InspireMD, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. Financial amounts are in U.S. dollars, in thousands, except per-share data. InspireMD develops and commercializes MicroNet-based vascular devices, principally CGuard for carotid disease and MGuard coronary products. Products were marketed internationally; none could be sold or marketed in the United States.
Financial performance
| Metric | Three months ended September 30, 2017 | Three months ended September 30, 2016 | Nine months ended September 30, 2017 | Nine months ended September 30, 2016 |
|---|---|---|---|---|
| Revenue | $718 | $469 | $1,927 | $1,572 |
| Gross profit / margin | $153 / 21.3% | $30 / 6.4% | $374 / 19.4% | $158 / 10.1% |
| Operating expenses | $2,238 | $1,788 | $7,157 | $5,712 |
| Loss from operations | $(2,085) | $(1,758) | $(6,783) | $(5,554) |
| Net loss | $(2,086) | $(1,995) | $(6,939) | $(6,193) |
| Net loss per share, basic and diluted | $(0.19) | $(0.85) | $(0.87) | $(5.98) |
Revenue grew 53.1% in the quarter and 22.6% for the nine-month period. CGuard revenue was $526 for the quarter and $1,315 year to date, versus $277 and $952 in the comparable periods. MGuard revenue was $192 for the quarter and $612 year to date; management cited growing physician preference for drug-eluting stents as a factor limiting MGuard demand. Gross margin improved, but operating expenses exceeded gross profit substantially and net losses widened year to date.
Cash flow, debt and liquidity
- Cash and cash equivalents were $4,765 at September 30, 2017, down from $7,516 at December 31, 2016. Working capital was $3,432; current assets were 2.3 times current liabilities.
- For the first nine months, operating cash use was $6,356, investing cash use was $282, and financing provided $3,883. Financing included approximately $6,072 net proceeds from the March offering, offset partly by $2,179 in loan repayments.
- The company repaid its remaining loan balance in March 2017; the associated liens and security interests were terminated. No current maturity of long-term loan was reported at September 30.
- Management stated that available resources would fund operations for only up to four months from the filing date and identified substantial doubt about the company’s ability to continue as a going concern. It plans to commercialize products and seek additional equity, debt or strategic-partnership financing; success is not assured.
Material changes, outlook and risks
- Management attributed CGuard growth to expansion in existing and new markets, including Russia, and the shift from an exclusive European distributor to local distributors. Selling and marketing expense rose 117.2% in the quarter and 70.4% year to date to support these efforts.
- The March 2017 offering raised approximately $6.8 million gross. Preferred-stock conversions and anti-dilution provisions can result in substantial additional common shares; Series B preferred stock also carries cumulative dividends of 15% annually, payable in cash or common shares at the company’s discretion. All Series C warrants expired unexercised by September 30.
- Development of the NGuard neurovascular product was deferred until at least the third quarter of 2018. Management intended to prioritize CGuard commercialization and, if resources permitted, development of a smaller-catheter CGuard version and CE-mark submission. The filing provides no specific revenue or earnings guidance.
- Risks include continued losses and financing uncertainty, dilution, market acceptance and regulatory approvals, clinical and product risks, reliance on a single manufacturing facility, distributor and customer concentration, foreign-exchange exposure, and possible effects of hostilities in Israel.
- Contingencies include a distributor claim related to a voluntary field action, with a reasonably possible loss range from a minimal amount up to €1.075 million; a finder-fee lawsuit seeking approximately $2.2 million and unspecified equity compensation; and a service-provider suit seeking $1,967,822 plus related costs. Management considered losses in the latter two matters not probable or not estimable. The finder-fee case had been dismissed, but a motion to amend remained pending; the service-provider case was ongoing.
Key investor verification points
- Confirm available financing, cash runway and any subsequent capital raises or strategic-partnership proceeds given the disclosed four-month funding horizon and going-concern doubt.
- Assess whether CGuard sales growth and gross-margin improvement can outpace rising commercial and administrative costs.
- Review the potential dilution and dividend obligations from preferred stock, conversion-price adjustments and outstanding securities.
- Track developments and potential exposure in the distributor, finder-fee and service-provider disputes.
- Verify progress on regulatory, clinical and product-development priorities, including the planned CGuard variant and deferred NGuard program.