| Nature of Operations and Summary of Significant Accounting Policies | Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Axonics, Inc. (the Company) was incorporated in the state of Delaware on March 2, 2012 under the name American Restorative Medicine, Inc. The Company had no operations until October 1, 2013, when the license agreement between Alfred E. Mann Foundation for Scientific Research (AMF) and the Company (the License Agreement) was entered into. In August 2013, the Company changed its name to Axonics Modulation Technologies, Inc. In March 2021, the Company changed its name to Axonics, Inc. The Company is a medical technology company that develops and commercializes innovative and minimally invasive products to treat bladder and bowel dysfunction. The Company has designed and developed both rechargeable (R20) and recharge-free (F15) implantable sacral neuromodulation (SNM) systems, which deliver mild electrical pulses to the targeted sacral nerve in order to restore normal communication to and from the brain to reduce the symptoms of overactive bladder (OAB), urinary retention (UR) and fecal incontinence (FI). The Company’s products are protected by intellectual property based on Company-generated innovations and patents and other intellectual property licensed from AMF. The Company has regulatory marketing approvals in the United States for all relevant clinical indications. In Europe, Canada, and Australia, the Company has regulatory marketing approvals for most relevant clinical indications. The premarket approval (PMA) application for the Company’s first rechargeable SNM system for the treatment of FI was approved by the U.S. Food and Drug Administration (FDA) on September 6, 2019, and the PMA application for the first rechargeable SNM system for the treatment of OAB and UR was approved by the FDA on November 13, 2019. Accordingly, the Company began U.S. commercialization of its first rechargeable SNM system in the fourth quarter of 2019. Beginning in February 2021 with the acquisition of Contura Limited, the Company also markets Bulkamid, a urethral bulking agent to treat female stress urinary incontinence (SUI). Beginning in March 2022 with the FDA approval of the Company’s long-lived, recharge-free F15 SNM implantable stimulator, the Company now markets and sells the F15 recharge-free system to customers in the United States in addition to the rechargeable SNM system. The new recharge-free SNM system and Bulkamid are protected by intellectual property based on Company-generated innovations or patents acquired as part of the Contura acquisition. August 2022 Follow-On Offering On August 5, 2022, the Company completed a follow-on offering by issuing 2,012,500 shares of common stock, at an offering price of $63.85 per share, inclusive of 262,500 shares of the Company’s common stock issued upon the exercise by the underwriters of their option to purchase additional shares. The net proceeds to the Company were approximately $128.3 million, after deducting offering expenses payable by the Company. Acquisition of in-process research & development (IPR&D) from Radian, LLC In April 2023, the Company acquired the assets of Radian, LLC (the Seller), for total consideration of the issuance of 264,783 shares of common stock and a potential future milestone payment of up to $2.5 million (the Radian acquisition). The Company evaluated this acquisition in accordance with Accounting Standards Codification (ASC) 805, Business Combinations, to determine whether the asset acquired met the definition of a business. Included in the IPR&D is the historical know-how, software, formula protocols, designs, and procedures expected to be needed to complete the technology asset and receive regulatory approval. The Company concluded that the IPR&D is an identifiable intangible asset that would be accounted for as a single asset in a business combination. The Company also qualitatively concluded that there is no fair value associated with any other assets included in the acquisition. Therefore, all of the consideration in the transaction was allocated to the IPR&D. As such, the Company concluded that substantially all of the fair value of the gross assets acquired was concentrated in the single IPR&D asset and the set was not a business. The Company is planning to use the acquired IPR&D technology to provide a solution to make peripheral nerve evaluation lead placement easier, faster, and more accurate. Although the acquired technology may have utility in other medical procedures, future development decisions for the acquired technology will be contingent upon the receipt of required regulatory approvals. As such, the acquired technology does not have an alternative future use at the acquisition date. In accordance with ASC 730, Research and Development, the Company concluded the entire purchase price for the asset acquisition was an expense on the acquisition date. The consideration transferred at closing had an acquisition date fair value of $15.4 million based on a per share value of $58.34 on the acquisition date and was recognized immediately as IPR&D expense in the unaudited condensed consolidated statements of comprehensive loss for the nine months ended September 30, 2023. The potential future milestone payment of $2.5 million, payable in either cash or shares of common stock, will become payable upon the Company receiving from the FDA 510(k) clearance for the acquired IPR&D technology. Principles of Consolidation The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Axonics Europe, S.A.S., Axonics Modulation Technologies U.K. Limited, Axonics Modulation Technologies Australia Pty Ltd, Axonics Women’s Health Limited, Bulkamid SARL, Axonics GmbH, and Contura, Inc. Intercompany accounts and transactions have been