now the updated label and the finalized reimbursement. How are you thinking about balancing OpEx spend to drive sales rather than just cash preservation. What goes into the decisions? Why is the amount of OpEx you're spending the right amount? If you spent double it, do you think you'd be able to double your sales?

[Jared Oasheim, executive]

Good question, Robbie, right? I mean the simple question is, have we proven the model, right? And I think we have two more years of experience after the IPO, showing that we've been able to add three territories on a quarterly basis while continuing to see that overall productivity per territory increase as that number continues to grow. And as we see more feedback from customers after the new label from FDA -- and after the new code has come out, we're going to continue those conversations as we see the results of those conversations and reactions from physicians and patients through our DTC campaigns, I think that's where we will continue to make some tests, right? And I think. Some of those investments are baked into the guidance that we gave of the $86 million to $90 million to start seen is there opportunities to continue to spend a little bit more because the goal at the end of the day for us is to help more and more patients. And if we can do that at a faster pace, while not diminishing our cash balance too quickly, I think we'll take advantage of it. But that's something that we'll continue to work on throughout 2024.

[Operator]

Our next question comes from the line of Bill Plovanic with Canaccord.

[William Plovanic, analyst]

I'm going to start out with -- you mentioned on just the list price increase in 2024. If I could just there's always a big difference between list price and the ASP. Just kind of curious to what extent are the -- if you could quantify that for us. And then just we're a bit surprised your R&D expenses come down a lot. How should we think about the OpEx spend in 2024 relative to as it relates to the SG&A versus the R&D? Like so in R&D, are there any major new projects kicking off that we should think about? Or is this kind of the run rate for that going forward?

[Jared Oasheim, executive]

Yes. Good questions, Bill. Thanks for the question. So on the list price, there was a 10% increase on the list price for the U.S. business. So you've seen an increase from a $35,000 less price up to $38,500. So that's where all of the contracting discussions will start as we move into 2024. And then going down to the OpEx guide and the split between R&D and SG&A. As I mentioned earlier, the vast majority of that increase is going into SG&A. As you can imagine, we saw a bit of sunsetting of the BHF clinical trial as we went throughout 2023. And so that's driving some of that reduction as we march through 2023, especially into the fourth quarter, seeing that trial close down those expenses. Turn off and we're able to reduce the overall spend in research and development. .

What we have going on right now, we'll have some smaller projects within research and development like our post-market registry, continuing to do some investigator-initiated research programs with different sites that are proposing them through our program on our website. And then we continue to do some early work with designing the next clinical trial. And Nadim has talked about this before, where we were admitted to an advisory program from FDA for one of our breakthrough device designation, specifically our ejection fraction above 35% patient population. And so we'll continue to look at that trial designed to see if we can get to a point where we feel comfortable that we can win the trial and not spend too much money and decide at that point in time whether or not we want to kick it off. But at this point, that's not baked into the guidance in the spend for 2024.

[William Plovanic, analyst]

Okay. And then if I could also ask since we're working the P&L here, just on the gross margin I'm trying to understand the guide on the gross margin is 83% to 84%. You've been solidly at 84% or above for the past three quarters. what are the dynamics that would cause the gross margin to go down next year, especially considering you're likely to have stable to increasing ASPs and higher volumes. .

[Jared Oasheim, executive]

Yes. Good question. So as we set the guide for 2024, we're looking at the two different components, right, the ASPs and the costs. First, on the ASPs, we've mentioned that the guide is assuming a reduction in that overall U.S. Heart Failure ASP from 31,000 down to closer to that 2.5% at the midpoint. So that can have an impact on the overall gross margin results for '24.

And then the second component is the cost. We've talked a lot about as we see the volume increase, we shouldn't see an overall trend of seeing that cost come down. So as we see production go up, the cost should come down. However, if we continue to buy components for these devices, we're going to have to go out and negotiate new contracts with new vendors at different times. And at those points in time, we may see a price increase for the components themselves, not necessarily as much focused on the labor and overhead pieces of that. So both of those factored into our decision to guide us at the 83% to 84% for '24.

