PULMONX CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections of this Quarterly Report entitled "Forward-Looking Statements" and "Risk Factors," under Part II, Item 1A and those discussed in our Annual Report on Form 10-K for the year endingDecember 31, 2021 filed with theSecurities and Exchange Commission ("SEC") onMarch 1, 2022 .
Insight
We are a commercial-stage medical technology company that provides a minimally invasive treatment for patients with severe emphysema, a form of chronic obstructive pulmonary disease ("COPD"). Our solution, which is comprised of the Zephyr Endobronchial Valve ("Zephyr Valve"), the Chartis Pulmonary Assessment System ("Chartis System") and the StratX Lung Analysis Platform ("StratX Platform"), is designed to treat severe emphysema patients who, despite medical management, are still profoundly symptomatic and either do not want or are ineligible for surgical approaches. We estimate our solution currently addresses approximately 500,000 patients inthe United States and 700,000 patients in select international markets, which represents a global market opportunity of approximately$12 billion . We have a compelling body of clinical evidence with over 100 scientific articles published regarding the clinical benefits of Zephyr Valves, including inThe New England Journal of Medicine ,The Lancet and theAmerican Journal of Respiratory and Critical Care Medicine . Multiple randomized controlled clinical trials have demonstrated that patients selected with the Chartis System and successfully treated with Zephyr Valves have shown statistically and clinically significant improvements in lung function, exercise capacity and quality of life compared to medical management alone. InJune 2018 , we received pre-market approval ("PMA") by theU.S. Food and Drug Administration ("FDA") as a result of our breakthrough technology designation. The Zephyr Valve is now commercially available in more than 25 countries, with over 100,000 valves used to treat more than 25,000 patients. We have established reimbursement in major markets inNorth America ,Europe andAsia Pacific and the Zephyr Valve has been included in treatment guidelines for COPD worldwide. We market and sell our products inthe United States through a direct sales organization. Our sales territory managers are focused on promoting awareness and increasing adoption of our solution primarily among the pulmonologists performing interventional pulmonary procedures across approximately 500 high volume hospitals inthe United States . We are expanding our commercial operations inthe United States while continuing to foster our international growth. We employ both direct and distributor-based sales models, with over 90% of our revenue generated in markets where we sell directly. Inthe United States , our solution is reimbursed based on established Category I Current Procedural Terminology ("CPT") and ICD-10 Procedure Coding System ("PCS") codes and associated APC and MS-DRG payment groupings. Current reimbursement inthe United States is believed to cover the hospital costs of the procedure and related inpatient care. Commercial payors such as Aetna, Humana, and many of the largestBlue Cross Blue Shield plans including Anthem,Health Care Service Corporation , and BCBS Michigan have issued positive coverage policies for the Zephyr Valve, andUnited Healthcare no longer considers the procedure unproven or experimental. Medicare covers our solution for patients when medically necessary, and other commercial insurers are approving pre-authorization requests on a case-by-case basis. Outsidethe United States , our solution is covered by major health systems across much ofEurope ,Australia andSouth Korea . 27
-------------------------------------------------------------------------------- We manufacture all our products at our headquarters located inRedwood City, California . This facility supports production and distribution operations, including manufacturing, quality control, raw material and finished goods storage. We have manufactured all our products at this facility for over ten years. We also store finished goods at secondary facilities. We seek to maintain higher levels of inventory to protect ourselves from supply interruptions and have an established distribution system for bothU.S. and international customers. To date, we have financed our operations primarily through the sale of equity securities, debt financing arrangements and sales of our products. We have devoted substantially all of our resources to research and development activities related to our solution, including clinical and regulatory initiatives to obtain marketing approval, sales and marketing activities, and investing in general and administrative infrastructure. We generated revenue of$13.5 million , with a gross margin of 75.2% and a net loss of$14.2 million , for the three months endedSeptember 30, 2022 compared to revenue of$13.3 million , with a gross margin of 73.4% and a net loss of$10.2 million , for the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , we generated revenue of$38.2 million , with a gross margin of 75.0% and a net loss of$44.6 million , compared to revenue of$34.7 million , with a gross margin of 73.1% and a net loss of$35.7 million , for the nine months endedSeptember 30, 2021 . As ofSeptember 30, 2022 , we had an accumulated deficit of$336.0 million , cash, cash equivalents and marketable securities of$156.9 million , and$17.4 million of outstanding term loans and credit agreements, net of debt discount and debt issuance costs. We have invested heavily in product development. Our research and development activities have been centered on driving continuous improvements to our solution. We have also made significant investments in clinical studies to demonstrate the safety and efficacy of the Zephyr Valve and to support regulatory submissions. We intend to make significant investments building our sales and marketing organization by increasing the number of sales territory managers and continuing our marketing efforts in existing and new markets throughoutthe United States ,Europe andAsia Pacific . We also intend to continue to make investments in research and development efforts to develop our next generation products and support our future regulatory submissions to increase our addressable market and to expand indications and new markets. Because of these and other factors, we expect to continue to incur net losses for the next several years and we expect to require substantial additional funding, which may include future equity and debt financings.
