InspireMD, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; financial statements are unaudited and presented in U.S. dollars. InspireMD develops and commercializes MicroNet-based medical devices. CGuard received CE mark approval for its rapid-exchange delivery system in January 2015 and was fully launched in certain European markets. The company stated that none of its products could then be marketed in the United States.
Financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | Q1 2015 | Q1 2014 | Change / context |
|---|---|---|---|
| Revenue | $0.477 | $1.482 | Down 67.8% |
| Gross profit (loss) | ($0.037) | $0.857 | Gross margin (7.8%) vs. 57.8% |
| Operating expenses | $4.853 | $6.392 | Down $1.539; includes $0.514 restructuring and impairment expense |
| Operating loss | ($4.890) | ($5.535) | Improved $0.645 |
| Net loss | ($5.212) | ($5.968) | Improved $0.756; loss per share ($0.10) vs. ($0.18) |
| Cash used in operating activities | $4.622 | $3.709 | Use increased $0.913 |
| Cash and cash equivalents | $13.186 at March 31 | $6.300 at Dec. 31, 2014 | Raised primarily through equity offering |
Research and development expense fell to $1.352 million from $2.577 million, selling and marketing to $1.017 million from $1.276 million, and general and administrative to $1.970 million from $2.539 million. Financial expense was $0.306 million, compared with $0.413 million. No operating margin was reported; the operating loss was approximately 10.3 times revenue.
Liquidity, debt and capital
- Current assets were $16.042 million and current liabilities $7.502 million, a working-capital surplus of $8.540 million; the company reported a current-assets-to-current-liabilities multiple of 2.1.
- Total liabilities were $12.339 million. Loan balances were $3.909 million current and $4.138 million long term, or $8.047 million combined, down from $8.895 million at year-end. The company repaid $0.891 million of loan principal during the quarter.
- Financing activities provided $11.560 million net. A March 9 registered direct offering of 34,369,675 shares and warrants for an equal number of shares generated approximately $12.5 million net. Warrants have a five-year term and a $0.55 exercise price. Shares issued and outstanding rose to 75,940,566 from 41,368,889 at year-end; 77,995,335 were outstanding as of May 11.
- Management said available resources were expected to fund operations for at least the next 12 months, but anticipated needing additional capital beyond that period. It warned that failure to commercialize products and raise financing could require further reductions, curtailment or cessation of operations.
Material changes and management commentary
- Revenue declined mainly because sales volume fell $0.9 million, reflecting physician preference for drug-eluting over bare-metal stents in STEMI patients and the shift from direct sales to third-party distributors. Lower average distributor pricing and euro weakness contributed to the remaining decline. Middle East revenue fell $0.6 million year over year.
- Gross margin turned negative. Management cited approximately $0.2 million in inventory write-offs, product mix, higher CGuard costs and lower MGuard distributor prices. The filing also records a $0.316 million impairment of the MGuard royalties-buyout asset due to anticipated lower future sales.
- The company stopped developing and promoting its bare-metal stent platform and implemented a focused spending plan: headcount reductions, narrower clinical and development activity, marketing focused on CGuard, and cuts to other expenses. Further investment in a next-generation MGuard drug-eluting platform depends on a strategic partnership.
- Management attributed the lower net loss primarily to expense reductions, partly offset by the decline in gross profit. There was no specific revenue or earnings guidance.
Risks, contingencies and unusual items
- Key risks include continued losses and cash use, dependence on future financing and product commercialization, market acceptance, clinical and regulatory outcomes, competition, supplier and manufacturing constraints, reimbursement, foreign-exchange movements, and geopolitical disruption in Israel.
- NYSE MKT had notified the company of listing-standard deficiencies. Following the offering, the exchange determined the Section 1003(a)(iv) deficiency was resolved and accepted a plan to regain Section 1003(a)(iii) compliance by July 20, 2016. Failure to meet the plan could lead to delisting proceedings.
- An Argentina labor claim led to a provision increase of $90,000, to $340,000; management estimated a possible additional loss of up to $110,000 beyond the accrued amount. In a separate options-related lawsuit, management said a loss was neither probable nor estimable.
- Share-based compensation was $1.029 million. Certain executive and director compensation was paid or awarded in shares or options. The company reported no material changes in contractual obligations and no material changes to its other previously disclosed risk factors.
- Management concluded disclosure controls were effective at the reasonable-assurance level; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether CGuard commercialization and distributor sales can reverse the steep revenue decline and restore positive gross margins.
- Whether the stated cash runway remains adequate given quarterly operating cash use of $4.622 million and management’s expectation of future financing needs.
- Progress toward NYSE MKT Section 1003(a)(iii) compliance by July 20, 2016, and any subsequent listing notices.
- Potential dilution from the offering warrants and other excluded potential shares; the filing excluded 50,411,102 potential shares from diluted loss-per-share calculations as anti-dilutive.
- Resolution and final exposure in the Argentina labor matter, and execution of the restructuring and product-focus plans.