Nuwellis(NUWE) - 2024 Q4 - Annual Report

Part I Business Nuwellis, Inc. commercializes the Aquadex System for ultrafiltration therapy, focusing on critical care, pediatrics, and heart failure markets Overview and Market Opportunity Nuwellis commercializes the Aquadex System for fluid overload, targeting critical care, pediatrics, and heart failure markets - The company's Aquadex System is indicated for adult and pediatric patients (20 kg or more) with fluid overload unresponsive to diuretics[14] 2024 Revenue Breakdown and Market Opportunity by Segment | Clinical Area | 2024 Revenue Contribution | Estimated U.S. Market Size | | :--- | :--- | :--- | | Critical Care | ~40% | ~$900 million | | Pediatrics | ~40% | ~$130 million | | Heart Failure | ~20% | ~$1 billion | - The company is aware of off-label use of the Aquadex System for neonatal patients weighing less than 20 kg due to an unmet medical need, which has prompted the development of a dedicated pediatric device[47][48] Clinical Evidence and Product Development Nuwellis builds clinical evidence for Aquadex and develops new products, notably the pediatric CRRT device Vivian - The REVERSE-HF trial is ongoing, with 155 of a targeted 372 patients enrolled as of Feb 28, 2025. The company hopes to complete enrollment by mid-2026[52][53] - A re-analysis of the AVOID-HF trial data demonstrated that adjustable ultrafiltration (AUF) led to a 60% reduction in heart failure events at 30 days compared to intravenous diuretics[56] - The company is developing a pediatric CRRT device, 'Vivian', for patients 2.5kg and above, with an IDE submission to the FDA planned for Q3 2026 and commercialization expected in Q2 2028[61] Strategy, Sales, and Competition Nuwellis focuses on driving revenue growth in critical care, pediatrics, and heart failure, facing competition primarily from diuretics - The strategic focus is on driving revenue growth by targeting acute needs in critical care and pediatrics, while continuing to support heart failure patients[64][66][67] - The company's largest customer represented 14.4% of its 2024 annual revenue[74] - The main competition is pharmacological treatment with diuretics. Indirect device competitors include Baxter's Prismaflex, Medtronic's Carpediem, and the newly formed Mozarc Medical (Medtronic/DaVita JV)[89][90] Reimbursement and Regulation U.S. reimbursement for Aquadex is facilitated by CPT code 0692T, with the system regulated by FDA 510(k) clearance and EU CE Mark - A dedicated CPT code, 0692T, is available for therapeutic ultrafiltration. As of January 1, 2025, this code was reassigned to a level II APC code, providing substantial daily reimbursement in the outpatient setting[93] - The Aquadex SmartFlow system received 510(k) clearance on February 4, 2020, for use in adult and pediatric patients weighing 20 kg or more[99] - The company's CE Mark certificate for the Aquadex SmartFlow® System under MDD/93/42 EEC has been extended to December 31, 2028, as it works towards certification under the new Medical Device Regulation (MDR)[108] Risk Factors The company faces significant risks including operating losses, capital needs, going concern doubt, single product reliance, and internal control weaknesses - The company will need to raise additional capital to fund operations beyond May 31, 2025. This condition raises substantial doubt about the Company's ability to continue as a going concern[126] - A material weakness in internal control over financial reporting was identified due to insufficient headcount for segregation of duties and lack of contemporaneous documentation[130][132] - The company's near-term prospects are highly dependent on revenues from the Aquadex System. The ten largest customers represented 49.4% of revenues in 2024[134][135] - The company faces delisting risk from Nasdaq. While it regained compliance with the Minimum Bid Price and Stockholder's Equity requirements in 2024, it is subject to a one-year Mandatory Panel Monitor[194][199] - On December 11, 2024, the company initiated a voluntary Class 1 recall of specific lots of its AquaFlexFlow UF 500 Plus blood circuit due to mismatch alarms that could lead to excess fluid removal[150] Cybersecurity Nuwellis maintains a cybersecurity program with board oversight, third-party support, and employee training to manage risks - The company has a cross-departmental approach to cybersecurity, with oversight from the board of directors and the Audit Committee[232][236] - Cybersecurity protocols include software programs, company-wide policies, and mandatory employee training. The company also leverages a 3rd party IT service provider[232][233][234] - Although threats have been experienced, cybersecurity risks have not materially affected the company's business strategy, results of operations, or financial condition to date[238] Properties The company leases a 23,000 sq. ft. facility in Eden Prairie, Minnesota, serving as its corporate headquarters and manufacturing space - The company's principal facility is a 23,000 sq. ft. leased space in Eden Prairie, MN, used for corporate headquarters, office, and manufacturing[239] - The current operating lease for this facility was extended and now expires in March 2027[239] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Nuwellis common stock trades on Nasdaq under 'NUWE', with 4.37 million shares outstanding as of March 2025, and no cash dividends are expected - The company's common stock trades on the Nasdaq Capital Market under the symbol 'NUWE'[244] - As of March 7, 2025, there were 4,373,968 shares of common stock outstanding[245] - The company has not paid and does not expect to pay cash dividends[246] Management's Discussion and Analysis of Financial Condition and Results of Operations Nuwellis reported $8.74 million net sales in 2024, reduced operating loss, and needs capital beyond May 2025 due to going concern Results of Operations (in thousands) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $8,740 | $8,864 | (1.4)% | | Gross Profit | $5,676 | $4,983 | 13.9% | | Loss from Operations | $(10,988) | $(17,630) | (37.7)% | | Net Loss | $(11,165) | $(20,209) | (44.7)% | - The company believes its existing capital resources will be sufficient to fund operations only through May 31, 2025, raising substantial doubt about its ability