eliminated in consolidation. Basis of Presentation and Liquidity Interim Financial Statements The unaudited interim condensed consolidated financial statements and related footnote disclosures as of and for the three and nine months ended September 30, 2023 are unaudited, and are not necessarily indicative of the Company’s operating results for a full year. The unaudited interim condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial results for the three and nine months ended September 30, 2023 in accordance with United States generally accepted accounting principles (GAAP), however, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (SEC) rules and regulations relating to interim financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included within the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (filed with the SEC on March 1, 2023). Liquidity The Company began full-scale commercialization of its first r-SNM System in late 2019. The Company has expended significant resources on research and development activities, growing its operations organization and building and training its sales organization. The Company incurred net losses of $12.7 million and $60.4 million for the nine months ended September 30, 2023 and 2022, respectively, and had an accumulated deficit of $386.9 million as of September 30, 2023 compared to $374.3 million at December 31, 2022. The Company expects to continue to spend a significant amount of its existing resources on sales and marketing activities as the Company continues to invest in commercializing and marketing its products in the United States and internationally. As of September 30, 2023, the Company had cash, cash equivalents, and short-term investments of $344.7 million compared to $357.2 million at December 31, 2022. The Company expects that its cash, cash equivalents, and short-term investments on hand will be sufficient to fund its operations through at least the next 12 months. The Company funds its operations through a combination of proceeds from public offerings of its common stock and cash receipts from sales of its products. As of September 30, 2023, the Company had no outstanding borrowings. The Company may need to raise additional financing in the future to facilitate its business operations. If the Company raises additional funds by issuing equity securities, its stockholders could experience dilution. Debt financing, if available, may involve covenants further restricting its operations or its ability to incur additional debt. Any debt financing or additional equity that the Company raises may contain terms that are not favorable to the Company or its stockholders. Additional financing may not be available at all, or in amounts or on terms acceptable to the Company. If the Company is unable to obtain additional financing when needed to satisfy its liquidity requirements, the Company may be required to scale back its operations. Use of Estimates The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. The results of this evaluation then form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates, and such differences may be material to the consolidated financial statements. Significant items subject to such estimates and assumptions include the useful lives of property and equipment and intangible assets, the valuation of deferred income tax assets and liabilities, the valuation of contingent consideration liability, the valuation of stock-based compensation, the product returns reserve, the inventory obsolescence reserve and accounts receivable allowance for credit losses. Revenue Recognition Revenue recognized during the nine months ended September 30, 2023 and 2022 relates entirely to the sale of the Company’s products to its customers and distributors. The Company has revenue arrangements that consist of a single performance obligation. The Company recognizes revenue at the point in time when it transfers control of promised goods to its customers. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as discounts, where applicable. The Company also sells to distributors and applies the same policies as its revenue arrangements with customers, specifically that revenue is recognized at the point in time when it transfers control of promised goods to its distributors. The Company does not offer rights of return or price protection. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Payment terms, typically less than three months, do not include a significant financing component. The Company extends credit to its customers and distributors based upon an evaluation of their financial condition and credit history and generally requires no collateral. The Company does not have any contract balances related to product sales. The Company also does not have significant contract acquisition costs related to product sales. In accordance with Company policy and based on the Company’s historical experience, the allowance for product returns was $0.2 million and $0.2 million at September 30, 2023 and December 31, 2022, respectively, and is recorded as a reduction of gross revenue in its unaudited condensed consolidated statements of comprehensive loss. Damaged or defective products are replaced at no charge under the Company’s standard warranty. For the three and nine months ended September 30, 2023, the replacement costs were minimal and $0.1 million, respectively. For the three and nine months ended September 30, 2022, the replacement costs were minimal and $0.1 million, respectively. The replacement costs are recorded within the sales and marketing expenses in its unaudited condensed consolidated statements of comprehensive loss. The Company offers its standard warranty to all customers. The Company does not sell any warranties on a standalone basis. The