Management believes that the Company’s existing cash, cash equivalents and marketable securities will enable the Company to continue its operations for at least the next 12 months from the date of publication of our condensed consolidated financial statements.
Impact of the COVID-19 pandemic
The COVID-19 pandemic has delayed clinical trials and FDA operations and adversely impacted the number of procedures performed using our products. As a result, the COVID-19 pandemic and the measures taken by many countries in response have materially adversely affected, and could in the future materially adversely affect, our business, financial condition and results of operations, as well as the price of our common stock, from a decrease and delay of procedures involving our products. While the Company has seen a recovery in procedure volumes in theU.S. and some international markets, other international markets continue to be hampered by a slower recovery. We are encouraged for the longer term, and we believe the following key indicators are contributing to the stabilization of our business:
•continued to open new accounts;
•strong participation of doctors in training;
•a strong patient pipeline evidenced by StratX reporting activity, patient calls to hospitals to inquire about our procedure, and patient calls to our reimbursement helpdesk; and
•a resumption of elective procedures in hospitals and centres.
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Despite signs of our business resuming, we cannot be certain that a recovery will be sustainable, or that a further resurgence of COVID-19 or virus variants will not occur.
Further, we cannot assure you that our recent volume of Zephyr Valves sold are indicative of future results. The number of Zephyr Valves sold in the future may decrease due to a resurgence of the COVID-19 pandemic. In addition, there may be limited provider capacity due to labor shortages, or for other reasons, which could limit the ability of patients to receive treatment with Zephyr Valves. Limited provider and hospital capacity has had a material adverse effect on our business, financial condition and results of operations and may continue to materially adversely affect us even as the pandemic subsides. The extent of the impact of COVID-19, including the macroeconomic conditions, on our future operational and financial performance will depend on certain developments, which are highly uncertain and cannot be predicted, including impact on employees, clinical trials and procedure volumes, new information which may emerge concerning the severity and spread of COVID-19 and variant strains, governmental and societal response to contain and treat COVID-19 and variant strains, and the availability and distribution of vaccines and public acceptance of vaccines, among others.
For more information on the risks, uncertainties and potential impacts related to the COVID-19 pandemic that could affect our business, financial condition and results of operations, please refer to Part II, item 1A, “Risk Factors” of this Quarterly Report on Form 10. -Q.
Factors Affecting Our Business and Results of Operations
We believe there are several important factors that have impacted and that we expect will continue to impact our business and results of operations. These factors include:
Our ability to recruit, train and retain our sales force and its productivity
We have made, and intend to continue to make, significant investments in recruiting, training and retaining our direct sales force. This process requires significant education and training for our sales personnel to achieve the level of technical competency with our products that is expected by physicians and to gain experience building demand for our products. Upon completion of the training, our sales personnel typically require time in the field to grow their network of accounts and increase their productivity to the levels we expect. Successfully recruiting, training and retaining additional sales personnel will be required to achieve growth. In addition, inability to attract qualified sales personnel or the loss of any productive sales personnel would have a negative impact on our ability to grow our business. We have in the past and expect in the future to enter into different compensation arrangements with our sales professionals, which include minimum guaranteed commissions. This has impacted our compensation expenses in the past and we expect it will do so in the future.