[Operator]

Our next question comes from the line of Alex Nowak with Craig-Hallum.

[Alexander Nowak, analyst]

Now with BeAT-HF done FDA approval in hand, that's all wrapped up holistically, where is Barostim going to go next? There's a ton of potential, as you know, in the baroreceptor simulation. Does it make sense to spend clinical study dollars to go deeper into the left side of indication, the increase of the ejection fraction or change in the BNP requirements? Or does it make more sense to really go after a completely new indication?

[Nadim Yared, executive]

Alex, excellent question. So we spoke in the past that we believe from the mechanism of action and some previous experiment that the device could have applicability beyond heart failure, particularly we spoke about hypertension, chronic kidney disease and Erasmus. And in the past, FDA has granted us based on previous clinical data that we submitted to FDA to device breakthrough device designation, BDD, one in heart failure with preserved injection fraction and one in resistant hypertension. So when we consider both of those indications. There's just a hypertension and HFrEF. It was probably or likely that one of these two will be the second indication we go after.

Then when we got invited to be 1 of the 15 initial pilots that FDA started this year with a new program called the TAP Total lifecycle Advisory program, that was unlimited only to breakthrough device designated indications for new products. We started working with FDA about the HPA indication. So this is the heart failure indication with ejection fraction above 35%.

For us, it would make more sense to go after this indication for multiple reasons. One of them is the synergy in the sales and marketing efforts. The physicians will be the same. The call points will be the same. Even some of the direct-to-consumer marketing campaign would be the same. Most of the education will be the same and so forth. Is it a new indication? I would say, yes, because those two diseases are different. And if we are approved in EF above 35%, that would significantly and substantially increase the total addressable market of our therapy. So while we are excited about this opportunity. We are in the early phase of the design of the study. Part of the TAP program is the requirement to collect stakeholder input before we start the enrollment of the trial. So we need to collect it, but not only from the regulators and physicians, but also from patients, payers, guideline committees and so forth, and we are in this process.

We actually had a very constructive meeting last week during the heart failure collaboratory with regulators, payers patients and key opinion leaders and medical societies as well in one single meeting. So this is where we are right now. On the question of when do we start this program? It's early to know how long it will take to design and finalize the design of the trial? And then the second question will be the question of spending that Jared was talking about for the previous question that you got.

[Alexander Nowak, analyst]

Okay. That's extremely helpful. And Jim, obviously, congrats on the retirement and getting to bear some where it is today. You're obviously on the Board. In your conversation with them about the transition that will take place here. Is there still -- is there a plan for you to remain on the board? Any views you can kind of give there?

[Nadim Yared, executive]

Alex, thanks for asking the question. So listen, at the end of the day, I will do whatever is needed in here to ensure that CVRx has the best and smoothest transition pace between me and the next CEO. So yes, I help the Board in terms of the search. We meet with the search committee on a daily basis to identify and look at all of the candidates, internal and external. And whether I stay on the board or not is not the point. The question is, what is the most effective way for me to be helpful, not only during the transition, but also after this transition depending on what the Board and the new CEO will need from me.

Listen, I -- this is my baby. I've been here 17 years, I'm not going to drop it one day and forget about it. So it's in my best interest to ensure that I dedicate the time needed and you have to ensure the smoothest possible transition. And whichever form that takes, I really -- it's a material whenever the new CEO and the Board what we do, will do.

[Alexander Nowak, analyst]

That's good to hear. And then maybe just a quick question for Jared. Whenever we get a new code, hospitals always go through a transition process for the Q1 guidance. Can we assume that there's a little bit of conservatism built in for hospitals going through that transition where they might be a little more hesitant to buy just because they got to figure out the reimbursement dynamics again?

