InspireMD, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Financial amounts below are in U.S. dollars; unless stated otherwise, amounts are in thousands. The company develops and sells MicroNet-based vascular stents, principally CGuard EPS for carotid disease and MGuard Prime EPS for coronary procedures. Products are sold internationally, mainly through distributors; none may currently be marketed in the United States.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $939 | $769 | $2,708 | $2,779 |
| Gross profit | $128 | $198 | $497 | $768 |
| Gross margin | 13.6% | 25.7% | 18.4% | 27.6% |
| Operating loss | $(1,997) | $(1,979) | $(7,310) | $(5,405) |
| Net loss | $(2,070) | $(2,011) | $(7,483) | $(5,027) |
| Net loss per share | $(1.26) | $(2.47) | $(5.79) | $(16.24) |
- Q3 revenue rose 22.1%, led by CGuard sales, up to $852 from $604; MGuard revenue fell to $87 from $165. Nine-month revenue declined 2.6%: CGuard increased to $2,344 from $2,268, while MGuard declined to $364 from $511.
- Gross profit and margins fell in both comparisons. Management attributed the deterioration mainly to inventory/component write-offs, including a non-recurring component supply issue; lower average selling prices for CGuard and, year to date, production-facility upgrades and worker training also weighed on margins.
- Nine-month research and development expense increased to $2,432 from $898, primarily due to CGuard clinical/IDE work and a $354 settlement-related expense. Nine-month selling and marketing expense was $1,791, versus $1,677; general and administrative expense was broadly unchanged at $3,584.
- Cash and cash equivalents were $7,154 at September 30, 2019, down from $9,384 at December 31, 2018. Nine-month operating cash use was $8,242, compared with $5,803 a year earlier; investing cash use was $318. Financing provided $6,331, versus $13,351 in the prior period.
- Working capital was $7,251, down $1,248 since year-end; current assets exceeded current liabilities 4.1 times. The filing reports no conventional borrowings. Lease liabilities totaled $1,051 ($352 current and $699 non-current); total liabilities were $3,726.
Material changes and notable items
- Management says shipment delays in the first quarter of 2019 followed a sterilization-provider change; the transition was complete and management did not anticipate further fulfillment disruption. Production write-offs and upgrades/training costs reduced nine-month gross profit.
- The company raised capital in April and September 2019. The September offering generated approximately $4.2 million net proceeds and included common shares, pre-funded warrants and Series E warrants. For the nine months, common shares issued and outstanding increased from 768,615 at December 31, 2018 to 3,456,915 at September 30, 2019; the March 2019 one-for-fifty reverse split was applied retroactively to share data.
- The September offering triggered full-ratchet anti-dilution adjustments, reducing Series B and C preferred conversion prices to $1.80. At September 30, 2019, 4,016,817 common-stock warrants and 720,333 pre-funded warrants were outstanding, in addition to convertible preferred shares. Potential dilution is substantial.
- Adoption of the new lease accounting standard on January 1, 2019 resulted in recognition of right-of-use assets and lease liabilities; comparative periods were not restated.
Outlook, risks and contingencies
- Going concern and funding: The company reports recurring losses and negative operating cash flows and states that available resources are expected to fund operations only through the end of May 2020. It concludes there is substantial doubt about its ability to continue as a going concern. Plans include continued commercialization and additional equity, debt or strategic-partner financing, but success is not assured; absent adequate financing or commercialization, it may reduce, curtail or cease operations. No detailed revenue or earnings guidance is provided.
- Regulatory progress: The company submitted a U.S. IDE application for CGuard on July 26, 2019 and received an FDA request for additional information on August 23. It was working to address the request; IDE approval is required before a U.S. human clinical trial can begin. Products are not currently approved for U.S. marketing.
- Exchange listing: NYSE American accepted a plan, on October 11, 2019, to regain compliance with the stockholders’ equity standard by August 7, 2020. Failure to make progress or regain compliance could lead to delisting. The earlier low-share-price deficiency was resolved following the reverse split, but the company remains subject to listing requirements.
- Legal matter: A former Russian distributor seeks €1.83 million (approximately $2.0 million), or alternatively €1.024 million (approximately $1.1 million), relating to returned MGuard products and a 2014 field corrective action. Management intends to contest the claim; it describes a reasonably possible loss ranging from minimal to €1.83 million. A separate former-service-provider suit was settled for $600,000 and dismissed in April 2019; a $354,000 provision increase was recorded in nine-month R&D expense.
- Other material risks include dependence on a single Israeli manufacturing facility and certain suppliers, product acceptance and competition, regulatory and clinical-trial uncertainty, currency exposure, potential product liability, and operational exposure to conditions in Israel. Management reported disclosure controls effective at a reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash burn, commercial sales and any subsequent financing support operations beyond the stated May 2020 runway.
- FDA progress on the CGuard IDE request and the timing, cost and outcome of any U.S. clinical trial.
- Whether CGuard growth can offset declining MGuard sales and whether gross margins recover after supply, write-off and production-upgrade impacts.
- The status and potential financial outcome of the former distributor litigation, and any other contingencies or field actions.
- Current NYSE American compliance status, as well as the effect of preferred-stock conversions, dividends, warrants and future financings on dilution and available share capacity.