Awareness and acceptance of our solution by doctors, patients and hospitals
Our goal is to establish our solution as a standard of care for severe emphysema. We intend to continue to promote awareness of our solution through training and educating physicians, pulmonary rehabilitation centers, key opinion leaders and various medical societies on the proven clinical benefits of Zephyr Valves. In addition, we intend to continue to publish additional clinical data in various industry and scientific journals and online and to present at various industry conferences. We plan to continue building patient awareness through our direct-to-patient marketing initiatives, which include advertising, social media and online education. We also intend to continue helping physicians in their outreach to patients and other healthcare providers. These efforts require significant investment by our marketing and sales organization, and vary depending upon the physician's practice specialization, and personal preferences and geographic location of physicians, pulmonary rehabilitation centers and patients. In order to grow our business, we will need to continue to make significant investments in training and 29 --------------------------------------------------------------------------------
educate hospitals, doctors and patients on the benefits of our solution for the treatment of severe emphysema.
Reimbursement by a third party
Since achieving regulatory approval inthe United States inJune 2018 , we have launched the Zephyr Valve treatment and have made progress securing third-party payor reimbursement. The majority of our patients are Medicare beneficiaries. We estimate that roughly 75% of the potential Zephyr Valve patient population are Medicare/Medicaid beneficiaries, of which approximately 30% have managed Medicare/Medicaid and the remaining 45% have traditional Medicare/Medicaid. Approximately 25% of the potential Zephyr Valve patient population is under third-party commercial payor policies. A key element of our strategy remains to broaden our coverage by private third-party payor policies. Commercial payors such as Aetna, Humana, and many of the largestBlue Cross Blue Shield plans including Anthem,Health Care Service Corporation , and BCBS Michigan have issued positive coverage policies for the Zephyr Valve, andUnited Healthcare no longer considers the procedure unproven or experimental. Some commercial payors do not yet consider our solution medically necessary, but these same plans are approving pre-authorization requests on a case-by-case basis. Medicare, currently without a public coverage policy, covers our solution for patients when medically necessary on a case-by-case basis and other commercial insurers not described above are approving pre-authorization requests on a case-by-case basis. We have a dedicated patient reimbursement support team inthe United States that works collaboratively with patients and providers to help secure the appropriate prior authorization approvals in advance of treatment. We continue to educate private insurers inthe United States on our clinical data and patient selection tools in an effort to continue to expand the number of positive coverage policies, in order to increase our revenue. Outsidethe United States , our solution is covered by major health systems across much ofEurope ,Australia andSouth Korea . Competition Our industry is highly competitive and subject to rapid change from the introduction of new products and technologies and other activities of industry participants. Our goal is to establish our solution as a standard of care for severe emphysema. Existing treatments include medical management, lung volume reduction surgery ("LVRS"), lung transplantation as well as other minimally invasive treatments. Some of our competitors have several competitive advantages, including established relationships with pulmonologists who commonly treat patients with emphysema, significantly greater name recognition and significantly greater sales and marketing resources. In addition to competing for market share, we also compete against these companies for personnel, including qualified sales and other personnel that are necessary to grow our business. Certain of our competitors may challenge our intellectual property, may develop additional competing or superior technologies and processes and compete more aggressively and sustain that competition over a longer period of time than we could. In addition to existing competitors, other companies may acquire or in-license competitive products and could directly compete with us. We must continue to successfully compete in light of our competitors' existing and future products and related pricing and their resources to successfully market to the physicians who use our products.
Leveraging our manufacturing capacity is key to improving our gross margin
With our current operating model and infrastructure, we have the capacity to significantly increase our manufacturing production. If we grow our revenue and sell more units, our fixed manufacturing costs will be spread over more units, which we believe will reduce our manufacturing costs on a per-unit basis and in turn improve our gross margin. In addition, we intend to continue investing in manufacturing efficiencies in order to reduce our overall manufacturing costs. However, other factors will continue to impact our gross margins such as geographic mix, pricing and customer discounts, incentives, support services and potential seasonality.
Invest in research and development to drive innovation to expand our addressable market
We intend to continue investing in existing and next generation technologies to further improve our products and clinical outcomes, enhance patient selection and broaden the patient population that can be treated with our products. 30 --------------------------------------------------------------------------------
Additionally, we continue to invest in the accuracy and functionality of our patient assessment tools. Additionally, we are conducting clinical research on AeriSeal, a potential product in development for the treatment of patients with severe emphysema who do not qualify for Zephyr valve therapy due to excessive collateral ventilation.
