PROCEPT BioRobotics (PRCT) - 2022 Q4 - Annual Report

Part I Business PROCEPT BioRobotics is a surgical robotics company treating BPH with its AquaBeam Robotic System, generating revenue from system sales and handpieces - The company develops, manufactures, and sells the AquaBeam Robotic System, an image-guided surgical robot for treating benign prostatic hyperplasia (BPH) using its proprietary Aquablation therapy[19] - As of December 31, 2022, the company had an installed base of 243 AquaBeam Robotic Systems globally, with 167 located in the United States[19] Key Financials (FY 2021-2022) | Metric | 2022 ($M) | 2021 ($M) | | :--- | :--- | :--- | | Revenue | $75.0 | $34.5 | | Net Loss | $87.2 | $59.9 | | Accumulated Deficit | $348.7 | - | - The company estimates its total addressable market opportunity in the United States to be in excess of $20 billion, targeting approximately 8.2 million patients[22][38] Growth Strategies The company aims to grow its installed base, increase system utilization, broaden payor coverage, invest in R&D, and expand internationally - Grow the installed base of AquaBeam Robotic Systems by targeting 860 high-volume U.S. hospitals that account for approximately 70% of resective BPH procedures[33] - Increase system utilization by converting medium-to-high volume resective cases to Aquablation therapy and expanding into the larger BPH patient population currently on or having failed drug therapy[34] - Continue to broaden private payor coverage, leveraging existing positive Medicare coverage decisions which cover 100% of eligible patients[35] - Invest in R&D to drive continuous improvements, including integrating AI and machine-learning for enhanced treatment planning, and potentially expanding into new urologic conditions[35] - Further penetrate and expand into international markets such as Germany, France, the UK, Korea, and Japan[35][36] Market Overview The BPH market is significant, with current surgical interventions often requiring a compromise between efficacy and safety - BPH impacts an estimated 40 million men in the U.S., with 12 million managed by a physician, and an addressable patient population including 6.7 million on drug therapy[38] - Alternative surgical interventions for BPH often require a compromise between efficacy and safety, with resective procedures offering durable relief but high complication rates, and non-resective procedures having better safety but less significant relief[53][54][55] Our Solution The AquaBeam Robotic System offers an image-guided, heat-free Aquablation therapy for BPH, providing significant relief with a favorable safety profile - The AquaBeam Robotic System delivers Aquablation therapy, the first and only image-guided robotic therapy for BPH, combining real-time imaging, personalized planning, automated robotics, and heat-free waterjet resection[56][58] - Key benefits of Aquablation therapy include significant and durable symptom relief, a favorable safety profile with low rates of irreversible complications, and consistent outcomes independent of prostate size, shape, or surgeon experience[63] - The company's clinical evidence is supported by nine clinical studies, including the WATER and WATER II studies, and nearly 150 peer-reviewed publications[26][63][64] Intellectual Property The company maintains a robust patent portfolio and holds exclusive license agreements for key technologies - As of December 31, 2022, the company's patent portfolio included 135 issued patents (42 U.S., 93 foreign) and 88 pending patent applications[33][91] - The company has an exclusive, worldwide, royalty-free license agreement with AquaBeam LLC for patents related to urology and another with HydroCision, Inc. for patents related to fluid jet technology[98][100] Government Regulation The AquaBeam Robotic System is regulated as a Class II medical device in the U.S. and is subject to extensive domestic and international oversight - The AquaBeam Robotic System is regulated as a Class II medical device in the U.S. and was initially granted marketing authorization through the FDA's de novo classification pathway[111][278] - The company is subject to extensive ongoing FDA oversight, including Quality System Regulation (QSR), medical device reporting, and regulations on marketing and promotion[119][121] - Internationally, the company must comply with regulations such as the Medical Devices Regulation (MDR) in the European Economic Area (EEA) and has obtained regulatory approvals in Japan and South Korea[130][135][136] Risk Factors The company faces risks from net losses, core product dependence, market acceptance, supply chain, competition, and regulatory compliance - The company has a history of significant net losses, reporting a loss of $87.2 million in 2022, and expects to incur operating losses for the foreseeable future[168] - Revenue is primarily generated from the AquaBeam Robotic System and its single-use handpieces, making the company highly dependent on the success of these products[170] - Commercial success depends on market acceptance by hospitals, surgeons, and patients, which is not guaranteed[183] - The company faces competition from larger, more established companies like Boston Scientific and Teleflex, which have greater financial and marketing resources[198][199] - Reliance on third-party, single-source suppliers for critical components creates vulnerability to supply shortages and price