InspireMD, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Financial figures are in U.S. dollars; amounts are in thousands unless stated otherwise. InspireMD develops and commercializes MGuard embolic-protection stents, sold mainly through distributors in international markets. The March 31, 2011 share exchange made InspireMD Ltd. a wholly owned subsidiary and is accounted for as a reverse recapitalization; historical results reflect InspireMD Ltd.
Financial performance and liquidity
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Revenue | $1,986 | $1,223 | $4,712 | $4,228 |
| Gross profit | $1,185 | $662 | $2,372 | $1,851 |
| Gross margin | 59.7% | 54.1% | 50.3% | 43.8% |
| Operating loss | $(2,150) | $(717) | $(5,492) | $(2,050) |
| Net loss | $(2,283) | $(847) | $(6,432) | $(2,239) |
| Net loss per share | $(0.04) | $(0.02) | $(0.11) | $(0.05) |
- Q3 revenue increased 62.4%; management attributed growth primarily to higher sales volume and expansion in markets including Russia and Ukraine. Nine-month revenue rose 11.4%, despite a $1.5 million decline in revenue recognized from deferred sales.
- Q3 gross margin improvement reflected lower production cost per stent and higher average selling prices, including MGuard Prime. For the nine-month period, average selling price was $570 per stent versus $643, while average cost fell to $283 from $362.
- Operating expenses rose to $3,335 in Q3 and $7,864 for nine months. General and administrative expense included substantial share-based compensation, notably director compensation; nine-month expense also included litigation provisions and higher public-company compliance costs.
- Nine-month financial expense was $895, including a one-time approximately $624,000 fair-value remeasurement of a convertible loan in Q1. The remaining $1.0 million Bridge Note principal was repaid in May; the filing reports no convertible loan balance at September 30.
- Cash and cash equivalents were $7,485 at September 30, compared with $636 at December 31, 2010. Nine-month operating cash use was $3,851; investing activities provided $120; financing activities provided $10,763. Financing inflows included equity and warrant issuances and option exercises.
- Current assets were $11,530 and current liabilities $3,598, yielding working capital of approximately $7,932. The balance sheet reports $183 of current loan maturities and no long-term loan balance; management’s discussion describes approximately $0.2 million of loan debt. Total liabilities were $3,855.
- Common shares outstanding increased from 49.9 million at year-end 2010 to 65.3 million at September 30, 2011. The company also had substantial outstanding options and warrants.
Outlook, risks and unusual items
- Management stated cash should fund operations into 2013, but additional cash may be needed in 2013 depending on 2011–2012 results. The filing also cautions that available resources may not fund all business objectives.
- On October 4, 2011, the company agreed to pay Harvard Clinical Research Institute an estimated $6.99 million for a clinical study expected to last 37 months, subject to scope adjustments and other costs. This is a significant future funding commitment.
- Key risks include ongoing losses and cash use, dependence on future financing, clinical-trial cost and execution, regulatory approval, product adoption, manufacturing capacity and quality, reliance on certain suppliers, international distributor concentration, intellectual-property challenges, and potential dilution. Management cited limited resources and uncertainty around liquidity and commercialization.
- Contingencies include a $327,000 provision for a finder claim, a settled claim involving $96,000 cash and 18,785 shares, and other employee, adviser and finder claims whose outcomes management said it could not reliably assess. A new finder claim was served November 14, 2011; its outcome was also not assessable.
- Shareholders approved authorization for a possible one-for-two to one-for-four reverse stock split and an increase in the equity plan reserve to 15 million shares. The board could effect the split before the 2012 annual meeting; neither action assures exchange listing or improved trading liquidity.
- Management concluded disclosure controls were effective at a reasonable-assurance level as of September 30, 2011. No material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether operating cash burn, clinical-trial spending and the estimated $6.99 million Harvard study remain consistent with the stated cash runway and financing needs.
- Whether revenue growth is repeatable, particularly given distributor concentration, the India shipment, deferred-revenue changes and product-return terms.
- The scale and timing of U.S. and other clinical trials, regulatory milestones, and evidence supporting MGuard safety, efficacy and commercial adoption.
- Current debt repayment terms, outstanding warrants and options, and potential dilution from the equity plan and future fundraising.
- Updates on litigation and other contingencies, including the finder claims and former-employee claims, and any related settlements or provisions.
- Whether the company completed a reverse split or obtained a national exchange listing, and the effects on liquidity and share trading.