While research and development and clinical testing are time consuming and costly, we believe that a pipeline of new products and product enhancements that improve efficacy, safety and cost effectiveness is critical to increasing the adoption of our solution. Seasonality Historically, we have experienced seasonality outside ofthe United States , primarily in the first and third quarters and anticipate this trend to continue. In addition, as our sales grow inthe United States , we may experience seasonality based on holidays, vacations and other factors because this is an elective procedure.
Components of our operating results
Revenue
We currently derive substantially all our revenue from the sale of our products to hospitals and distributors. We market and sell our products through a direct sales organization inthe United States and through direct sales and several third-party distributors in select markets outsidethe United States . We currently generate most of our revenue from the sales of Zephyr Valves and delivery catheters. We also generate a smaller amount of our revenue from our Chartis System, which is comprised of sales of the balloon catheters, usage fees and sales of the Chartis console. The StratX Platform, while used to identify patients eligible for treatment with Zephyr Valves, does not independently generate any revenue for us. No single customer accounted for more than 10% of our revenue during the three and nine months endedSeptember 30, 2022 andSeptember 30, 2021 . Revenue from sales of our products fluctuates based on volume of cases (procedures performed), the average number of Zephyr Valves used for a patient, pricing, discounts, incentives and mix ofU.S. and international sales. Our revenue also fluctuates and in the future will continue to fluctuate from quarter-to-quarter due to a variety of factors, including the availability of reimbursement, the size and success of our sales force, the number of hospitals and physicians who are aware of and perform the procedures using our solution and seasonality. Our revenue from international sales may also be impacted by fluctuations in foreign currency exchange rates between theU.S. dollar (our reporting currency) and the local currency.
Cost of Goods Sold and Gross Margin
Cost of goods sold consists primarily of payroll and personnel-related expenses for our manufacturing and quality assurance employees, costs related to materials, components and subassemblies, third-party costs, manufacturing overhead, equipment depreciation, charges for excess, obsolete and non-sellable inventories. Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision and management and an allocation facilities overhead cost, including rent and utilities. Cost of goods sold also includes certain direct costs such as those incurred for shipping our products and costs related to providing analysis services for patient scans. We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. We expect cost of goods sold to increase in absolute dollars to the extent more of our products are sold. We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily by our manufacturing costs, pricing pressures and, to a lesser extent, the percentage of products we sell inthe United States versus internationally and the percentage of products we sell to distributors versus directly to hospitals. Our gross margin is typically higher on products we sell directly to hospitals as compared to products we sell through distributors. 31 -------------------------------------------------------------------------------- Our gross margin may increase over the long term to the extent our production volume increases as our fixed manufacturing costs would be spread over a larger number of units, thereby reducing our per-unit manufacturing costs. We expect our gross margin to fluctuate from period to period, however, based upon the factors described above and seasonality.
Functionnary costs
Our operating expenses consist solely of research and development expenses and selling, general and administrative expenses.
Research and development costs
Our research and development activities primarily consist of engineering and research programs associated with our products under development and improvements to our existing products. Research and development expenses include payroll and personnel-related costs for our research and development employees, including expenses related to stock-based compensation, for employees engaged in research and development, consulting services, clinical trial expenses, prototyping, testing, laboratory supplies, and an allocation of facility overhead costs. Our clinical trial expenses include costs associated with clinical trial design, clinical trial site development and study costs, data management costs, related travel expenses, and the cost of products used for clinical activities. We expense research and development costs as they are incurred. We expect our research and development expenses, including related stock-based compensation expense, to increase in absolute dollars as we hire additional personnel to develop new product offerings and product enhancements.
Selling, general and administrative expenses
Our selling, general and administrative expenses consist of payroll and personnel-related costs for our sales and marketing personnel, including variable sales compensation, travel expenses, consulting, public relations costs, direct marketing, customer training, trade show and promotional expenses, stock-based compensation and allocated facility overhead costs, and for administrative personnel that support our general operations such as information technology, executive management, financial accounting, customer services and human resources personnel. We expense sales variable compensation at the time of the sale. Selling, general and administrative expenses also include costs attributable to professional fees for legal and accounting services, insurance, consulting fees, recruiting fees, travel expense, bad debt expense and depreciation. We intend to continue to increase our sales and marketing spending to generate sales opportunities. We expect expenses to increase in absolute dollars as we increase our sales support infrastructure and add additional marketing programs in order to more fully penetrate the global opportunity. We also expect our administrative expenses, including stock-based compensation expense, to increase as we increase our headcount and expand our facilities and information technology to support our operations as a public company. Additionally, we anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with being a public company, compliance with exchange listing andSEC requirements, director and officer insurance premiums and investor relations costs. We also saw an increase in our stock-based compensation expense with the establishment of our 2020 Equity Incentive Plan and related grants either in the form of restricted stock units or options. Our selling, general and administrative expenses may fluctuate from period to period due to the seasonality of our business and as we continue to add direct sales territory managers in new territories.
