Filing summary
Entity and period: The supplied filing is a Form 10-Q for the quarter ended September 30, 2019, filed by Second Sight Medical Products, Inc. and subsidiary—not Vivani Medical, Inc. The summary below reflects the filing entity named in the source.
Business context and reporting period
Second Sight develops implantable visual prosthetics. Its commercially approved Argus II product serves a limited market; the company is shifting resources toward Orion, an investigational cortical prosthesis. Orion was in a six-subject early feasibility study at UCLA and Baylor. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0.472 | $2.246 | $2.882 | $5.129 |
| Gross profit | $0.108 | $0.462 | $0.854 | $1.842 |
| Gross margin | 22.9% | 20.6% | 29.6% | 35.9% |
| Operating expenses | $7.727 | $9.008 | $26.682 | $28.145 |
| Net loss | $(7.584) | $(8.522) | $(25.724) | $(26.236) |
| Operating cash used | Not separately reported for the quarter | $(20.243) | $(22.079) |
- Cash and cash equivalents were $18.462 million at September 30, 2019, up from $4.471 million at December 31, 2018. Working capital was $13.2 million, versus $2.0 million at year-end 2018.
- Financing activities provided $34.637 million in the first nine months, primarily from a February 2019 rights offering that generated $34.399 million net. The company reported no off-balance-sheet arrangements.
- Total liabilities were $9.612 million, including $2.655 million of operating lease liabilities; the filing reports no borrowing debt on the balance sheet. Current assets were $20.356 million and current liabilities $7.185 million.
Material changes versus prior periods
- Q3 revenue fell 79% year over year; nine-month revenue fell 44%. Management attributed the decline to fewer Argus II sales and implants as commercial activity contracted.
- For the first nine months, research and development expense rose 19% to $8.998 million, while selling and marketing expense fell 43% to $5.100 million. Nine-month clinical and regulatory expense fell 30% to $2.404 million.
- The company recorded $2.587 million of Argus II inventory impairment and approximately $0.7 million of severance and related restructuring charges in 2019. Nine-month operating expenses include $3.297 million of restructuring charges.
- Shares outstanding increased from 76.336 million at December 31, 2018 to 124.598 million at September 30, 2019, mainly reflecting the rights offering. The offering also issued 47.812 million warrants at a $1.47 exercise price.
Outlook, commentary, and risks
- Management expects Argus II revenue to decline as remaining inventory is sold and expects research, development, and clinical costs to rise as the company advances Orion. It projected approximately $5.3 million of lower selling and marketing expense for full-year 2019 versus 2018, and approximately $4.9 million in annual manufacturing-capacity costs to shift to R&D expense in future quarters.
- The filing states that available funds were insufficient to support operations for the next 12 months from issuance and that substantial doubt existed about the company’s ability to continue as a going concern. Further financing may be needed; there is no assurance it can be obtained on acceptable terms or at all.
- Orion’s early study results were described as encouraging, but the sample was small and no peer-reviewed data was available. A pivotal-trial start remained undetermined; FDA discussions included endpoint validation and study design. The company was considering a PMA route or an HDE followed by PMA.
- Management disclosed Orion device-electrode impedance changes in two study participants; causes were under investigation. The filing warns that device safety, efficacy, regulatory approval, reimbursement, and commercial success are uncertain.
- Nasdaq had granted an extension to January 20, 2020 to regain compliance with its $1.00 minimum bid-price requirement; a reverse stock split was among the options being considered. The Argus II EU CE Mark had expired September 1, 2019, and recertification was not assured.
- A $2.4 million, four-year NIH grant was awarded in September 2019 for spatial localization and mapping technology with Johns Hopkins Applied Physics Laboratory. Twenty-two European patent oppositions remained unresolved; advertising disputes with Pixium Vision were settled in August 2019.
Key facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Second Sight Medical Products, Inc., although the request metadata names Vivani Medical, Inc.
- Review the going-concern disclosure, cash runway assumptions, operating cash burn, and plans and ability to secure additional financing.
- Track Orion clinical-study updates, electrode-impedance investigations, endpoint validation, FDA alignment, and any firm pivotal-trial or HDE plans.
- Verify progress on Nasdaq bid-price compliance and EU CE Mark recertification, and the implications for Argus II support and sales.
- Assess expected Argus II sell-through, further revenue declines, and the transition of manufacturing costs into R&D.
- Consider the dilution and potential share overhang from the increased share count and outstanding warrants.