fluctuations[209] - The business is subject to extensive government regulation, and failure to maintain regulatory approvals or comply with healthcare laws could negatively impact operations[268][272] Properties The company leases its principal office in Redwood City and plans to relocate to a new, larger facility in San Jose - The company's principal office is a leased space of 43,485 sq. ft. in Redwood City, CA, with the lease term extending to January 2024[424] - A new lease for a 158,221 sq. ft. facility in San Jose, CA, commenced in July 2022 for a term of 122 months, with plans to relocate headquarters and manufacturing operations[203][425] Legal Matters The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business - As of the report date, the company is not involved in any legal proceedings that are expected to have a material adverse effect on the business[426] 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 'PRCT' since September 2021, with no cash dividends paid or anticipated - The company's common stock began trading on the Nasdaq Global Select Market under the symbol "PRCT" on September 14, 2021[429] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future, with future earnings intended for reinvestment into the business[431] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, revenue grew 118% to $75.0 million, but increased operating expenses led to a higher net loss, with $221.9 million in cash Financial Performance (2021 vs. 2022) | Metric | 2022 ($M) | 2021 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $75.0 | $34.5 | 118% | | Gross Profit | $37.1 | $15.9 | 134% | | Gross Margin | 49% | 46% | - | | R&D Expenses | $29.0 | $19.0 | 53% | | SG&A Expenses | $88.8 | $51.0 | 74% | | Net Loss | ($87.2) | ($59.9) | 46% | - Revenue growth was driven by a $17.9 million increase from system sales and rentals and a $20.3 million increase from handpieces and consumables, reflecting higher volumes and average selling prices[460] - As of December 31, 2022, the company had $221.9 million in cash and cash equivalents and $52.0 million in outstanding long-term debt[469] - Net cash used in operating activities increased to $80.4 million in 2022 from $57.3 million in 2021, primarily due to the higher net loss and investments in operating assets to support growth[478][479][480] Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rates, credit, and foreign currency, but does not expect a material impact and does not use hedging - The company is exposed to interest rate risk as its outstanding debt bears interest at a variable rate based on SOFR, though a 100 basis point change is not expected to have a material impact[506] - Foreign currency risk exists due to sales and expenses denominated in foreign currencies, primarily the Euro, and the company does not currently hedge this exposure[509][510] Financial Statements and Supplementary Data Audited consolidated financial statements for 2022 and 2021, including Balance Sheets, Statements of Operations, and Cash Flows, are presented with notes Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity as of December 31, 2022 and 2021 Consolidated Balance Sheet Data (as of Dec 31) | Metric | 2022 ($M) | 2021 ($M) | | :--- | :--- | :--- | | Cash and cash equivalents | $221.9 | $304.3 | | Inventory | $28.5 | $13.1 | | Total Assets | $309.3 | $337.0 | | Long-term debt | $51.2 | $50.0 | | Total Liabilities | $112.3 | $69.9 | | Total Stockholders' Equity | $197.1 | $267.1 | Consolidated Statements of Operations and Comprehensive Loss This section presents the company's financial performance, detailing revenues, expenses, and net loss for the years ended December 31, 2022 and 2021 Consolidated Statement of Operations (Year Ended Dec 31) | Metric | 2022 ($M) | 2021 ($M) | | :--- | :--- | :--- | | Revenue | $75.0 | $34.5 | | Gross Profit | $37.1 | $15.9 | | Loss from operations | ($80.7) | ($54.2) | | Net loss | ($87.2) | ($59.9) | | Net loss per share | ($1.96) | ($3.63) | Consolidated Statements of Cash Flows This section presents the company's cash flows, detailing inflows and outflows from operating, investing, and financing activities for 2022 and 2021 Consolidated Statement of Cash Flows (Year Ended Dec 31) | Metric | 2022 ($M) | 2021 ($M) | | :--- | :--- | :--- | | Net cash used in operating activities | ($80.4) | ($57.3) | | Net cash used in investing activities | ($2.7) | ($0.6) | | Net cash provided by financing activities | $3.6 | $262.1 | | Net (decrease) increase in cash | ($79.4) | $204.2 | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, as audited by PwC LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[657] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, an assessment audited by PricewaterhouseCoopers LLP[518][659] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[664] Executive Compensation Information on executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[665] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[665] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[666] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the company's 2023 Proxy Statement - Information required by this item is incorporated by reference from the company's 2023 Proxy Statement[666] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications - This section lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts such as lease and loan agreements, and required certifications[669][670]