InspireMD, Inc. — Q2 2020 Form 10-Q
Business and period: Medical-device company developing and commercializing its MicroNet stent platform, principally CGuard EPS for carotid disease and MGuard Prime EPS for coronary applications. This unaudited report covers the quarter and six months ended June 30, 2020; amounts below are U.S. dollars unless noted.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $313,000 | $1.354 million | $1.347 million | $1.769 million |
| Gross profit (loss) | $(120,000) | $442,000 | $175,000 | $369,000 |
| Gross margin | (38.3)% | 32.6% | 13.0% | 20.9% |
| Operating expenses | $2.326 million | $2.625 million | $4.642 million | $5.682 million |
| Net loss | $(2.480) million | $(2.206) million | $(4.458) million | $(5.413) million |
| Net loss per share | $(0.20) | $(1.59) | $(0.52) | $(4.86) |
Six-month operating cash use was $3.837 million, versus $6.382 million in 2019; investing cash use was $34,000, and financing provided $12.237 million. Cash rose to $13.861 million at June 30, from $5.514 million at year-end 2019. Working capital was $12.622 million; current assets were 4.9 times current liabilities. Total liabilities were $4.526 million, including operating lease liabilities; the filing does not disclose conventional interest-bearing debt. Accumulated deficit was $162.090 million.
Material changes and drivers
- Q2 revenue fell 76.9% year over year, mainly as COVID-19 led hospitals to postpone elective procedures. CGuard sales decreased to $271,000 from $1.116 million; MGuard sales fell to $42,000 from $238,000. The prior-year quarter also included shipments of accumulated CGuard backlog and $135,000 compensation from a former sterilizer, neither of which recurred.
- For the first half, revenue declined 23.9%. Management attributed lower sales to COVID-related procedure postponements. Lower R&D and selling and marketing expenses helped reduce the six-month net loss, while Q2 net loss increased year over year as the gross-profit decline outweighed lower operating expenses.
- Q2 G&A included a $400,000 provision related to the settlement with a former underwriter. Cost reductions to director, management, and employee compensation lowered Q2 operating expenses by approximately $235,000; compensation was reinstated after the June financing.
Outlook, risks, and unusual items
- Liquidity and going concern: Despite the June 2020 public offering’s approximately $10.7 million net proceeds, management stated that available resources were expected to fund operations only through Q3 2021 and reported substantial doubt about the company’s ability to continue as a going concern. The company expects continuing losses and negative operating cash flow and plans to seek additional equity, debt, or strategic-partner financing; success is not assured.
- COVID-19: Management expected pandemic-related restrictions to continue depressing sales and noted possible supply-chain and manufacturing disruption. The duration and overall effect were not estimable.
- Regulatory and commercialization: The FDA granted conditional IDE approval for a U.S. CGuard clinical trial, contingent on addressing device-compatibility testing concerns. Brazil authorized CGuard for sale in July 2020. No company products may be sold or marketed in the United States at the reporting date.
- Financing and dilution: The June offering issued shares and warrants; Series F warrants were exercisable at approximately $0.495 per share. Anti-dilution provisions lowered conversion prices of Series B and C preferred shares to $0.45, increasing potential common shares. As of June 30, 26.7 million warrants were outstanding, in addition to preferred-stock conversion rights.
- Contingencies and subsequent events: A former distributor’s lawsuit sought up to €1.83 million (approximately $2.0 million); management assessed a reasonably possible loss ranging from a minimal amount to that claim. A July 2020 settlement with a prior underwriter requires a $400,000 cash payment and repricing warrants covering 274,029 shares to $0.495. A former employee filed a labor claim in July; management said a loss was not probable or estimable.
- Listing risk: The company was subject to an NYSE American compliance plan, with a deadline of August 7, 2020. Management believed the June financing would provide sufficient equity to regain compliance, but continued compliance was not assured.
Important facts for investors to verify
- Whether sales and elective procedures recover after COVID-19 disruptions, and whether CGuard commercialization can support the stated runway.
- Current cash use, financing needs, and the status of any subsequent capital raises or strategic partnerships.
- Whether the company satisfied the NYSE American equity requirement and the status and conditions of FDA IDE approval.
- Potential dilution from outstanding warrants and preferred-stock conversion rights, including the effects of anti-dilution provisions.
- Outcomes and financial effects of the former distributor litigation, underwriter settlement, and labor claim.