Myomo, Inc. — Form 10-Q Summary
Business context and reporting period
Myomo is a commercial-stage medical robotics company developing and selling MyoPro myoelectric upper-limb orthoses for people with neuromuscular disorders. Products are sold through orthotics and prosthetics practices, the Veterans Health Administration, hospitals and, beginning in 2017, Ottobock. This report covers the three and nine months ended September 30, 2017, compared with the corresponding 2016 periods.
Financial performance and condition
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Revenue | $488,540 | $184,194 | $1,011,454 | $655,184 |
| Gross margin | $364,442 | $107,112 | $710,146 | $468,850 |
| Gross margin percentage | 75% | 58% | 70% | 72% |
| Operating loss | $(1,434,973) | $(933,825) | $(4,732,104) | $(2,178,005) |
| Net loss | $(1,258,949) | $(1,018,264) | $(10,197,203) | $(2,405,724) |
| Net loss per share | $(0.21) | $(1.09) | $(3.37) | $(2.86) |
| Adjusted EBITDA | $(1,489,730) | $(887,457) | $(4,486,897) | $(2,099,953) |
- Revenue increased 165% year over year in the quarter and 54% for the nine months, primarily from higher product sales to Ottobock. Nine-month revenue also included $37,000 related to the extended Össur distribution arrangement and $113,000 of grant revenue.
- Quarterly gross margin improved because of product mix and lower inventory and warranty provisions. Nine-month margin declined because of a $31,000 excess and obsolete inventory reserve and lower-margin demonstration-unit sales to Ottobock.
- Operating expenses rose 73% in the quarter and 106% year to date. Research and development increased for engineering and product development; selling, general and administrative costs increased because of additional personnel, bonuses, public-company costs, professional fees, travel and clinical research.
- The nine-month net loss included a non-cash $5.172 million debt discount charge recognized when convertible notes automatically converted upon the IPO, partially offset by a $64,366 favorable change in derivative liability valuation.
- Cash was $4.958 million at September 30, 2017, compared with $797,174 at December 31, 2016. Working capital was $3.880 million, versus a $1.855 million deficiency at year-end 2016.
- Cash used in operating activities was $4.723 million for the nine months, compared with $2.299 million in 2016. Investing cash use was $7,244. Financing cash provided was $8.891 million, including IPO and private-placement proceeds.
Debt, equity and liquidity
- Total liabilities were $3.383 million at September 30, 2017, including $876,458 of shareholder notes, $1.019 million of MLSC notes, $196,494 of accrued interest and $92,359 of warrant-related derivative liabilities.
- The convertible promissory notes outstanding at year-end converted into 1,055,430 common shares at a weighted-average price of $5.18 per share upon the June 2017 IPO. All Series A-1 and Series B-1 preferred stock also converted into 2,622,187 common shares.
- Myomo completed a June 2017 IPO of 665,498 shares at $7.50 per share and a concurrent private placement of 557,216 units at $5.25 per unit. The private-placement units included three-year warrants exercisable at $7.50 per share.
- Management stated that additional capital will be required to sustain operations, repay debt and fund product development and market expansion. The filing states that substantial doubt exists regarding the Company’s ability to continue as a going concern.
- Management expected available cash, the committed credit line and forecasted operations to fund the business into the first half of 2019, but acknowledged that additional financing may be unavailable or obtainable only on unfavorable terms.
Material changes, outlook and risks
- Myomo obtained the CE Mark for MyoPro on July 31, 2017, enabling sales in the European Union. It obtained a Canadian Medical Device License on October 24, 2017, after the reporting date.
- The company expects continued operating losses as it expands sales and marketing, develops products, conducts clinical research to support reimbursement and incurs public-company compliance costs. No specific revenue or earnings guidance was provided.
- Key commercial risks include limited market adoption, uncertain Medicare and third-party reimbursement, reliance on Ottobock and other distributors, customer concentration and the early-stage nature of the myoelectric orthotics market.
- Manufacturing and supply-chain risks include dependence on Cogmedix for product manufacturing, limited component suppliers and dependence on related party GRE for custom fabrication.
- Regulatory, intellectual-property and product-liability risks include potential FDA actions, recalls, loss or termination of MIT technology licenses, patent disputes and warranty or safety claims.
- The filing reports no material pending litigation and no off-balance-sheet arrangements. Six customers represented approximately 90% of accounts receivable at September 30, 2017, and three customers represented approximately 55% of nine-month revenue excluding grants.
- Disclosure controls and procedures were considered effective as of September 30, 2017, with no reported material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth, particularly through Ottobock, can continue and translate into improving operating leverage.
- The timing, terms and dilution implications of required future equity or debt financing.
- The company’s cash runway relative to its stated first-half-2019 funding expectation and continuing going-concern uncertainty.
- Reimbursement progress, including Medicare coding and coverage, and the commercial impact of the CE Mark and Canadian license.
- Debt maturities, repayment requirements and the terms of the shareholder and MLSC notes.
- The filing presents differing descriptions of IPO net proceeds in different sections; investors should reconcile the reported IPO proceeds, offering costs and cash-flow amounts.
- Potential dilution from approximately 1.43 million outstanding warrant shares, options and restricted shares, and the effect of the company’s concentrated customer and supplier relationships.