Filing summary
Issuer identity discrepancy: The request identifies Vivani Medical, Inc., but the supplied Form 10-Q is for Second Sight Medical Products, Inc. (Nasdaq: EYES). This summary reflects the filing text provided, not a filing verified as belonging to Vivani Medical.
Business context and reporting period
Unaudited results cover the three months ended March 31, 2017, compared with the three months ended March 31, 2016. Second Sight develops, manufactures, and sells the Argus II retinal prosthesis, and is also developing next-generation products, including the Orion I visual cortical prosthesis. The filing describes limited commercial revenue and a single principal product line.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / prior balance |
|---|---|---|
| Net sales | $1.009 million | $1.053 million |
| Gross profit (loss) | ($0.118 million); gross margin about (11.7%) | $0.141 million; gross margin about 13.4% |
| Operating expenses | $7.437 million | $5.962 million |
| Operating loss | ($7.555 million) | ($5.821 million) |
| Net loss | ($7.548 million); ($0.16) per share | ($5.816 million); ($0.16) per share |
| Net cash used in operations | $6.599 million | $6.039 million |
| Cash and money market funds | $23.891 million at March 31, 2017 | $10.875 million at December 31, 2016 |
| Working capital | $22.9 million | $9.6 million at December 31, 2016 |
| Current liabilities | $5.757 million | $5.662 million at December 31, 2016 |
The filing reports no debt balance in the presented balance sheet; it does not provide a separate debt discussion identifying outstanding borrowings. The March 2017 rights offering generated $19.7 million net proceeds. The company reported $266,000 in cash and $23.625 million in money market funds at quarter-end. Stockholders’ equity was $24.365 million.
Changes versus the prior comparable period
- Sales decreased 4%, despite an increase to 14 Argus II implants from 10. Revenue per implant recognized fell to about $72,000 from $105,000, reflecting delayed revenue recognition for two cases, use of prior-year U.S. pricing for two cases, and three implants for which no charge was made.
- Cost of sales rose 24% to $1.127 million, producing a gross loss. Management attributed the cost base primarily to unabsorbed overhead, scrap, warranty, and other costs; production was suspended pending improved sales volumes.
- Research and development expense, net of grants, increased 142% to $1.847 million, mainly from compensation, outside services, and next-generation prototype work. Grant offsets declined to $104,000 from $567,000.
- Clinical and regulatory expense declined 21% to $614,000. Selling and marketing expense increased 11% to $2.235 million, and general and administrative expense increased 14% to $2.741 million.
- Net loss widened by $1.732 million. The March offering increased shares outstanding from 42.701 million at year-end to 56.366 million at quarter-end and issued 13.652 million warrants, creating potential dilution.
Outlook, risks, and unusual items
- Going concern and funding: The auditor had raised substantial doubt about the company’s ability to continue as a going concern. Management said the March financing should fund operations into the first quarter of 2018, but additional debt or equity financing would be needed thereafter; availability and terms are uncertain. If funding is insufficient, the company may reduce or discontinue development programs or trials, seek strategic alliances, or cease operations.
- Management outlook: For the remainder of 2017, management expected average revenue per implant of $100,000–$120,000 depending on geographic mix, anticipated deferred revenue to be recognized in a future quarter, and expected unabsorbed overhead to remain high until production ramps up. Management expected ongoing operating losses and negative operating cash flows for at least the next few years.
- Commercial and reimbursement risks: Sales depend on limited product demand and payer coverage. At the reporting date, positive Medicare coverage decisions applied in five of 12 MAC jurisdictions. Management noted uncertainty about expanding coverage and about continued funding of programs in France and the UK.
- Development risks: The company planned to pursue studies in better-sighted patients and AMD, and expected to submit an IDE application and seek human feasibility work for Orion I in 2017. These are plans, not assured outcomes. In its small UK AMD pilot, subjects reported enjoyment and perceived benefits, but had not shown significant objective benefit over residual vision.
- Operating and legal risks: Several Argus II components or services have sole-source suppliers. Eighteen European patent oppositions challenged company patents; management said a successful challenge was not expected to materially affect operations, but outcomes were uncertain.
- Controls: Management concluded disclosure controls were ineffective because of material weaknesses, including incomplete documentation and testing of internal controls and the need to update standard costs. Remediation was ongoing and not yet complete.
- Equity financing: The rights offering sold units at $1.47 each, with one five-year warrant per share exercisable at $1.47. Outstanding warrants totaled 15.492 million at quarter-end.
Key facts for investors to verify
- Confirm the filing’s issuer: the supplied document names Second Sight Medical Products, Inc., not Vivani Medical, Inc.
- Review the March 2017 rights offering terms, net proceeds, share issuance, warrant overhang, and resulting dilution.
- Assess the stated runway into Q1 2018 against the $6.6 million quarterly operating cash use and the company’s financing needs.
- Verify implant volumes, revenue recognized per implant, delayed revenue, and the assumptions behind the $100,000–$120,000 expected average revenue per implant.
- Track Medicare and international reimbursement coverage, production restart plans, and progress and funding for clinical programs.
- Review remediation of internal-control material weaknesses and the outcome of the European patent challenges.