Nevro Corp, a global medical device company, has been at the forefront of delivering comprehensive, life-changing solutions for the treatment of chronic pain. With a strong focus on research and development, the company has consistently pushed the boundaries of innovation in the spinal cord stimulation (SCS) market, providing patients with cutting-edge therapies that address their unique pain management needs.
Company Background and History
Founded in 2006, Nevro has a rich history of driving advancements in the chronic pain treatment landscape. The company's flagship product, the Senza SCS system, has been commercially available in the United States since May 2015, after receiving a label from the U.S. Food and Drug Administration (FDA) supporting the superiority of its 10 kHz Therapy over traditional SCS. The Senza system has also been available in certain European markets since November 2010 and in Australia since August 2011. Notably, Senza is currently reimbursed by all of the major insurance providers, which has significantly contributed to its market penetration.
Key Milestones and Achievements
In 2021, Nevro achieved a significant milestone with the FDA approval of its 10 kHz Therapy for the management of chronic intractable pain of the lower limbs, including unilateral or bilateral pain, associated with painful diabetic neuropathy (PDN). This approval marked the first spinal cord stimulation system specifically indicated to treat PDN, further solidifying Nevro's position as an innovator in the field. Additionally, the company has received expanded labeling for non-surgical back pain in the United States, broadening its potential patient base.
In September 2024, Nevro reached another milestone with the FDA approval and limited market release of HFX iQ with HFX AdaptivAI, an AI-powered SCS system. This innovative platform leverages artificial intelligence and a proprietary data set of over 100 million data points to deliver customized, data-driven pain relief to patients.
Challenges and Strategies
Throughout its history, Nevro has faced and overcome various challenges. The company has made substantial investments in building its U.S. commercial infrastructure and sales force to support its commercialization efforts. This has been crucial in establishing a strong market presence and driving adoption of its technologies. Nevro has also dedicated significant resources to navigating reimbursement decisions by third-party payors, requiring substantial efforts to ensure positive coverage decisions for its products.
Another area of focus for Nevro has been supply chain and inventory management. The company's products are composed of a substantial number of individual components, some of which are sourced from single-source suppliers. This complexity necessitates careful management to ensure product availability and mitigate potential supply chain disruptions.
Financial Performance
Nevro's financial performance has been characterized by a mix of challenges and successes. In the third quarter of 2024, the company reported worldwide revenue of $96.9 million, a 6.7% decrease from the prior-year period on a reported basis and a 7% decrease on a constant-currency basis. This decline was primarily driven by competitive pressures in the U.S. SCS market and ongoing softness in the core U.S. SCS market. The decrease in revenue was primarily due to a 15.2% decline in U.S. SCS trial procedures. However, the company's net loss from operations narrowed to $13.9 million, compared to $25.6 million in the same quarter of 2023, reflecting the impact of its restructuring efforts earlier in the year.
For the first nine months of 2024, Nevro reported total revenue of $303.0 million, down 2% year-over-year. U.S. revenue was $261.6 million, a 1% decrease from the same period in 2023, while international revenue was $41.4 million, down 6% year-over-year. Gross profit for this period was $203.6 million, with a gross margin of 67%, representing a 2 percentage point decrease compared to the same period in 2023. This decrease was primarily due to a one-time $6.0 million supplier renegotiation charge, as well as higher consumables and absorption costs, partially offset by lower product costs from the company's Costa Rica manufacturing facility.
Operating expenses decreased 6% year-over-year to $278.4 million in the first nine months of 2024, driven by reductions in sales, general and administrative expenses, particularly legal, marketing, and personnel costs, as well as a decrease in R&D spending.
In the most recent fiscal year (2023), Nevro reported revenue of $425.17 million, with a net loss of $92.21 million. Operating cash flow was negative $58.83 million, and free cash flow was negative $67.42 million.
Liquidity and Financial Position
Nevro's financial position remains strong, with cash, cash equivalents, and short-term investments of $277 million as of September 30, 2024. The company has taken proactive steps to manage its cost structure, implementing two restructurings in the first half of 2024 that are expected to generate over $30 million in annualized run-rate savings.
The company's debt-to-equity ratio stands at 0.812, while its current ratio and quick ratio are 5.02 and 3.76, respectively, indicating a solid liquidity position. In November 2023, Nevro entered into a $200 million credit agreement with Braidwell LP, further strengthening its financial flexibility.
Innovation and Product Development
Despite the short-term headwinds, Nevro remains focused on executing its strategy to drive sustainable growth and profitability. The company's core product offering is the HFX spinal cord stimulation (SCS) platform, which includes the Senza SCS system. The Senza system delivers Nevro's proprietary 10 kHz Therapy, which was demonstrated in the SENZA randomized controlled trial to be superior to traditional SCS therapy, being nearly twice as successful in treating back pain and 1.5 times as successful in treating leg pain.
In 2023, Nevro expanded its chronic pain portfolio with the acquisition of Vyrsa Technologies, which developed a portfolio of sacroiliac (SI) joint fusion devices. This acquisition allows Nevro to enter the growing SI joint dysfunction market, leveraging its existing sales force and customer base.
Future Outlook and Growth Opportunities
Looking ahead, Nevro is well-positioned to capitalize on the growing demand for innovative pain management solutions. The company's diversification strategy, which includes expanding into the sacroiliac (SI) joint fusion market, and its focus on driving market penetration in the underpenetrated painful diabetic neuropathy (PDN) segment, offer promising avenues for future growth.
The global SCS market is estimated to be approximately $2.3 billion and is expected to grow at a CAGR of 8-10% over the next 5 years, driven by the aging population, increasing prevalence of chronic pain conditions, and advancements in SCS technology.
For the full year 2024, Nevro is maintaining its worldwide revenue guidance of approximately $400 million to $405 million, representing an approximately 5% to 6% decrease from 2023 worldwide revenue 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. Operating expenses are projected to be approximately $369.1 million, down $20.2 million or 5.2% from 2023. Nevro 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 range of negative $20 million to negative $18 million.
Risks and Challenges
However, Nevro is not without its challenges. The company continues to face competitive pressures in the SCS market, as well as potential reimbursement hurdles for its newer indications. Additionally, the company's reliance on third-party suppliers and the potential for inventory obsolescence and expiration pose ongoing risks.
Nevro is working to improve commercial execution, including optimizing sales territories and increasing direct-to-consumer advertising, to address the decline in U.S. SCS trial procedures.
Conclusion
Despite these challenges, Nevro's commitment to innovation, its robust clinical evidence, and its strong financial position make it a compelling player in the chronic pain management space. As the company continues to execute on its strategic priorities, investors will be closely watching its ability to navigate the evolving market dynamics and deliver sustainable shareholder value. With its focus on expanding into new markets, driving adoption of its 10 kHz Therapy, and managing costs to improve profitability, Nevro is positioning itself for long-term success in the growing chronic pain management industry.