Business Overview and History

Nevro Corp. (NVRO) is a global medical device company that has been at the forefront of developing comprehensive, life-changing solutions for the treatment of chronic pain. With a focus on innovation and clinical evidence, Nevro has established itself as a leader in the neuromodulation market, offering patients an effective and paresthesia-free approach to pain management.

Nevro was incorporated in Minnesota in March 2006 and later reincorporated in Delaware in October 2006. The company was formed with the primary goal of manufacturing and marketing innovative active implantable medical devices for the treatment of neurological disorders, with an initial focus on chronic pain management. Nevro's flagship product, the HFX spinal cord stimulation (SCS) platform, which includes the Senza SCS system, has been the cornerstone of its business since its inception.

The Senza SCS system, an evidence-based neuromodulation system for chronic pain treatment, received FDA approval in May 2015, supporting the superiority of its 10 kHz Therapy over traditional SCS. This approval marked a significant milestone for Nevro, allowing the company to launch the Senza system commercially in the United States. Prior to its U.S. launch, the Senza system had already been commercially available in certain European markets since November 2010 and in Australia since August 2011.

In its early years, Nevro relied on various financing methods to support its operations and growth. The company raised capital through private placements of equity securities, borrowings under debt agreements, public offerings of common stock, and the issuance of convertible senior notes. These funds were crucial for building Nevro's sales force in the United States and continuing the development and clinical testing of its products.

Throughout its history, Nevro has faced several challenges, including significant net losses from its inception through 2022, with only a modest net income of $3 million reported in 2022. The company has also had to navigate a highly competitive SCS market, competing against well-established players such as Medtronic, Boston Scientific, and Abbott Laboratories. Additionally, Nevro has had to address issues related to third-party reimbursement and payors, which have impacted its market penetration and revenue growth.

Despite these challenges, Nevro has remained committed to innovation and expanding its product portfolio. The company has continued to invest heavily in research and development, seeking to improve its existing technologies and develop new solutions for chronic pain management. This commitment to innovation has allowed Nevro to maintain its position as a leader in the high-frequency SCS market and expand its indications for use.

Financial Snapshot

Nevro has a history of significant losses, with a net loss of $113.4 million in the fiscal year ended December 31, 2024. The company's revenue for the same period was $408.5 million, representing a decline of approximately 4% from the previous year. This performance was driven by a decrease in U.S. spinal cord stimulation trial procedures, which the company attributed to competitive pressures and ongoing softness in the core U.S. SCS market.

Despite the challenging market conditions, Nevro has maintained a strong balance sheet, with cash, cash equivalents, and short-term investments of $292.5 million as of December 31, 2024. The company's current ratio, a measure of liquidity, stood at 4.62, indicating a robust ability to meet its short-term obligations. Additionally, Nevro has a quick ratio of 3.62 and a debt-to-equity ratio of 0.92, further demonstrating its financial stability.

Nevro's gross margin for the fiscal year 2024 was 66%, a slight decline from the previous year's 68%. The company has been focused on improving its manufacturing efficiency and reducing costs, with the goal of achieving long-term gross margins in the mid-70% range.

In terms of geographic performance, the United States remains Nevro's primary market, accounting for 86% of revenue in 2024. International revenue was $55.4 million in 2024, compared to $58.6 million in 2023, reflecting the global challenges faced by the company.

Operational Highlights and Strategic Initiatives

One of Nevro's key operational highlights in recent years has been the development and launch of its HFX iQ SCS system, which incorporates the company's proprietary 10-kHz Therapy. In 2024, Nevro further advanced this technology with the introduction of HFX AdaptivAI, a responsive, personalized pain management platform that utilizes artificial intelligence to optimize therapy and achieve pain relief more quickly.

Early data on HFX AdaptivAI has been promising, with patients achieving pain relief 41% faster compared to the previous HFX iQ 1.0 system. Additionally, Nevro has seen a nearly 40% reduction in the number of patient calls to its support teams and a 20% decrease in in-office patient reprogramming visits for HFX AdaptivAI users.

Nevro has also made significant strides in expanding the indications for its 10-kHz Therapy. In addition to the approvals for the treatment of chronic back and leg pain, PDN, and NSBP, the company is actively pursuing clinical trials to evaluate the potential of its therapy for other chronic pain conditions, such as chronic upper limb and neck pain.