Expenses and interest income
Interest expense consists primarily of interest expense related to our term loan facilities, including amortization of debt discount and issuance costs. Interest income is predominantly derived from investing surplus cash in money market funds and marketable securities. 32 --------------------------------------------------------------------------------
Other income (expenses), net
Other income (expenses), net, consists mainly of exchange gains and losses.
Results of operations:
Comparison of the three months ended
The following table summarizes our results of operations for the period indicated: Three Months Ended September 30, 2022 2021 $ Change % Change (in thousands) Revenue$ 13,502 $ 13,261 $ 241 1.8 % Costs of goods sold 3,350 3,522 (172) (4.9) % Gross profit 10,152 9,739 413 4.2 % Operating expenses: Research and development 4,366 2,815 1,551 55.1 % Selling, general and administrative 19,717 16,686 3,031 18.2 % Total operating expenses 24,083 19,501 4,582 23.5 % Loss from operations (13,931) (9,762) (4,169) 42.7 % Interest income 477 99 378 381.8 % Interest expense (286) (207) (79) 38.2 % Other income (expense), net (432) (267) (165) 61.8 % Net loss before tax (14,172) (10,137) (4,035) 39.8 % Income tax expense - 44 (44) (100.0) % Net loss$ (14,172) $ (10,181) $ (3,991) 39.2 % Revenue Revenue increased by$0.2 million , or 1.8%, to$13.5 million during the three months endedSeptember 30, 2022 , compared to$13.3 million during the three months endedSeptember 30, 2021 . The sale of products inthe United States increased by$1.5 million to$8.4 million during the three months endedSeptember 30, 2022 , compared to$6.9 million for the three months endedSeptember 30, 2021 . The sale of products in international markets decreased by$1.3 million to$5.1 million during the three months endedSeptember 30, 2022 , compared to$6.4 million for the three months endedSeptember 30, 2021 . The increase inU.S. revenue reflects continued growth of Zephyr Valve procedure volumes inthe United States , while the decrease in international revenue reflects lower international procedure volumes and the impact of foreign currency exchange rates.
Cost of Goods Sold and Gross Margin
Cost of goods sold decreased by$0.2 million , or 4.9%, to$3.3 million during the three months endedSeptember 30, 2022 , compared to$3.5 million during the three months endedSeptember 30, 2021 . Gross margin was 75.2% during the three months endedSeptember 30, 2022 and 73.4% during the three months endedSeptember 30, 2021 . The increase was primarily due to improved production efficiencies in the three months endedSeptember 30, 2022 .
Research and development costs
Research and development costs increased by
33 -------------------------------------------------------------------------------- increase in research and development expense was primarily due to increases of$0.7 million in personnel related expenses including stock-based compensation as we invested in research and development activities,$0.6 million in testing expenses, and$0.3 million in regulatory and other expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by$3.0 million , or 18.2%, to$19.7 million during the three months endedSeptember 30, 2022 , compared to$16.7 million during the three months endedSeptember 30, 2021 . The increase in selling, general and administrative expenses was primarily due to$1.6 million of payroll and personnel-related expenses including stock-based compensation for our sales, marketing and administrative personnel, an increase of$0.9 million in marketing expenses, an increase of$0.4 million in global travel and conference related expenses, and an increase of$0.3 million in software and facility related expenses. These increases were offset by a decrease of$0.2 million in consulting and other expenses.
Expenses and interest income
Interest expense increased by$0.1 million to$0.3 million during the three months endedSeptember 30, 2022 compared to$0.2 million for the three months endedSeptember 30, 2021 due to constant outstanding debt principal and higher interest rates. Interest income increased by$0.4 million to$0.5 million for the three months endedSeptember 30, 2022 compared to$0.1 million for the three months endedSeptember 30, 2021 , primarily due to an increase in interest income as a result of higher returns on cash, cash equivalents and marketable securities balances.
