Acutus Medical, Inc. (AFIB) is a pioneering medical technology company that has faced its share of challenges in recent years. Founded in 2011 and headquartered in Carlsbad, California, Acutus has been at the forefront of developing innovative solutions for the treatment of cardiac arrhythmias. However, the company’s journey has been marked by strategic pivots, restructuring efforts, and a delisting from the Nasdaq stock exchange.
Business Overview and History
Acutus Medical, Inc. was incorporated in the state of Delaware on March 25, 2011. The company was founded with the primary goal of designing, manufacturing, and marketing a range of tools for catheter-based ablation procedures to treat various arrhythmias. Prior to November 2023, Acutus’ product portfolio was extensive, including novel access sheaths, diagnostic and mapping catheters, ablation catheters, mapping and imaging consoles and accessories, as well as supporting algorithms and software programs.
The company’s foundational product was the AcQMap Imaging and Mapping System, which was designed to rapidly and accurately identify ablation targets and confirm both ablation success and procedural completion. This innovative system set Acutus apart in the competitive medical technology landscape.
In April 2022, Acutus made a significant strategic move by agreeing to sell its left-heart access product portfolio to Medtronic. This transaction included an upfront cash consideration of $50 million, with $4 million placed into an indemnity escrow account. The deal also made Acutus eligible for up to $37 million in contingent cash consideration, including $20 million in an OEM Earnout and $17 million in a Transfer Earnout, as well as a percentage of Medtronic’s future net sales of the left-heart access product portfolio.
Simultaneously with the Medtronic deal, Acutus refinanced its existing debt with a new longer-term credit facility, providing the company with additional financial flexibility. This strategic transaction marked a turning point for Acutus, setting the stage for its future business model transformation.
In 2019, Acutus expanded its product offerings through the acquisition of Rhythm Xience, a company specializing in the design and manufacture of transseptal crossing and steerable introducer systems. This strategic move was intended to strengthen the company’s capabilities in the left-heart access market.
However, the company faced significant challenges in the subsequent years, reporting substantial operating losses and negative cash flows. In 2022, Acutus took a pivotal step by selling its left-heart access product portfolio to medical device giant Medtronic for an upfront cash consideration of $50 million, as well as potential earn-out payments based on certain milestones and Medtronic’s future sales of the products.
Restructuring and Refocus
Following the sale of its left-heart access business, Acutus underwent a strategic realignment and corporate restructuring in late 2023. The company decided to shift its business model to solely focus on manufacturing and distributing the left-heart access products for Medtronic under an exclusive distribution agreement. This decision led to the wind-down of Acutus’ mapping and ablation businesses, which were no longer seen as core to the company’s future.
As part of the restructuring, Acutus implemented a significant workforce reduction, cutting approximately 65% of its employees across different departments and functions. The company also incurred substantial restructuring and exit-related charges, including severance expenses, retention bonuses for certain employees, and impairment charges related to the disposition of assets.
The restructuring resulted in the discontinuation of several key products, including the AcQMap Mapping System, the AcQMap 3D Mapping Catheter, the AcQBlate Force-Sensing Ablation Catheter, and the AcQGuide Max 2.0 Steerable Sheath. This marked a complete shift from Acutus’ previous business model, which had encompassed a wide range of arrhythmia treatment tools.
Financial Performance and Liquidity
Acutus’ financial performance has been challenged in recent years, with the company reporting significant operating losses and negative cash flows. For the nine months ended September 30, 2024, the company generated revenue of $13.03 million from its continuing operations, a substantial increase of 170% compared to the same period in the prior year. However, the company’s net loss from continuing operations for the same period was $3.23 million.
The company’s most recent fiscal year (2023) saw revenue of $7.16 million, with a net income of -$11.92 million. Operating cash flow (OCF) for 2023 was -$19.85 million, while free cash flow (FCF) was -$63.34 million. The most recent quarter (Q3 2024) showed significant improvement, with revenue reaching $5.27 million, representing a year-over-year growth of 156%. Net income for Q3 2024 was -$816,000, with OCF and FCF both at -$3.70 million.
The increase in revenue was primarily attributable to an increase in volume of left-heart access product sales through the company’s partnership with Medtronic. Notably, gross margin improved to 7% in Q3 2024 compared to -53% in Q3 2023, due to gains in manufacturing efficiencies.
Following the company’s strategic shift, all revenue in Q3 2024 and year-to-date 2024 was generated from the United States. Acutus no longer sells products internationally, focusing solely on manufacturing and distribution for Medtronic.
The company’s liquidity position has been a concern, with cash, cash equivalents, marketable securities, and restricted cash totaling $12.6 million as of September 30, 2024. This represents a decrease from the $29.4 million the company had at the end of 2023. Acutus has relied on its strategic partnership with Medtronic and the potential earn-out payments from the sale of its left-heart access business to generate cash flow and fund its operations.
Acutus’ financial ratios reflect its challenging position. The debt-to-equity ratio stands at -3.14, indicating a negative equity position. The company’s current ratio is 1.85, and its quick ratio is 1.57, suggesting a reasonable ability to meet short-term obligations. However, the company’s reliance on its partnership with Medtronic and potential earnout payments remains crucial for its financial stability.
The company has a $35 million credit facility with Deerfield that was amended in 2023. As of September 30, 2024, the outstanding balance on this facility was $32.35 million, indicating limited remaining borrowing capacity.
Regulatory and Legal Challenges
In addition to its financial and operational challenges, Acutus has also faced regulatory and legal hurdles. In 2022, the company and certain of its current and former officers were named as defendants in two putative securities class action lawsuits, alleging violations of federal securities laws. While the courts ultimately dismissed these lawsuits with prejudice in 2024, the legal proceedings added to the company’s woes.
More recently, in February 2024, Acutus was involved in an arbitration dispute with Biotronik, a long-term partner with whom the company had various licensing, manufacturing, and distribution agreements. Biotronik alleged that Acutus breached its contractual obligations as a result of the wind-down of its businesses. This dispute was ultimately settled on October 15, 2024, with Acutus agreeing to make a settlement payment and potential contingent payments to Biotronik. The settlement also involved the termination of relevant agreements and a mutual release of all claims.
Outlook and Future Prospects
Acutus’ future prospects remain uncertain as the company navigates the challenges of its restructured business model. The company’s sole focus on manufacturing and distributing products for Medtronic leaves it heavily dependent on the success of this strategic partnership. If Medtronic’s sales of the left-heart access products falter or the expected earn-out payments fail to materialize, Acutus’ financial position could be further strained.
Additionally, the company’s delisting from the Nasdaq stock exchange in May 2024 and transition to trading on the OTC Pink Market under the symbol AFIB may make it more difficult for the company to access capital markets and attract investors. Acutus will need to carefully manage its cash resources and explore alternative financing options to ensure its long-term sustainability.
Despite the numerous obstacles Acutus has faced, the company’s expertise in the medical device industry and its continued partnership with Medtronic may provide some hope for its future. The significant increase in revenue and improvement in gross margin in recent quarters suggest that the restructured business model may be gaining traction. However, the road ahead remains challenging, and the company’s ability to navigate these turbulent waters will be crucial in determining its long-term prospects.
The success of Acutus’ partnership with Medtronic, particularly in terms of sales volume and potential earnout payments, will be a key factor in the company’s future financial performance. Additionally, the company’s ability to further improve manufacturing efficiencies and maintain positive relationships with key stakeholders will be critical as it continues to adapt to its new business model.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.