Acutus Medical(AFIB) - 2022 Q4 - Annual Report

Part I Business Acutus Medical is an arrhythmia management company leveraging its AcQMap system and electrophysiology products for cardiac arrhythmia diagnosis and treatment - The company's foundational product is the AcQMap imaging and mapping system, utilizing a unique non-contact method with 48 ultrasound transducers and 48 biopotential electrodes to map any type of arrhythmia in under three minutes[22][24] - Acutus maintains a strategic partnership with Biotronik for global distribution, with reciprocal product distribution in various international markets[28][123] - In 2022, the company implemented a corporate restructuring, including workforce reduction, to reduce operating expenses and prioritize console utilization and procedure growth in targeted regions[48] Intellectual Property Portfolio (as of Dec 31, 2022) | Region | Issued Patents | Pending Applications | | :--- | :--- | :--- | | U.S. | 38 | 23 | | Outside U.S. | 76 | 51 | Overview Acutus Medical is an arrhythmia management company focused on improving diagnosis and treatment of cardiac arrhythmias through its electrophysiology product portfolio - Acutus Medical is an arrhythmia management company aiming to improve the diagnosis and treatment of cardiac arrhythmias through a portfolio of electrophysiology products[21] - The company's product portfolio includes access sheaths, diagnostic and mapping catheters, ablation catheters, and the highly differentiated AcQMap imaging and mapping system designed to rapidly identify ablation targets[22] - The company is seeking U.S. regulatory approval for its AcQBlate® FORCE gold-tip, irrigated, radiofrequency force sensing ablation catheters, with an anticipated FDA PMA and U.S. commercial launch in the second half of 2023[27] Our Market and Industry The cardiac ablation market, particularly for complex arrhythmias, presents an unmet need for more effective diagnostic and treatment solutions Estimated Global Cardiac Ablation Procedures (2021) | Arrhythmia Type | Estimated Procedures | | :--- | :--- | | Atrial Fibrillation (AF) | 624,000 | | Supraventricular Tachycardias (SVTs) | 494,000 | | Ventricular Arrhythmias (VTs/PVCs) | 116,000 | - Current contact-based mapping systems are time-consuming and struggle to map unstable or complex arrhythmias, creating an unmet market need for more effective diagnostic and treatment alternatives[34][35] Our Solution and Growth Strategies The AcQMap System offers rapid, accurate, whole-chamber mapping for various arrhythmias, supported by strategies to expand market presence and product offerings - The AcQMap System uses a non-contact approach with 48 ultrasound transducers and 48 biopotential electrodes to create comprehensive anatomical and electrical maps in under three minutes[38] - Key benefits of the AcQMap System include rapid, iterative whole-chamber mapping, increased accuracy via ultrasound and charge density mapping, and the unique capability to map both stable and unstable arrhythmias[40][41][42] - The company's growth strategies include establishing presence in targeted accounts, increasing physician awareness, maximizing console utilization, expanding the product portfolio, leveraging strategic partnerships, and building clinical evidence[49] Competition and Intellectual Property The company faces intense competition from larger medical device manufacturers and relies on a patent portfolio for intellectual property protection - The company faces intense competition from large, well-capitalized medical device manufacturers including Abbott Laboratories, Biosense Webster (Johnson & Johnson), Boston Scientific, and Medtronic, which possess greater resources and market share[49][50] - As of December 31, 2022, the company's patent portfolio includes 38 U.S. patents and 76 foreign patents, with U.S. patents covering the AcQMap system expiring between 2027 and 2041[53] Manufacturing and Supply The company manufactures products in Carlsbad, California, relying on single-source suppliers and third-party manufacturers, including a distribution agreement with Medtronic - The company manufactures products at its 50,800 square foot facility in Carlsbad, California, adhering to FDA's Quality System Regulation (QSR) and ISO 13485 standards[54][57] - Acutus relies on single or limited-source suppliers for certain raw materials and components, often without long-term agreements, and utilizes third parties like Biotronik for manufacturing certain products[55] - Following an asset sale, Acutus entered a distribution agreement with Medtronic to manufacture and supply certain products as an exclusive distributor for up to four years[56] Government Regulation The company's medical devices are subject to extensive U.S. and EU regulatory approvals, including FDA clearances and CE Marks, and various fraud and abuse laws - In the U.S., medical devices require either 510(k) clearance for substantially equivalent devices or a more demanding Premarket Approval (PMA) for high-risk (Class III) devices[59][61][66] - In the European Union, products must receive a CE Mark for sale, requiring conformity assessment by a Notified Body to ensure compliance with MDD or MDR[75] - The company is subject to numerous U.S. federal and state fraud and abuse laws, including the Anti-Kickback Statute and the False Claims Act[83][84][86] Coverage, Reimbursement, and Human Capital Commercial success depends on adequate third-party reimbursement, and the company, with 225 employees, operates as an emerging growth and smaller reporting company - Commercial success depends on adequate reimbursement from third-party payors, including Medicare, Medicaid, and private insurers, who increasingly scrutinize product