Business context and reporting period
Important identity discrepancy: The request identifies Vivani Medical, Inc., but the supplied Form 10-Q is for Second Sight Medical Products, Inc. and its subsidiary, for the quarter ended March 31, 2018. This summary reflects the filing text, not Vivani Medical.
Second Sight develops and sells implantable visual prosthetics. Its commercial product was the Argus II retinal prosthesis; the company was also developing the Orion visual prosthesis. The financial statements are unaudited and presented in thousands of dollars unless otherwise noted.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 or comparison |
|---|---|---|
| Net sales | $0.976 million | $1.009 million |
| Gross profit (loss) | $0.308 million; 31.6% gross margin | $(0.118) million; negative gross margin |
| Operating expenses | $10.077 million | $7.437 million |
| Operating loss | $(9.769) million | $(7.555) million |
| Net loss | $(9.753) million; $(0.17) per share | $(7.548) million; $(0.16) per share |
| Cash used in operating activities | $6.778 million | $6.599 million |
| Cash and cash equivalents | $5.014 million at March 31 | $7.839 million at December 31, 2017 |
| Working capital | $2.2 million at March 31 | $6.5 million at December 31, 2017 |
| Total assets / stockholders’ equity | $10.407 million / $3.531 million | $14.497 million / $7.882 million at December 31, 2017 |
Current liabilities were $6.876 million at March 31, 2018. The balance sheet presents no debt line item. Financing activities provided $4.007 million in the quarter, primarily from sales of common stock; the company reported no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue declined about 3%, while gross profit improved from a loss, chiefly reflecting lower cost of sales and an inventory-reserve adjustment. Management said unabsorbed manufacturing overhead remained high.
- Net loss widened by $2.205 million as operating expenses rose 36%. Research and development, clinical and regulatory, selling and marketing, and general and administrative expenses all increased.
- Operating cash use increased modestly. Cash declined $2.825 million from year-end despite $4.007 million of financing proceeds.
- The company implanted 16 Argus II systems versus 14 a year earlier. Revenue was recognized for nine units in each period; $0.4 million invoiced for four Q1 2018 units was deferred pending resolution of reimbursement uncertainties.
- Shares outstanding were 59.876 million at quarter-end, up from 57.630 million at December 31, 2017. The filing reported 66.632 million shares issued and outstanding as of May 10, 2018.
Outlook, commentary, risks and unusual items
- Going concern and funding: Management said cash was insufficient to fund operations for the 12 months following issuance of the financial statements and disclosed substantial doubt about the company’s ability to continue as a going concern. It expected continued operating losses and negative operating cash flows and anticipated seeking equity or debt financing, grants, collaborations or other funding. Failure to obtain funding could force cuts or delays to development, clinical work or commercialization.
- Subsequent financing: On May 3, 2018, the company agreed to sell 6,756,757 shares to entities beneficially owned by its board chairman at $1.48 per share, for approximately $10 million gross proceeds. The filing does not state that this financing resolved the company’s 12-month funding shortfall.
- Revenue outlook: Management expected average revenue per implant for the remainder of 2018 to range from $100,000 to $120,000, depending on geographic mix, and expected higher average invoiced revenue per unit for full-year 2018 than in 2017. These are expectations, not guarantees; reimbursement uncertainty may delay revenue recognition.
- Commercial and reimbursement risks: Argus II sales depended on third-party reimbursement. Medicare coverage was authorized in eight of 12 jurisdictions; management said the NHS England evaluation program was progressing slower than expected, with implants then expected no earlier than late 2018 or early 2019. Revenue was concentrated: six customers each accounted for more than 10% of Q1 2018 sales, and three customers represented 100% of quarter-end receivables.
- Development: The first-in-human Orion study began in January 2018; four of five planned subjects had been implanted by the filing. Management said successful initial results could support expansion to a pivotal trial in 2019. The company also reported no significant objective benefit to date in its small dry-AMD study and chose not to expand enrollment.
- Other items: The company agreed to pay former executive and director Dr. Robert J. Greenberg $0.4 million in severance and extended the exercise period for certain vested options. Twenty-two oppositions challenged European patents; management did not expect a successful challenge to materially affect operations. Management reported ineffective disclosure controls as of March 31, 2018, citing previously identified material weaknesses in internal control over financial reporting.
Most important facts for investors to verify
- Confirm the issuer: the supplied filing is Second Sight Medical Products, Inc., not Vivani Medical, Inc.
- Assess cash runway and the effect of the May 2018 $10 million gross stock placement, including whether additional financing was required.
- Track operating cash burn, losses, working capital, and any subsequent funding or going-concern updates.
- Verify whether deferred Q1 revenue was recognized and whether reimbursement approvals and implant volumes supported management’s 2018 revenue-per-implant expectations.
- Monitor customer and receivables concentration, Medicare and international coverage, and the timing and results of Orion development.
- Review progress in remediating the disclosed material weaknesses and the status of the European patent oppositions.