Filing summary
Issuer and period: This is Sunshine Heart, Inc.’s Form 10-Q for the quarter ended September 30, 2012—not a filing under the name Nuwellis, Inc. The company was developing the C-Pulse Heart Assist System, an investigational device for moderate to severe heart failure. Financial statement amounts below are in U.S. dollars; statements of operations and cash flows are unaudited.
Financial performance and position
| Metric | Three months ended September 30, 2012 | Nine months ended September 30, 2012 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross profit / margin | $0; margin not meaningful | $0; margin not meaningful |
| Research and development expense | $1.802 million | $5.755 million |
| Selling, general and administrative expense | $1.495 million | $5.004 million |
| Operating loss | $3.297 million | $10.759 million |
| Net loss | $3.296 million | $9.999 million |
| Basic and diluted loss per share | $0.42 | $1.49 |
For the nine months, the $730,000 Australian research and development tax credit reduced the loss before tax to $10.729 million. No debt was reported. At September 30, cash and cash equivalents were $17.446 million, current assets were $18.113 million, current liabilities were $2.271 million, and stockholders’ equity was $16.335 million. Net cash used in operations was $9.666 million; investing used $132,000; financing provided $20.620 million. The company reported no material capital expenditure commitments or off-balance-sheet arrangements.
Changes versus comparable periods
- Third-quarter net loss narrowed to $3.296 million from $4.672 million in 2011; loss per share improved to $0.42 from $0.84.
- Third-quarter R&D expense fell 44.9% to $1.802 million, primarily due to timing of outsourced development work. SG&A rose 4.5% to $1.495 million.
- For the first nine months, net loss narrowed to $9.999 million from $10.961 million. R&D declined 27.5%, while SG&A increased 54.0%, including higher stock compensation, professional fees, and costs associated with building infrastructure and preparing for a Nasdaq listing and European trials.
- Operating cash use was approximately unchanged year over year at $9.666 million versus $9.660 million. Cash rose from $6.563 million at year-end 2011 to $17.446 million, largely following equity financings.
- Interest income declined to $30,000 from $228,000 for the nine-month period, reflecting lower average cash balances and lower rates. Shares outstanding increased to 9,247,388 from 6,019,663 at December 31, 2011.
Outlook, risks, and notable items
- The FDA conditionally approved an investigational device exemption in September 2012. Management expected to begin the U.S. pivotal trial before year-end, subject to removal of approval conditions. The company also expected European post-market trial activity and had obtained CE Mark approval in July 2012.
- Management forecast cash would fund anticipated needs into the second half of 2013, with additional funding required by the end of 2013. It cautioned that financing might not be available on acceptable terms or at all; additional equity could dilute shareholders.
- The company had no sales in the reported periods and expected revenue to remain minimal until clinical trials began. Management anticipated increased R&D spending to support trials and SG&A above prior-year levels.
- The filing describes substantial continuing losses and dependence on raising capital and successfully developing and commercializing a single product candidate; it warns that inability to secure timely funding could threaten the company’s ability to continue as a going concern.
- In August 2012, the company sold 2,969,800 shares at $7.00 per share in its public offering, receiving approximately $18.552 million net. In February 2012, it also raised $2.061 million net through a private placement.
- Management concluded disclosure controls were effective as of September 30, 2012 and reported no material change in internal control over financial reporting during the quarter.
Facts investors should verify
- Whether the FDA’s IDE conditions were cleared and the pivotal trial began on the anticipated schedule.
- Actual trial enrollment, costs, safety and efficacy results, and progress toward European commercialization and reimbursement.
- Cash burn and financing needs against the stated runway into the second half of 2013; assess dilution and going-concern risk.
- Whether the company generated revenue, obtained the anticipated Australian tax credit for the period ended June 30, 2012, or incurred material new commitments after quarter-end.
- Confirm issuer identity: the supplied filing is for Sunshine Heart, Inc., despite the request metadata naming Nuwellis, Inc.