cost-effectiveness[96][97] - As of December 31, 2022, the company had 225 full-time employees, none of whom are represented by a labor union or collective bargaining agreement[98] - The company is classified as an "emerging growth company" and a "smaller reporting company," benefiting from reduced reporting requirements and an extended transition period for new accounting standards[105][108] Risk Factors The company faces significant risks including a history of net losses, limited commercial history, intense competition, extensive government regulation, and challenges in protecting intellectual property - The company has a history of net losses, anticipates continued losses for several years, and may not achieve or sustain profitability[216] - Commercial success depends on significant market acceptance from hospitals, physicians, and payors, which is uncertain given the company's limited commercial history and slow physician adoption practices[114] - The company faces intense competition from major players like Abbott, Biosense Webster (J&J), Boston Scientific, and Medtronic, possessing significantly greater resources and market presence[127] - The company is subject to extensive and costly government regulation in the U.S. (FDA) and abroad (CE Mark), with non-compliance potentially leading to significant penalties, recalls, or production shutdowns[224][232] - The company's ability to protect its intellectual property is uncertain, potentially leading to costly litigation from infringement accusations or enforcement efforts[277][292] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[359] Properties The company leases its corporate headquarters and manufacturing facility in Carlsbad, California, and an office in Brussels, Belgium, which are deemed sufficient for current needs - The main facility is a leased 50,800 sq. ft. space in Carlsbad, CA, serving as headquarters and manufacturing, with its lease expiring on December 31, 2027[360] - An international office of approximately 3,900 sq. ft. is leased in Brussels, Belgium, with its lease expiring on December 31, 2024[360] Legal Proceedings The company and certain officers are defending against consolidated securities class action lawsuits alleging false and misleading statements, with an uncertain outcome - The company and certain officers are defendants in two putative securities class action lawsuits filed in early 2022, alleging Exchange Act violations through false and misleading statements made between May 13, 2021, and November 11, 2021[362] - The lawsuits were consolidated, a lead plaintiff appointed, and the company filed a motion to dismiss; the outcome is currently not determinable but could incur substantial costs[363][364] Mine Safety Disclosures This item is not applicable to the company - Not applicable[365] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "AFIB," with 72 record holders, and the company has never paid cash dividends, retaining earnings for operations and growth - The company's common stock is listed on the Nasdaq under the symbol "AFIB"[368] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[373] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, revenue decreased to $16.4 million, but net loss significantly narrowed to $39.6 million due to a $79.5 million gain from an asset sale and reduced operating expenses, with current cash deemed sufficient for 12 months Financial Performance Summary (2021 vs. 2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $16.4 million | $17.3 million | | Net Loss | $39.6 million | $117.7 million | | Accumulated Deficit | $518.3 million | $478.7 million | - In June 2022, the company sold its left-heart access portfolio to Medtronic for $50.0 million upfront plus potential contingent considerations, resulting in a $79.5 million gain in 2022[377][425] Key Business Metrics (2021 vs. 2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Acutus net system placements | 76 | 77 | | Procedure volumes | 1,861 | 1,570 | Results of Operations Revenue decreased by 5% to $16.4 million in 2022, while net loss significantly narrowed due to a large gain on asset sale and reduced operating expenses Consolidated Results of Operations (in thousands) | | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $16,363 | $17,263 | ($900) | (5)% | | Costs of products sold | $31,910 | $32,925 | ($1,015) | (3)% | | Research and development | $28,153 | $36,683 | ($8,530) | (23)% | | Selling, general and administrative | $47,654 | $63,523 | ($15,869) | (25)% | | Goodwill impairment | $12,026 | $— | $12,026 | 100% | | Gain on sale of business | ($79,465) | $— | ($79,465) | 100% | | Loss from operations | ($27,339) | ($112,122) | $84,783 | (76)% | | Net loss | ($39,616) | ($117,683) | $78,067 | (66)% | - Revenue decreased by 5% to $16.4 million in 2022, driven by a $2.3 million (57%) decline in system sales, partially offset by an 8% increase in disposables revenue from higher procedure volumes[435][436] - Operating expenses decreased by 66%, primarily due to a $79.5 million gain on asset sale to Medtronic, supplemented by R&D (down 23%) and SG&A (down 25%) reductions, partially offset by a $12.0 million goodwill impairment charge[439][443][444][445] Liquidity and Capital Resources The company's $70.4 million cash position, bolstered by an asset sale and new credit facility, is expected to fund operations for at least the next 12 months Liquidity Position (as of Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cash, cash equivalents and marketable securities | $70.4 million | $107.9 million | | Working Capital | $98.0 million | $107.8 million | | Net cash used in operating activities | ($85.0 million) | ($99.7 million) | - Management believes current cash, receivables, and marketable