Other income (expenses), net
Other income (expense), net decreased by$0.2 million to($0.4) million during the three months endedSeptember 30, 2022 , compared to$(0.3) million during the three months endedSeptember 30, 2021 , primarily due to foreign currency exchange losses.
Comparison of the nine months ended
The following table summarizes our results of operations for the period indicated: Nine months ended 2022 2021 $ Change % Change (in thousands) Revenue$ 38,237 $ 34,708 $ 3,529 10.2 % Costs of goods sold 9,556 9,329 227 2.4 % Gross profit 28,681 25,379 3,302 13.0 % Operating expenses: Research and development 11,494 9,355 2,139 22.9 % Selling, general and administrative 61,197 50,962 10,235 20.1 % Total operating expenses 72,691 60,317 12,374 20.5 % Loss from operations (44,010) (34,938) (9,072) 26.0 % Interest income 781 306 475 155.2 % Interest expense (707) (630) (77) 12.2 % Other income (expense), net (597) (202) (395) 195.5 % Net loss before tax (44,533) (35,464) (9,069) 25.6 % Income tax expense 107 191 (84) (44.0) % Net loss$ (44,640) $ (35,655) $ (8,985) 25.2 % 34
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Revenue
Revenue increased by$3.5 million , or 10.2%, to$38.2 million during the nine months endedSeptember 30, 2022 , compared to$34.7 million during the nine months endedSeptember 30, 2021 . The sale of products inthe United States increased by$5.3 million to$23.0 million during the nine months endedSeptember 30, 2022 , compared to$17.7 million for the nine months endedSeptember 30, 2021 . The sale of products in international markets decreased by$1.8 million to$15.2 million during the nine months endedSeptember 30, 2022 , compared to$17.0 million for the nine months endedSeptember 30, 2021 . The increase inU.S. revenue reflects continued growth of Zephyr Valve procedure volumes inthe United States , while the decrease in international revenue reflects lower international procedure volumes and the impact of foreign currency exchange rates.
Cost of Goods Sold and Gross Margin
Cost of goods sold increased by$0.2 million , or 2.4%, to$9.6 million during the nine months endedSeptember 30, 2022 , compared to$9.3 million during the nine months endedSeptember 30, 2021 . Gross margin was 75.0% during the nine months endedSeptember 30, 2022 and 73.1% during the nine months endedSeptember 30, 2021 . The increase was primarily due to improved production efficiencies and lower scrap and reserve expense during the nine months endedSeptember 30, 2022 .
Research and development costs
Research and development expenses increased by$2.1 million , or 22.9%, to$11.5 million during the nine months endedSeptember 30, 2022 , compared to$9.4 million during the nine months endedSeptember 30, 2021 . The increase in research and development expense was primarily due to increases of$1.3 million in personnel related expenses including stock-based compensation as we invested in research and development activities,$0.8 million in testing related expenses,$0.2 million increase in facilities expenses,$0.1 million increase in regulatory expenses,$0.1 million increase in consulting expenses,$0.1 million increase in software and other expenses offset by decreases of$0.5 million in costs associated with our clinical trials, including fees paid to clinical research organizations.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by$10.2 million , or 20.1%, to$61.2 million during the nine months endedSeptember 30, 2022 , compared to$51.0 million during the nine months endedSeptember 30, 2021 . The increase in selling, general and administrative expenses was primarily due to$6.1 million of payroll and personnel-related expenses including stock-based compensation for our sales, marketing and administrative personnel, an increase of$2.2 million in marketing related expenses, an increase of$1.1 million in global travel and conference related expenses, and$0.9 million in software implementation and facility related expenses. These increases were offset by a decrease of$0.1 million in consulting and other expenses.
Expenses and interest income
Interest expense increased by$0.1 million to$0.7 million during the nine months endedSeptember 30, 2022 compared to$0.6 million during the nine months endedSeptember 30, 2021 due to constant outstanding debt principal and higher interest rates. Interest income increased by$0.5 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily due to an increase in interest income as a result of higher returns on cash, cash equivalents and marketable securities balances.
