SEC filing summary
Entity identification: The supplied filing is Second Sight Medical Products, Inc.’s Form 10-Q, not a filing for Vivani Medical, Inc. The reporting period ended June 30, 2019; the filing was signed August 6, 2019. Amounts below are in U.S. dollars.
Business context and reporting period
Second Sight develops implantable visual prosthetics. Its commercially approved Argus II retinal prosthesis generated most product revenue, while Orion, an investigational visual cortical prosthesis, was the company’s principal development focus. The company reported a six-subject Orion early feasibility study underway at UCLA and Baylor; it said no peer-reviewed Orion data were yet available.
On May 10, 2019, the company accelerated its shift toward Orion, planning to suspend Argus II production, sell remaining inventory, reduce related commercial activity, and redirect resources to Orion and other research.
Key financial metrics
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Comparable 2018 period |
|---|---|---|---|
| Net sales | $1.282 million | $2.410 million | $1.907 million and $2.883 million, respectively |
| Gross profit / margin | $0.349 million / 27.2% | $0.746 million / 30.9% | $1.071 million / 56.2% and $1.379 million / 47.8% |
| Operating expenses | $8.790 million | $18.955 million | $9.059 million and $19.136 million |
| Net loss | $8.440 million | $18.140 million | $7.961 million and $17.714 million |
| Operating cash used | Not separately stated for the quarter | $13.785 million | $14.624 million for the six-month period |
- Liquidity at June 30: Cash and cash equivalents were $25.161 million, versus $4.471 million at December 31, 2018. Working capital was $20.2 million, versus $2.0 million.
- Balance sheet: Total assets were $31.520 million and total liabilities were $10.325 million. The filing reports no borrowings or debt balance; operating lease liabilities totaled $2.706 million, including $0.219 million current.
- Cash flows: Six-month investing cash use was $0.164 million; financing provided $34.637 million, chiefly from the February rights offering.
- Equity and dilution: Common shares outstanding rose to 124.586 million from 76.336 million at year-end, primarily reflecting the rights offering. The offering also issued 47.812 million warrants; 62.261 million warrants were outstanding at June 30.
Material changes versus the prior comparable period
- Second-quarter sales declined 33% year over year; first-half sales declined 16%. The company attributed the trend to fewer Argus II units recognized as revenue: 10 versus 17 in Q2 and 19 versus 26 in the first half.
- Gross margin fell to 27.2% in Q2 from 56.2%, and to 30.9% in the first half from 47.8%. The filing cites unabsorbed production costs and, for Q2 2018, an inventory reserve adjustment as factors in cost of sales.
- First-half net loss increased to $18.140 million from $17.714 million, despite slightly lower total operating expenses, reflecting lower gross profit and higher restructuring charges.
- Research and development expense increased 42% in Q2 and 15% in the first half. Selling and marketing expense decreased 41% and 36%, respectively; general and administrative expense also declined.
- The company recorded approximately $2.6 million of Argus II inventory impairment in the first half and approximately $0.7 million of employee severance and termination charges in Q2. It expected substantially all of the severance to be paid in cash over the next two quarters.
- The February 2019 rights offering generated $34.4 million net proceeds. Chairman Gregg Williams-controlled entities purchased approximately 41.4 million units for about $30 million.
Guidance, outlook, risks and contingencies
- Going concern: Management stated that available funds were insufficient to support operations for the next 12 months from the financial statements’ issuance date. The filing says recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Further financing may be needed; it may not be available on acceptable terms or at all.
- Operating outlook: The company expected Argus II revenue to decline as remaining inventory is sold. It projected selling and marketing expense to decline by about $2.3 million in 2019 and a further $2.7 million in 2020, and expected roughly $4.9 million of annual manufacturing-capacity expense to be reported as R&D in future quarters.
- Orion development: The company planned to enroll additional feasibility subjects in 2019 and was discussing the clinical and regulatory pathway with the FDA. It was evaluating a PMA route and an HDE-first route; pivotal-trial timing and design were not yet settled. Breakthrough Devices designation was in place, but commercialization and approval remained uncertain.
- Financing and listing: The company said it anticipated seeking additional financing or other funding arrangements. Nasdaq had extended the deadline to regain the $1.00 minimum bid-price requirement through January 20, 2020.
- Other risks: Revenue depended on a limited product line and customer base; several customers represented more than 10% of revenue or receivables. Twenty-two oppositions challenged European patents. Management said no material risk-factor changes had occurred since its prior filings. Disclosure controls were reported effective at a reasonable assurance level.
Important facts for investors to verify
- Confirm the filing’s issuer: this document is for Second Sight Medical Products, Inc., not Vivani Medical, Inc.
- Assess the company’s stated 12-month funding shortfall, cash burn, financing alternatives, and potential dilution or financing constraints.
- Track actual Argus II sell-through, revenue, inventory levels, and the transition of manufacturing costs into R&D.
- Verify Orion study enrollment, clinical results, FDA-agreed trial design and pathway, and associated costs and timelines.
- Monitor Nasdaq bid-price compliance and the outcome of European patent challenges.