CVRx: Recent Good News Seems Fully Priced In Now

Great is truth, but still greater, from a practical point of view, is silence about truth.”― Aldous Huxley.

Today, we put medical device maker CVRx, Inc. (NASDAQ:CVRX) in the spotlight. The stock has nearly tripled over the past 10 weeks on some positive news flow. Can the rally continue, or are CVRX shares becoming increasingly vulnerable to profit taking as we approach 2024? An analysis follows below.

Company Overview:

This Minneapolis-based commercial-stage medical device company is focused on developing and marketing neuromodulation solutions for patients with cardiovascular diseases. CVRx’s main asset is a product called Barostim. This is a neuromodulation device indicated to improve symptoms for patients with heart failure [HF] with reduced ejection fraction or systolic HF. With the recent huge rally in the stock, the shares go for around $31.00 a piece and sport an approximate market capitalization of $640 million.

Third Quarter Results:

CVRx posted its Q3 numbers on October 26th. The company delivered a GAAP loss of 43 cents a share, 15 cents a share above expectations. Revenues rose nearly 70% on a year-over-year basis to $10.5 million. This slightly beat the consensus estimate as well.

HF revenue was $9.4 million for the quarter, with the rest coming primarily from interest on the company’s cash balance. U.S.-based revenue was $9.6 million for the quarter, up 90% from a year ago. Europe chipped in just $900,000 worth of sales during the quarter, down $200,000 from the prior period a year ago. CVRx ended the quarter with 159 active implanting centers. This is up 75% from the same period a year ago and from 140 at the end of the second quarter. An active implanting center is defined a facility that has done at least one HF Barostim procedure over the prior year. 303 Barostim HF units were sold in the quarter, compared to 167 in 3Q2022.

Shareholders received a couple of pieces of good news since CVRx announced its third-quarter results. A week after earnings came out, the Centers for Medicare and Medicaid Services announced it would increase payments for its Barostim implant procedure used in heart failure. The code now used should average $45,000 per procedure, compared with the current average of $29,000. This week, management declared after researching this change, they believe that it will increase its potential U.S. market from $1.4 billion to $2.2 billion as potentially eligible individuals rise to 76,000 from 55,000 previously.

Analyst Commentary & Balance Sheet:

Since third-quarter results hit, six analyst firms including William Blair and Piper Sandler have reiterated/assigned Buy ratings to the stock. Price targets proffered range from $21 to $32 a share.

Approximately six percent of the shares outstanding are currently held short. The company’s Chief Marketing Officer sold just over $30,000 worth of shares over the summer, but that has been the only insider activity in the stock in 2023. The company ended the third quarter with $83 million worth of cash and marketable securities on its balance sheet. The company burned through $8.2 million worth of cash during the quarter to support all operating activities. That was down from $11.4 million from the same period a year ago as well as the $13 million burned through in the second quarter of this fiscal year.

Verdict:

The company lost $2.02 a share on nearly $22.5 million in revenue in FY2022. The current analyst firm consensus has CVRx delivering losses of $2.10 a share in FY2023, even as sales shoot up to over $38 million. They project losses falling slightly in FY2024 to $1.92 a share, as revenues are near $55 million.

It appears to me that all the recent good news around CVRx, Inc. is fully baked into the stock after its huge rise. Sales growth is impressive, but it is happening off a small base and the company is trending to be quite unprofitable for at least several years. The stock has also surpassed most price targets put out by bullish analyst firms as well. Therefore, I would not chase this rally, and if I owned shares in this name, I would take at least some profits on my bounty.

The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is.“― Winston S. Churchill.