Other income (expenses), net
Other income (expense), net decreased by$0.4 million to($0.6) million during the nine months endedSeptember 30, 2022 , compared to($0.2) million during the nine months endedSeptember 30, 2021 , primarily due to foreign currency exchange losses. 35
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liquidity and capital resources; Operation plan
To date, we have financed operations primarily through the sale of equity securities, debt financing arrangements and sales of our products. As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$156.9 million , an accumulated deficit of$336.0 million , and$17.4 million outstanding under the CIBC Loan and Credit Agreement, net of debt discount and debt issuance costs. CIBC Loan OnFebruary 20, 2020 , we executed a Loan and Security Agreement with Canadian Imperial Bank of Commerce ("CIBC"), which we subsequently amended onApril 17, 2020 andDecember 28, 2020 (as amended, the "CIBC Agreement"). The CIBC Agreement originally provided us with the ability to borrow up to$32.0 million in debt financing consisting of$17.0 million advanced at the closing of the agreement ("Tranche A"), with the option to draw up to an additional$8.0 million ("Tranche B") on or beforeFebruary 20, 2022 and an additional$7.0 million ("Tranche C") on or beforeFebruary 20, 2022 . Neither Tranche B nor Tranche C was drawn before theFebruary 2022 expiration date.
In
InJune 2021 , we entered into a First Amendment to the Amended and Restated CIBC Agreement that extended the compliance of certain post-close covenants toMarch 31, 2022 . InOctober 2021 , we entered into a Second Amendment to the Amended and Restated CIBC Agreement, which extended the interest only period of the loan from 24 months to 36 months. Under the amended terms, principal repayment would begin inFebruary 2023 . There was no change to the loan interest rate or maturity date. OnOctober 31, 2022 , we entered into a Third Amendment to the Amended and Restated CIBC Agreement (the "Third Amendment"), which, among other things, extended the maturity date toOctober 31, 2027 ; provided a commitment for a new$20.0 million tranche of term loans that may be drawn at the Company's option throughOctober 31, 2023 , subject to the satisfaction of certain conditions; and provided for a new interest only period of 24 months from the signing date of the Third Amendment, with the possibility of an additional extension of such interest only period of up to 12 months, subject to satisfaction of certain conditions. The loans provided under the Amended and Restated CIBC Agreement bear interest at a floating rate equal to 1.0% above the Wall Street Journal Prime Rate at any time. The loan is collateralized by substantially all of our assets, including cash and cash equivalents, accounts receivable, intellectual property and equipment. We may prepay the loans without penalty. If we borrow any of the$20.0 million tranche made available under the Third Amendment, we may prepay the loans, subject to certain conditions, including a prepayment fee equal to 2.0% of the principal amount repaid during the first year after the effective date of the Third Amendment or 1.0% of the principal amount prepaid during the second year after the effective date of the Third Amendment. The Amended and Restated CIBC Agreement contains financial covenants that require the Company to maintain minimum cash and minimum revenue amounts, and the Amended and Restated CIBC Agreement contains other customary restrictive covenants, representations and warranties, events of default and other customary terms and conditions. ThroughSeptember 30, 2022 , we paid$0.4 million fees to the lender and third parties which is reflected as a discount on the loans provided under the Amended and Restated CIBC Agreement and is being accreted over the life of the loan using the effective interest method. During the three months endedSeptember 30, 2022 and 2021, we recorded interest expense related to debt discount and debt issuance costs of CIBC term loan of less than$0.1 million and less than$0.1 million , respectively. During the nine months endedSeptember 30, 2022 and 2021, we 36
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Interest expense recorded related to debt discounting and issuance costs of CIBC term loan debt of less than
Interest expense on the CIBC term loan amounted$0.3 million and$0.2 million during the three months endedSeptember 30, 2022 and 2021, respectively. Interest expense on the CIBC term loan amounted$0.7 million and$0.6 million during the nine months endedSeptember 30, 2022 and 2021, respectively.
credit agreement
InApril 2020 , Pulmonx International Sàrl, our wholly-owned subsidiary, entered into a COVID-19 Credit Agreement withUBS Switzerland AG to receive up to0.5 million Swiss Francs ($0.5 million U.S. dollar equivalent) under Swiss Federal Government program to mitigate the economic impact of the spread of the coronavirus. InMay 2020 , Pulmonx International Sàrl received0.5 million Swiss Francs ($0.5 million U.S. dollar equivalent) under the COVID-19 Credit Agreement. The COVID-19 Credit Agreement bears no interest and will be repaid within 60 months after receipt of funds, in twelve equal installments, paid semi-annually, beginning in March of 2022. As ofSeptember 30, 2022 ,Pulmonx International Sàrl paid less than$0.1 million to the lender.
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