securities are sufficient to fund operations for at least the next 12 months, supported by cost reduction measures and proceeds from the Medtronic asset sale[460] - On June 30, 2022, the company entered into a new five-year, $35.0 million term loan facility, utilizing proceeds to extinguish its previous 2019 Credit Agreement[467] Critical Accounting Policies and Estimates The company's critical accounting policies include revenue recognition for disposable product sales and sales-type leases, stock-based compensation, and contingent consideration, with goodwill fully impaired in 2022 - Revenue is recognized under ASC 606 and ASC 842, with recurring revenue from disposable product sales and deferred equipment agreements treated as sales-type leases[487][489][491] - Stock-based compensation is valued using the Black-Scholes model for options and grant-date fair value for RSAs/RSUs, with expenses recognized over the service period[494] - Contingent consideration from acquisitions is a Level 3 liability re-measured to fair value each period, with changes recorded in operating loss; in 2022, the company fully impaired its goodwill balance[499][503] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Acutus Medical is not required to provide information for this item - The company is not required to provide this information as it qualifies as a smaller reporting company[509] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2022, including the independent auditor's report, balance sheets, statements of operations, equity, cash flows, and accompanying notes Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the consolidated financial statements for 2021 and 2022, affirming their fair presentation in conformity with U.S. GAAP - KPMG LLP issued an opinion stating that the consolidated financial statements for the years ended December 31, 2022 and 2021, present fairly the financial position and results of operations in conformity with U.S. GAAP[515] Consolidated Financial Statements This section provides key consolidated financial data, including balance sheet, statement of operations, and cash flow summaries for 2021 and 2022 Consolidated Balance Sheet Data (as of Dec 31, in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $133,440 | $169,792 | | Cash, cash equivalents, & marketable securities | $70,447 | $107,893 | | Total current assets | $117,867 | $126,290 | | Total Liabilities | $58,421 | $64,066 | | Total current liabilities | $19,872 | $18,510 | | Long-term debt | $34,434 | $40,415 | | Total Stockholders' Equity | $75,019 | $105,726 | Consolidated Statement of Operations Data (Year ended Dec 31, in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $16,363 | $17,263 | | Loss from operations | ($27,339) | ($112,122) | | Net loss | ($39,616) | ($117,683) | | Net loss per share (basic & diluted) | ($1.40) | ($4.11) | Consolidated Statement of Cash Flows Data (Year ended Dec 31, in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($85,032) | ($99,682) | | Net cash provided by investing activities | $104,750 | $19,066 | | Net cash (used in) provided by financing activities | ($12,116) | $79,569 | | Net change in cash, cash equivalents and restricted cash | $7,127 | ($1,163) | Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's financial position, including liquidity, asset sale gains, goodwill impairment, and debt restructuring - Management believes the company's cash, cash equivalents, and marketable securities of $70.4 million as of December 31, 2022, are sufficient to fund operations for at least the next 12 months (Note 1)[533][536] - The company sold its left-heart access portfolio to Medtronic for $50.0 million upfront, plus $20.0 million and $17.0 million in contingent earnouts achieved in 2022, resulting in a total gain on sale of $79.5 million (Note 4)[610][612][616] - In Q1 2022, a significant stock price decline triggered a quantitative assessment, leading to the full impairment of the company's $12.0 million goodwill balance (Note 9)[627] - On June 30, 2022, the company entered a new $35.0 million credit agreement with Deerfield Management affiliates, using proceeds to extinguish its prior 2019 credit agreement, resulting in a $7.9 million loss on extinguishment (Note 11)[635][636] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[694] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during Q4 2022 - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[695] - There were no material changes in internal control over financial reporting during the fourth quarter of 2022[696] - The company's management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[698] Other Information The company reports no other information for this item - None[700] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[701] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees Information for Items 10-14, covering directors, executive officers, corporate governance, executive compensation, security ownership, and accountant fees, will be incorporated by reference from the 2023 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders[703][704][705][706][707] Part IV Exhibits, Financial Statement Schedules This section lists consolidated financial statements and an index of exhibits, noting the omission of financial statement schedules as information is included elsewhere - This item includes the consolidated financial statements of Acutus Medical, Inc. and notes that all financial statement schedules have been omitted[712] - An index of exhibits, including agreements, corporate governance documents, and certifications, is provided, with many items incorporated by reference from previous filings[714] Form 10-K Summary The company reports no summary for this item - None[711]