Company’s warranty provides that its products are free of material defects and conform to specifications, and includes an offer to repair, replace or refund the purchase price of defective products. This assurance does not constitute a service and is not considered a separate performance obligation. The Company estimates warranty liabilities at the time of revenue recognition and records it as a charge to sales and marketing expense. The warranty liability as of September 30, 2023 and December 31, 2022 was $0.1 million and $0.1 million, respectively. Shipping and handling costs incurred for the delivery of goods to customers and distributors are included in cost of goods sold. Amounts billed to customers and distributors for shipping and handling are included in net revenue. The following table provides additional information pertaining to net revenue disaggregated by product and geographic market for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended Nine Months Ended 2023 2022 2023 2022 SNM net revenue United States $ 72,212 $ 55,610 $ 198,270 $ 147,793 International markets 1,737 1,249 5,025 3,894 $ 73,949 $ 56,859 $ 203,295 $ 151,687 Bulkamid net revenue United States $ 15,579 $ 11,045 $ 41,998 $ 27,837 International markets 3,572 2,480 11,351 8,260 $ 19,151 $ 13,525 $ 53,349 $ 36,097 Total net revenue $ 93,100 $ 70,384 $ 256,644 $ 187,784 Allowance for Credit Losses The Company makes estimates of the collectability of accounts receivable in accordance with Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Company’s estimate of future credit losses is made by management based upon historical bad debts, customer receivable balances, age of customer receivable balances, customers’ financial conditions and reasonable forecasted economic trends. Despite the Company’s efforts to minimize credit risk exposure, customers could be adversely affected if future economic and industry trends change in such a manner as to negatively impact their cash flows. As a result, the Company’s future collection experience can differ significantly from historical collection trends. If the Company’s customers experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition. The following table summarizes the changes in our allowance for credit losses (in thousands): Nine Months Ended 2023 2022 Balance at beginning of period $ 321 $ 355 Write-offs (12) (74) Bad debt expense 71 17 Balance at end of period $ 380 $ 298 Cash and Cash Equivalents Cash equivalents consist of short-term, highly liquid investments purchased with a maturity of three months or less. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. At times, the cash and cash equivalent balances may exceed federally insured limits. The Company does not believe that this results in any significant credit risk as the Company’s policy is to place its cash and cash equivalents in highly-rated financial institutions. The Company also holds cash in foreign banks that are not federally insured. The Company has not experienced any losses on its deposits of cash and cash equivalents. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs are quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. • Level 3: Inputs are unobservable inputs based on the Company’s assumptions and valuation techniques used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation. Level 1 investments include U.S. government and agency securities, which are valued based on prices readily available in the active markets in which those securities are traded. Level 2 investments include commercial paper and corporate notes, which is valued on a recurring basis based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The Company’s assessment of the significance of an input to the fair value measurement requires judgment, which may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The carrying amounts reported in the unaudited condensed consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, and accounts payables, due to their short-term nature. The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the excess recorded as goodwill. The Company’s business combination of Contura Limited involved potential payment of future consideration that was contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones. A liability was recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration was remeasured at each reporting period, and the change in fair value was recognized within operating expenses in the consolidated statements of comprehensive loss. On February 25, 2021, the Company acquired Contura Limited and its Bulkamid product, a urethral bulking agent indicated for the treatment of female SUI. In consideration for the acquisition, the Company paid approximately $141.3 million in cash and issued 1,096,583 shares of our common stock. The agreement also provided that the Company may pay an additional $35 million in the event Bulkamid sales in any consecutive 12-month period exceed $50 million (the Milestone) before December 31, 2024, with payment due within 50 business days following the quarter in which the Milestone has been met. At March 31, 2023, the Milestone has been met and payment was made during the three months ended June 30, 2023. The fair value of contingent consideration of $32.6 million at December 31, 2022, is reflected in other current liabilities in the Company’s unaudited condensed consolidated balance sheets. The following table summarizes the changes in the fair value of recurring Level 3 fair value measurements during the nine months ended September 30, 2023 and 2022 (in thousands): Nine Months Ended 2023 2022 Liabilities Contingent consideration: Balance at beginning of period $ 32,600 $ 10,370 Change in fair value included in earnings (loss) 2,400 20,130 Payment made (35,000) — Balance