InspireMD, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Unless noted otherwise, financial amounts are in U.S. dollars; statement amounts are in thousands.
Business context
InspireMD develops and commercializes MicroNet-based stent products. Its MGuard coronary products and CGuard carotid system were marketed internationally, primarily through distributors; the company said none of its products could be marketed in the United States. CGuard received CE mark approval for its rapid-exchange delivery system in January 2015 and was fully launched in European countries.
In Q1 2015, the company curtailed development and promotion of its bare-metal stent platform, reduced headcount and other spending, focused clinical and development work on selected products, and shifted toward a distributor-led commercial strategy.
Key financial results
| Metric | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Six months ended June 30, 2015 | Six months ended June 30, 2014 |
|---|---|---|---|---|
| Revenue | $685 | $193 | $1,162 | $1,675 |
| Gross profit (loss) | $(212) | $(391) | $(249) | $466 |
| Gross margin | (30.9)% | (202.6)% | (21.4)% | 27.8% |
| Operating loss | $(3,573) | $(7,235) | $(8,463) | $(12,770) |
| Net loss | $(3,878) | $(7,562) | $(9,090) | $(13,530) |
| Net loss per share, basic and diluted | $(0.05) | $(0.22) | $(0.14) | $(0.40) |
Q2 revenue rose 256% year over year, reflecting a partial recovery in MGuard sales after the 2014 voluntary field action and $0.2 million of CGuard sales. Six-month revenue fell 30.6%, chiefly because of lower MGuard sales, distributor-channel transition, lower distributor prices and euro weakness; CGuard contributed $0.2 million in the half.
For the six months, operating expenses declined to $8.214 million from $13.236 million, mainly due to reduced R&D, selling and marketing, and general and administrative spending. The gross result deteriorated from profit to loss, reflecting lower revenue, inventory write-offs, product mix and distributor pricing, partly offset by lower costs associated with the prior-year field action. The filing does not report a separate operating margin.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $9.768 million, versus $6.300 million at December 31, 2014. Current assets were $11.994 million and current liabilities $7.329 million; working capital was $4.665 million and the reported current-assets-to-current-liabilities multiple was 1.6.
- Six-month operating cash use was $7.045 million, compared with $8.354 million in the prior-year period. Investing cash use was $2,000. Financing provided $10.545 million, including $12.432 million net proceeds from a share-and-warrant offering, offset in part by $1.803 million of loan repayment.
- Loan balances totaled $7.174 million: $4.015 million current and $3.159 million long-term, down from $8.895 million at year-end 2014.
- The company raised approximately $12.4 million net in a March 2015 registered offering of 34.37 million shares and warrants for an equal number of shares, exercisable for five years at $0.55 per share.
Despite the offering and improved working capital, management stated that available resources were insufficient to fund operations for the next 12 months. The filing identifies substantial doubt about the company’s ability to continue as a going concern. Management planned to commercialize MGuard and CGuard and seek additional equity, debt or strategic-partnership capital, with no assurance of success.
Material changes, outlook and risks
- Six-month net loss narrowed to $9.090 million from $13.530 million, while the gross result swung to a $249,000 loss from $466,000 profit. Q2 net loss also narrowed, to $3.878 million from $7.562 million.
- The company recorded $316,000 of impairment on its royalty-buyout asset, citing expected lower MGuard Prime sales amid physician preference for drug-eluting stents. It also wrote off inventory, including MGuard units and CGuard units following a delivery-system transition.
- No quantitative revenue or earnings guidance was provided. Management expected continued losses and negative operating cash flows until the products achieved commercial profitability.
- Risks include additional financing needs, product and market acceptance, clinical and regulatory outcomes, competition, reliance on suppliers and subcontractors, manufacturing quality and capacity, foreign-exchange movements, reimbursement, and operational exposure to events in Israel.
- A distributor sought unspecified compensation relating to prepaid goods subject to a voluntary field action. Management considered a loss ranging from a minimal amount to €1.075 million reasonably possible. Other disclosed matters included an Argentina labor claim provision adjusted to $100,000 after a verbal settlement agreement, and a settled options dispute under which the claimant could exercise 58,545 options.
- The NYSE MKT had accepted the company’s compliance plan for its stockholders’ equity listing deficiency, with a July 20, 2016 deadline to regain compliance. The separate deficiency related to ability to continue operations was reported resolved following the March offering.
Important facts for investors to verify
- Whether additional financing can be secured, and whether cash burn and commercial progress support continued operations beyond the disclosed runway concern.
- Whether CGuard adoption and distributor sales can offset MGuard demand weakness, pricing pressure and foreign-exchange effects.
- Whether gross margins improve after inventory write-offs, manufacturing underutilization and the product/channel mix transition.
- The eventual outcome and financial exposure from the distributor field-action claim and other contingencies.
- Progress toward NYSE MKT stockholders’ equity compliance by the stated deadline, and potential dilution from outstanding warrants and other equity awards.