to continue as a going concern[270][273] - Net cash used in operating activities decreased to $9.6 million in 2024 from $17.9 million in 2023, primarily reflecting a lower net loss and changes in working capital[312] - Net cash provided by financing activities was $11.0 million in 2024, sourced from several public offerings and warrant exercises throughout the year[314] Financial Statements and Supplementary Data Audited 2024 financials show a $11.2 million net loss; auditor highlights going concern and warrant liability as critical audit matters - The independent auditor's report expresses substantial doubt about the Company's ability to continue as a going concern due to recurring losses and the need for additional working capital[321] - The auditor identified the valuation of the warrant liability as a Critical Audit Matter due to the complexity and subjective judgment involved in the Monte Carlo simulation model used for fair value measurement[328][329] Key Financial Data (Consolidated, in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Balance Sheet: | | | | Cash and cash equivalents | $5,095 | $3,800 | | Total Assets | $9,864 | $9,770 | | Total Liabilities | $3,334 | $6,559 | | Total Stockholders' Equity | $6,528 | $2,990 | | Statement of Operations: | | | | Net Sales | $8,740 | $8,864 | | Net Loss | $(11,165) | $(20,209) | | Basic and Diluted Loss Per Share | $(8.41) | $(360.06) | Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in internal control over financial reporting, specifically insufficient headcount and documentation - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024[440] - Two material weaknesses were identified: 1) Insufficient headcount leading to inadequate segregation of duties in accounting and IT. 2) Lack of contemporaneous documentation for controls related to balance sheet reconciliations, journal entries, and user access[447] - The company is developing remediation plans to address the material weaknesses, which will be subject to senior management and audit committee oversight[448][449] Part III Directors, Executive Officers and Corporate Governance The report lists the company's six directors and key executive officers, including interim CEO John L. Erb, with five directors deemed independent under Nasdaq rules - On February 23, 2025, Nestor Jaramillo, Jr. retired as President and CEO, and John L. Erb was appointed as Interim President and CEO[453] - The Board of Directors is composed of six members, five of whom have been determined to be independent: Dr. Costanzo, Dr. Georgiou, Mr. McCormick, Mr. McDonald, and Mr. Waller[454][521] - The Audit Committee members are Mike McCormick, Dave McDonald, and Greg Waller, with Mr. Waller designated as the 'audit committee financial expert'[471] Executive Compensation Executive compensation for 2024 included salaries and bonuses, with cost-saving measures implemented due to liquidity concerns, and no equity awards for non-employee directors 2024 Summary Compensation Table | Name and Principal Position | Salary ($) | Non-equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Nestor Jaramillo, Jr. (President & CEO) | 349,676 | 47,723 | 12,009 | 409,408 | | Robert B. Scott (CFO) | 245,000 | 20,580 | 4,376 | 269,956 | | Neil P. Ayotte (SVP, General Counsel) | 271,420 | 25,645 | 9,922 | 306,987 | - In 2024, the company undertook cost-reduction measures, including temporary salary reductions for senior management and suspension of the 401k match, which were later restored in Q4 2024[497] - Non-employee directors receive annual cash compensation of $45,000, plus additional retainers for the Chair and committee service. The Board agreed not to receive annual stock option awards in 2024[479][480] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Directors and executive officers beneficially owned 1.6% of common stock as of March 2025, primarily through options and preferred stock conversion - As of March 7, 2025, all current directors and executive officers as a group beneficially owned 71,171 shares, representing 1.6% of the class[514] - Chairman John L. Erb's beneficial ownership of 69,028 shares (1.6% of the class) consists almost entirely of 68,961 shares issuable upon conversion of his Series F Convertible Preferred Stock[514][515] Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Securities to be issued upon exercise () | Weighted-average exercise price ($) | Securities available for future issuance () | | :--- | :--- | :--- | :--- | | Approved by security holders | 3,761 | $474.35 | 40,964 | | Not approved by security holders | 112 | $2,022.71 | 1,211 | | Total | 3,873 | $519.12 | 42,175 | Certain Relationships and Related Transactions, and Director Independence The Board determined a majority of its members are independent, with no related party transactions requiring disclosure in 2023 or 2024 - The Board has determined that five of its six directors are independent: Dr. Costanzo, Dr. Georgiou, Mr. McCormick, Mr. McDonald, and Mr. Waller[521] - The company engaged in no related party transactions requiring disclosure under Item 404 of Regulation S-K for fiscal years 2024 and 2023[524] Principal Accountant Fees and Services Baker Tilly US, LLP served as the independent auditor, with total fees of $749,608 in 2024, primarily for audit services, all pre-approved by the Audit Committee Accountant Fees (2024 vs 2023) | Fee Category | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $715,550 | $657,525 | | Tax Fees | $34,058 | $32,800 | | Total | $749,608 | $690,325 | - 100% of the services provided by the independent auditor, Baker Tilly, were pre-approved by the Audit Committee[527] Part IV Exhibits, and Financial Statement Schedules This section lists documents filed as part of the Annual Report on Form 10-K, including financial statements, corporate governance, and material contracts - The Exhibit Index lists key corporate documents, including the Certificate of Incorporation, Bylaws, and various forms of Warrants[530][532] - Material contracts filed as exhibits include the Patent License Agreement with Gambro (Baxter), various equity incentive plans, and employment agreements with executive officers[535][536][537] - Certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act are filed as exhibits, along with XBRL data files[541]