Myomo, Inc. — Form 10-Q Summary
Business context and reporting period
Myomo develops and sells MyoPro myoelectric upper-limb orthoses for individuals with neuromuscular disorders. The products are sold through orthotics and prosthetics providers, the Veterans Health Administration, rehabilitation hospitals, distributors and, increasingly, directly to patients using O&P providers for fabrication and support. The filing covers the three and nine months ended September 30, 2018; it was filed November 7, 2018.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $609,000 | $489,000 | $1.555 million | $1.011 million |
| Gross margin | $415,000 | $364,000 | $1.052 million | $710,000 |
| Gross margin percentage | 68% | 75% | 68% | 70% |
| Operating loss | $2.708 million | $1.435 million | $7.793 million | $4.732 million |
| Net loss | $2.650 million | $1.259 million | $7.625 million | $10.197 million |
| Net loss per share | $0.21 | $0.21 | $0.62 | $3.37 |
| Adjusted EBITDA | $(2.538) million | $(1.490) million | $(7.102) million | $(4.487) million |
- Nine-month revenue increased 54%, driven primarily by higher product sales to O&P providers and the VA, partly offset by the loss of Ottobock sales. Grant revenue declined to approximately $20,000 from $113,000.
- Q3 revenue rose 25%, while cost of revenue increased 56%; the lower gross margin reflected reduced grant revenue, related costs, and approximately $17,000 of inventory and warranty provisions.
- Nine-month operating expenses increased 63% to $8.846 million. Selling, general and administrative expense increased 86% to $7.537 million, while research and development expense decreased 6% to $1.309 million.
- Cash and cash equivalents were $9.093 million at September 30, 2018, compared with $12.959 million at December 31, 2017. Including restricted cash, total cash was $9.168 million.
- Net cash used in operating activities was $7.093 million, compared with $4.611 million in the prior-year period. Investing cash use was $117,000, primarily for equipment. Financing activities provided $3.368 million, principally from warrant exercises.
- The company reported no outstanding debt and no interest expense in 2018 following prior debt conversions and repayments. Current liabilities were $1.882 million, including $1.691 million of accounts payable and accrued expenses.
- Accumulated deficit was $42.598 million. Stockholders’ equity was reported as $8.949 million at September 30, 2018.
Material changes versus the prior comparable period
- Revenue growth was offset by substantially higher selling, marketing, administrative and personnel costs, resulting in a larger Q3 operating and net loss despite the increase in sales.
- Ottobock generated no product revenue in 2018 after the parties ended guaranteed minimum purchase requirements. Myomo expanded its focus on O&P providers, the VA and direct patient sales.
- Warrant exercises generated approximately $3.556 million of cash and increased common shares outstanding. Potential dilution remained significant, with approximately 5.072 million shares issuable under outstanding warrants and approximately 630,000 under stock options, according to the risk disclosures.
- Stock-based compensation increased to approximately $643,000 for the first nine months, from $238,000 in the prior-year period.
- The company filed an S-3 shelf registration for up to $75 million of securities and entered into an at-the-market agreement for up to $15 million of common stock, subject to limitations and a 3% sales commission.
Outlook, risks and unusual items
- Management expects continued operating and net losses while expanding sales and marketing, developing products and pursuing reimbursement support. No quantitative revenue or earnings guidance was provided.
- The financial statements state that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance. Management expected existing cash to fund operations into the first half of 2019 and planned to seek additional equity or debt financing.
- Key risks include dependence on third-party reimbursement, limited market adoption, reliance on Cogmedix for manufacturing and a related party for custom fabrication, regulatory and product-liability exposure, intellectual-property licensing and competition.
- CMS issued a favorable preliminary decision in May 2018 regarding requested HCPCS codes. The filing also notes a November 2018 announcement that two codes were published and expected to become effective in early 2019, although appropriate payment terms remained pending.
- The company had no material litigation and no remaining expected expenses under its 2018 clinical research contracts. A related party represented approximately 23% of nine-month revenue, and one customer represented approximately 23% of revenue excluding grant income.
- Revenue recognition for certain devices shipped pending third-party reimbursement occurs when payment is received rather than at shipment. The company planned to adopt ASC 606 on January 1, 2019.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2018, with no reported material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Verify the timing, amount and terms of any financing needed after the company’s projected cash runway into the first half of 2019.
- Track Medicare and other payer coverage and payment rates following the new HCPCS codes; the filing states that code assignment alone may not produce adequate reimbursement.
- Assess whether revenue growth can offset the sharply higher SG&A spending and persistent negative operating cash flow.
- Monitor customer concentration and the effect of the loss of Ottobock product revenue.
- Evaluate dilution from outstanding warrants, options, equity compensation and any future use of the shelf or at-the-market facility.
- Reconcile the filing’s liquidity figures: the MD&A cites working capital of approximately $8.558 million and equity of approximately $8.929 million, while the balance sheet reports $8.558 million of current assets less current liabilities and $8.949 million of equity.