at end of period $ — $ 30,500 There were no transfers between Levels 1, 2 or 3 for the periods presented. Investment Securities The Company classifies its investment securities as available-for-sale. Those investments in debt securities with maturities less than 12 months at the balance sheet date are considered short-term investments. Those investments in debt securities with maturities greater than 12 months at the balance sheet date are considered long-term investments. The Company’s investment securities classified as available-for-sale are recorded at fair value based on the fair value hierarchy (Level 1 and Level 2 inputs in the fair value hierarchy), and consists primarily of commercial paper, corporate notes and U.S. government and agency securities. Unrealized gains or losses, deemed temporary in nature, are reported as other comprehensive income (loss) within the unaudited condensed consolidated statements of comprehensive loss. There were no unrealized gains or losses during the three and nine months ended September 30, 2023 and 2022. A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to net income (loss) and the corresponding establishment of a credit loss allowance for the security. Premiums (discounts) are amortized (accreted) over the life of the related security as an adjustment to yield using the straight-line interest method. Dividend, accretion and interest income are recognized when earned. Realized gains or losses are included in net loss and are derived using the specific identification method for determining the cost of securities sold. The following table presents the fair value hierarchy for those assets measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands): Fair Value Measurements at September 30, 2023 Assets: Level 1 Level 2 Level 3 Total Commercial paper $ — $ 140,371 $ — $ 140,371 Corporate notes — 15,246 — 15,246 U.S. government and agency securities 121,307 — — 121,307 $ 121,307 $ 155,617 $ — $ 276,924 _____________________________________________ (1) As of September 30, 2023, commercial paper investments of $79.5 million is included in cash and cash equivalents on the unaudited condensed consolidated balance sheets, as the investments had a maturity of three months or less from the date of purchase . Fair Value Measurements at December 31, 2022 Assets: Level 1 Level 2 Level 3 Total Commercial paper $ — $ 175,548 $ — $ 175,548 Corporate notes — 4,675 — 4,675 U.S. government and agency securities 75,212 — — 75,212 $ 75,212 $ 180,223 $ — $ 255,435 _____________________________________________ (1) As of December 31, 2022, commercial paper investments of $131.1 million, U.S. government and agency securities of $4.0 million, and corporate notes of $2.0 million are included in cash and cash equivalents on the unaudited condensed consolidated balance sheets, as the investments had a maturity of three months or less from the date of purchase . The Company holds investments in marketable debt securities that are classified and accounted for as cash equivalents or available-for-sale and are remeasured on a recurring basis. All of the Company’s available-for-sale debt securities are classified on the unaudited condensed consolidated balance sheets as cash equivalents or short-term investments. The following table summarizes the Company’s cash equivalents and investments in available-for-sale debt securities by significant investment category as of September 30, 2023 and December 31, 2022 (in thousands): September 30, 2023 Cost Unrealized gains Unrealized losses Fair value Cash equivalents: Commercial paper $ 79,531 $ — $ — $ 79,531 Corporate notes — — — — U.S. government and agency securities — — — — Total cash equivalents $ 79,531 $ — $ — $ 79,531 Short-term investments: Commercial paper $ 60,840 $ — $ — $ 60,840 Corporate notes 15,267 2 (23) 15,246 U.S. government and agency securities 121,321 1 (15) 121,307 Total short-term investments $ 197,428 $ 3 $ (38) $ 197,393 Total $ 276,959 $ 3 $ (38) $ 276,924 December 31, 2022 Cost Unrealized gains Unrealized losses Fair value Cash equivalents: Commercial paper $ 131,075 $ — $ — $ 131,075 Corporate notes 2,013 — — 2,013 U.S. government and agency securities 3,982 — — 3,982 Total cash equivalents $ 137,070 $ — $ — $ 137,070 Short-term investments: Commercial paper $ 44,473 $ — $ — $ 44,473 Corporate notes 2,664 — (2) 2,662 U.S. government and agency securities 71,342 6 (118) 71,230 Total short-term investments $ 118,479 $ 6 $ (120) $ 118,365 Total $ 255,549 $ 6 $ (120) $ 255,435 Inventory, Net Inventories are stated at the lower of cost or net realizable value, with cost computed on a first-in, first-out basis. The Company reduces the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments, or other economic factors. The Company capitalizes inventory produced for commercial sale. The Company capitalizes manufacturing costs as inventory following both the receipt of regulatory approval from regulatory bodies and the Company’s intent to commercialize. Costs associated with developmental products prior to satisfying the Company’s inventory capitalization criteria are charged to research and development expenses as incurred. Products that have been approved by certain regulatory authorities may also be used in clinical programs to assess the safety and efficacy of the products for usage that have not been approved by the FDA or other regulatory authorities. The form of product utilized for both commercial and certain clinical programs that are identical are included as inventory with an “alternative future use” as defined in authoritative guidance. Component materials and purchased products associated with clinical development programs are included in inventory and charged to research and development expenses when the product enters