The company's acquisition of Vyrsa Technologies has allowed Nevro to enter the growing SI joint fusion market, which it believes represents a significant opportunity for growth. Nevro's Nevro1 SI joint fusion system has received positive feedback from physicians, and the company is focused on educating surgeons and raising awareness of its novel approach to this procedure.

Product Portfolio and Market Position

Nevro's primary product offering is its HFX SCS platform, which includes the Senza SCS system. The Senza system is an evidence-based neuromodulation system approved for the treatment of chronic pain. The key feature of the Senza system is Nevro's proprietary 10 kHz Therapy, which was demonstrated in clinical trials to be superior to traditional low-frequency SCS therapy.

In the company's SENZA-RCT pivotal study, 10 kHz Therapy was shown to be nearly twice as successful in treating back pain and 1.5 times as successful in treating leg pain compared to traditional SCS therapy. Importantly, 10 kHz Therapy provides pain relief without the paresthesia (tingling sensation) that is common with traditional SCS, allowing for a more comfortable treatment experience for patients.

In addition to its core SCS offerings, Nevro has expanded into the SI joint fusion market through its acquisition of Vyrsa Technologies. The company's SI joint portfolio includes the Nevro1 SI joint fusion system, which utilizes integrated transfixing technology to provide SI joint stabilization and promote long-term fusion. Nevro also offers the NevroFix lateral SI joint transfixing screws and the NevroPro minimally invasive posterior allograft SI joint fusion system.

Market Trends and Industry Position

The global spinal cord stimulation (SCS) market was estimated to be approximately $2.4 billion in 2023. While the market has experienced relatively flat growth due to the emergence of alternative minimally invasive spine procedures earlier in the treatment pathway, Nevro believes the superiority of its 10 kHz Therapy will allow it to continue to capitalize on the addressable chronic pain market and expand the SCS market by treating other indications like painful diabetic neuropathy (PDN) and non-surgical refractory back pain (NSBP).

Risks and Challenges

Despite Nevro's efforts to diversify its product portfolio and expand its market reach, the company continues to face several risks and challenges. The competitive landscape in the SCS market remains highly competitive, with larger, well-established players such as Medtronic, Boston Scientific, and Abbott Laboratories vying for market share.

Additionally, Nevro's revenue and profitability are heavily dependent on the continued acceptance and adoption of its 10-kHz Therapy by physicians and patients. Any failure to maintain or grow the market for this technology could have a significant impact on the company's financial performance.

Reimbursement and coverage decisions by third-party payers also pose a risk to Nevro's business. The company's ability to generate revenue is largely dependent on the willingness of healthcare providers and insurers to cover and reimburse the procedures performed with its products.

Nevro's reliance on third-party manufacturers and suppliers for key components of its products also exposes the company to supply chain disruptions and potential quality issues, which could hinder its ability to meet customer demand.

Financial Outlook and Guidance

For the full year 2024, Nevro is maintaining its worldwide revenue guidance of approximately $400 million to $405 million, representing a 5-6% decrease from 2023 on both a reported and constant currency basis. The company expects full year 2024 gross margin to be approximately 66%, or 68% excluding a $6 million supplier charge discussed on a previous earnings call.

Nevro anticipates full year 2024 operating expenses to be approximately $369.1 million, down 5.2% from 2023. The company has raised its full year 2024 adjusted EBITDA guidance to a range of negative $18 million to negative $16 million, up from the prior guidance of negative $20 million to negative $18 million.

Looking ahead, Nevro expects to see benefits in 2025 from changes to its commercial team and territories, increased direct-to-consumer advertising, continued ramp of its SI joint fusion business, and greater revenue contributions from IPG replacements. The company also expects its cash, cash equivalents, and short-term investments to increase further in Q4 2024 due to the benefits from its restructuring efforts and focus on working capital management.

Conclusion

As Nevro navigates the challenges of the chronic pain management market, the company remains focused on executing its strategy to drive sustainable growth and profitability. The successful launch of HFX AdaptivAI, the continued expansion of its SCS indications, and the integration of the Vyrsa acquisition will be critical to the company's future performance.

While the competitive landscape and reimbursement environment pose ongoing risks, Nevro's commitment to innovation, robust clinical evidence, and diversification of its product portfolio position the company well to capture market share and deliver long-term value for its shareholders. The company's ability to demonstrate the clinical superiority of its products and expand into new indications will be key to its continued growth and market penetration in the evolving chronic pain management landscape.