InspireMD, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2013, with nine-month results for the period then ended. The filing describes this as the quarter ended March 31, 2013; the request metadata’s “2012 Q3” does not match the filing. Unless stated otherwise, financial amounts below are U.S. dollars in thousands.
Business context
InspireMD develops and commercializes medical devices based on its MGuard stent platform, which uses a mesh sleeve intended to provide embolic protection during stenting. The company reported one operating segment. Its common stock began trading on NYSE MKT on April 11, 2013.
Financial results and liquidity
| Metric | Three months ended March 31, 2013 | Nine months ended March 31, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $1,514 | $3,373 | $1,138 quarterly; $4,416 nine-month |
| Gross profit and margin | $840; 55.5% | $1,922; 57.0% | $564 and 49.6% quarterly; $2,370 and 53.7% nine-month |
| Operating expenses | $4,051 | $12,780 | $3,690 quarterly; $15,883 nine-month |
| Operating loss | $(3,211) | $(10,858) | $(3,126) quarterly; $(13,513) nine-month |
| Net loss | $(4,885) | $(14,311) | $(3,140) quarterly; $(13,656) nine-month |
| Net loss per share | $(0.27) | $(0.81) | $(0.18) quarterly; $(0.82) nine-month |
| Cash used in operating activities | Not presented separately | $(8,616) | $(5,796) nine-month |
At March 31, 2013, cash and cash equivalents were $2,514, versus $10,284 at June 30, 2012. Current assets were $7,102 and current liabilities $10,873, resulting in a working-capital deficit of approximately $3.8 million. The balance sheet included a $7,385 current convertible loan; total liabilities were $13,200 and equity was in a $3,403 deficit. The filing does not present a separate conventional gross-margin or operating-cash-flow margin.
Changes versus prior comparable periods
- Quarterly revenue rose 33.0%, supported principally by higher sales volume. Quarterly gross margin improved to 55.5% from 49.6%.
- Nine-month revenue fell 23.6%, mainly because sales volume declined during distributor changes and channel restructuring ahead of anticipated MASTER trial results. Nine-month gross margin nevertheless increased to 57.0% from 53.7%.
- Quarterly net loss widened by approximately 55.6%, primarily due to higher financial expenses and operating expenses. Nine-month net loss increased 4.8%; lower operating expenses were more than offset by increased financial expenses and lower gross profit.
- Nine-month operating cash use increased to $8.6 million from $5.8 million. Cash and cash equivalents declined by $7.8 million during the period.
Outlook, material events and risks
- Financing after quarter-end: On April 16, 2013, the company completed a public offering of 12.5 million shares at $2.00 per share, raising approximately $22.6 million net. The underwriters also received a 30-day option for up to 1.875 million additional shares.
- Convertible debentures: In connection with the offering, the company repaid $8.787 million in cash and issued 2,159,574 shares to settle the remaining debenture obligations, plus five-year warrants for 659,091 shares at $3.00. The filing states that the offering and exchange are expected to fund operations into 2015, although additional funding may be needed in 2015 depending on results.
- Clinical and regulatory: The FDA approved the company’s pivotal-trial IDE application with conditions on April 19, 2013. Trial timing, enrollment, cost, and success remain uncertain; failure to meet clinical endpoints could delay or prevent U.S. commercialization.
- Royalties and unusual charges: A license amendment reduced MGuard Prime royalties to 2.9% of net sales worldwide. The company recorded $918,000 of royalty-buyout expense and capitalized $930,000 as a royalty buyout; the latter is amortized through cost of revenue.
- Other risks: The company has a history of recurring losses and negative operating cash flows; faces clinical, regulatory, reimbursement, competition, intellectual-property, manufacturing and single-supplier risks; and is exposed to Euro and New Israeli Shekel movements without hedging. Management cited a prior auditor going-concern explanatory paragraph relating to the June 30, 2012 financial statements.
- Contingencies: A former service-provider dispute was settled for $50,000, with $25,000 paid and $25,000 accrued at March 31. A separate claim was settled for company shares valued between $50,000 and $200,000, with the amount to be determined by the court. An Argentine labor claim had a $250,000 provision, and management estimated a possible additional loss of up to $80,000. Another threatened claim seeks approximately $1 million; management had not accrued it, stating loss was not considered probable or estimable.
- Management concluded disclosure controls were effective at the reasonable-assurance level as of March 31, 2013, and reported no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Confirm the post-quarter financing and debenture settlement’s final cash, share-count, warrant, and dilution effects; the filing reports 34,316,864 common shares outstanding as of May 7, 2013.
- Track cash burn against management’s stated runway into 2015, including whether operating results require another capital raise.
- Review the conditions, schedule, enrollment requirements, costs, and endpoints of the FDA pivotal trial.
- Monitor sales recovery and distributor/channel changes, customer concentration, gross-margin sustainability, and the impact of the revised royalty rate.
- Check developments and possible exposure in the disclosed legal claims, including the court-determined share settlement and Argentine labor matter.