the research and development process and no longer can be used for commercial purposes and, therefore, does not have an “alternative future use.” For products that are under development and have not yet been approved by regulatory authorities, purchased component materials are charged to research and development expenses when the inventory ownership transfers to the Company. The Company analyzes inventory levels to identify inventory that may expire prior to sale, inventory that has a cost basis in excess of its net realizable value, or inventory in excess of expected sales requirements. Although the manufacturing of the Company’s SNM systems is subject to strict quality control, certain batches or units of product may no longer meet quality specifications or may expire, which would require adjustments to the Company’s inventory values. The Company also applies judgment related to the results of quality tests that are performed throughout the production process, as well as the understanding of regulatory guidelines, to determine if it is probable that inventory will be saleable. These quality tests are performed throughout the pre- and post-production processes, and the Company continually gathers information regarding product quality for periods after the manufacturing date. The Company’s products currently have a maximum estimated shelf life range of 12 to 36 months and based on sales forecasts, the Company expects to realize the carrying value of the product inventory. In the future, reduced demand, quality issues, or excess supply beyond those anticipated by management may result in a material adjustment to inventory levels, which would be recorded as an increase to cost of sales. The determination of whether inventory costs will be realizable or not requires estimates by the Company’s management. A critical input in this determination is future expected inventory requirements based on internal sales forecasts. Management then compares these requirements to the expiry dates of inventory on hand. To the extent that inventory is expected to expire prior to being sold, management will write down the value of inventory. As of September 30, 2023, the Company had $45.1 million, $7.9 million and $21.9 million of finished goods inventory, work-in-process inventory and raw materials inventory, respectively, net of reserves of $0.7 million. As of December 31, 2022, the Company had $30.4 million, $5.7 million and $19.7 million of finished goods inventory, work-in-process inventory and raw materials inventory, respectively, net of reserves of $0.5 million. Foreign Currency Translation The functional currencies of the Company’s subsidiaries are currencies other than the U.S. dollar. The Company translates assets and liabilities of the foreign subsidiaries into U.S. dollars at the exchange rate in effect on the balance sheet date. Revenue and expenses of the subsidiaries are translated into U.S. dollars at the average exchange rate during the period. Gains or losses from these translation adjustments are reported as a separate component of stockholders’ equity in accumulated other comprehensive gain or loss until there is a sale or complete or substantially complete liquidation of the Company’s investment in the foreign subsidiary at which time the gains or losses will be realized and included in net income (loss). As of September 30, 2023 and December 31, 2022, all foreign currency translation gains (losses) have been unrealized and included in accumulated other comprehensive loss. Customer and Vendor Concentration As of September 30, 2023 and December 31, 2022, there were no customers who accounted for over 10% of the Company’s consolidated accounts receivable. As of September 30, 2023 and December 31, 2022, there were three vendors and one vendor, respectively, who accounted for over 10% of the Company’s consolidated accounts payable. During the three and nine months ended September 30, 2023 and 2022, there were no customers who accounted for over 10% of the Company’s consolidated net revenue. During the three and nine months ended September 30, 2023, there were three vendors and three vendors, respectively, who accounted for over 10% of the Company’s inventory-related purchases. During the three and nine months ended September 30, 2022, there were three vendors and three vendors, respectively, who accounted for over 10% of the Company’s inventory-related purchases. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three Goodwill Goodwill represents the excess purchase price over the fair values of both tangible and intangible assets acquired less the liabilities assumed. Goodwill is tested for impairment at the reporting unit level by comparing the reporting unit’s carrying amount to the fair value of the reporting unit. The fair values are estimated using an income and discounted cash flow approach. The Company evaluates its goodwill on an annual basis in the fourth quarter or more frequently if it believes indicators of impairment exist. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or performs an annual impairment test. When tested quantitatively, the Company compares the fair value of the applicable reporting unit with its carrying value. In making this assessment, management relies on a number of factors, including expected future operating results, business plans, economic projections, anticipated future cash flows, business trends and declines in the Company’s market capitalization. The Company estimates the fair value of its reporting unit using a combination of the discounted cash flow and income approaches. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value exceeds the fair value is recognized as an impairment loss. During the nine months ended September 30, 2023 and 2022, the Company did not |