[Jared Oasheim, executive]

Yes, good question. Whenever we put out guidance, we're looking at a lot of different factors, right? And we're always being prudent to make sure that we can put out guidance that we're able to go out and achieve. And so I think -- we take all of those points into consideration when we put that guide together of $11 million to $12 million for the first quarter.

[Operator]

Our final question comes from the line of Frank Takkinen with Lake Street.

[Frank Takkinen, analyst]

I'll echo everybody else's comments related to your succession plans in Nadim. Maybe following up on the question string related to balancing growth aspirations and cash burn. I think there was a comment at the end of that string related to, if we elect to grow more aggressively, we'll think about the strategy to do so at that time. Can you maybe walk through some of the different areas you would think about prioritizing if you did elect to more aggressively invest? Is it faster head count growth, more aggressive on activation, direct-to-consumers, maybe think about the or help us think about the prioritization if you did grow faster or attempt to grow faster.

[Jared Oasheim, executive]

Frank. And just to reiterate, right, I think our plans are always to try and treat as many patients as possible. And we have a lot of people out in the field today with our current number of territories. To be able to go out and help more and more of those patients. And so we think we're going to continue to see growth just from the team that we have out there today. Where could we invest faster, right? If we had an open checkbook, there's plenty of opportunities. And Nadim talked in-depth about the new indications and how this is a platform technology where if we were able to go out and run clinical trials and get approvals from FDA it opens the door to a whole bunch of new patients that could benefit from this therapy. In the more immediate term, yes, I mean it's all of those areas, right? It's -- do you invest more in more sales reps out in the field? Do you invest more in DTC. And the key thing for us is doing it in a thoughtful way, right? We don't want to just throw money on things and hope that it works. We're being very prudent on how we're utilizing our cash to make sure that we -- there is no need to go raise more money.

We can do this on our own without having to go do another financing. And if there is a decision to ever raise more money in the future, it's us being opportunistic because we've been able to prove out some of those additional tests that we've run as a business.

[Frank Takkinen, analyst]

Okay. That's helpful. And then maybe just one more, sticking with the commercial organization. As companies progressed through this model, there's always an initial influx of onboarding new centers that are implanting the technology. And then as utilization catches up sometimes you see a shift to incentivizing the sales force to more aggressively go after improving utilization, just given the leverage effects of doing that once you have a large network active implanting centers.

My assumption is you're still focused probably more on the activation of implanting centers, but maybe talk to how you think about that progression versus new centers versus eventually being more aggressive on pulling the utilization lever.

[Nadim Yared, executive]

Frank, [indiscernible] question. So in our case, it's a little bit a little bit different because when we activate a center, that's the implanting center, but the referral network is all around that center. So yes, we need to ensure that our sales force is focused on training and educating cardiologists in the community. To send their patients to that implanting centers. That's part of the market development that we do. So I'm not going to go into detail about incentive plans as we have the global sales meeting next week. And our sales doesn't know their incentive plan yet. But I think I've given you enough hints about it. It's all about not only activating the implanting centers but also building the referral network around it. So this is after we activate a center. They do their first few implants. Then the key here, the name of the game is get as many referring cardiologists around this hospital to send their patients to the hospital.

[Jared Oasheim, executive]

Yes. And Frank, I'll just chime in, too. As I mentioned with the guidance, the expectation is to continue to add new centers on a quarterly basis as well at a similar pace to what we had seen historically. So we're going to -- we expect to continue to see growth from both aspects. Number one, seeing new centers come on board. Number two, seeing those centers get more and more experience and history has told us the more experience they get the more patients they're treating on average. So seeing higher productivity.

[Operator]

That concludes our question-and-answer session. I'd like to hand it back to Nadim Yared for closing remarks.

[Nadim Yared, executive]

Yes. Thank you, operator, and thanks again to everyone for joining us for our fourth quarter earnings call. We appreciate your ongoing support, and we look forward to updating you on our next progress -- on our next update, actually, next slide.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.