Business context and reporting period
This is Sunshine Heart, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015, filed November 5, 2015. The filing identifies the registrant as Sunshine Heart, Inc.; the request metadata names Nuwellis, Inc.
Sunshine Heart was an early-stage medical-device company developing the C-Pulse Heart Assist System for heart failure. The device was not approved for commercial sale in the United States. The company’s principal activity was clinical development, including the U.S. COUNTER HF pivotal study; it also held CE Mark approval and was conducting a European post-market study.
Key financial metrics
Amounts below are in millions of U.S. dollars unless otherwise stated.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0.059 | $0.059 | $0.118 |
| Operating expenses | $6.273 | $6.169 | $19.663 | $19.249 |
| Operating loss | $(6.273) | $(6.110) | $(19.604) | $(19.131) |
| Net loss | $(6.558) | $(6.132) | $(19.979) | $(18.844) |
| Loss per share | $(0.36) | $(0.36) | $(1.11) | $(1.12) |
| Cash used in operations | Not separately provided | Not separately provided | $(18.232) | $(17.358) |
Revenue was too limited for meaningful margin analysis. At September 30, 2015, cash and cash equivalents were $27.899 million; current assets were $28.664 million and current liabilities $6.052 million. Working capital was approximately $22.612 million. Total liabilities were $10.932 million and stockholders’ equity was $18.435 million.
Debt comprised $8.0 million of Silicon Valley Bank borrowings, reported net of $0.253 million unamortized debt discount. The balance sheet classified $2.867 million as current and $4.880 million as long-term debt, net of discount. Cash fell $3.394 million from year-end 2014. Financing provided $15.055 million, including $8.0 million of borrowings and $7.055 million net proceeds from stock sales.
Material changes versus the prior comparable period
- Nine-month revenue declined 50% to $59,000; one device implant generated recognized revenue in 2015 versus two in 2014. Q3 revenue was zero versus $59,000.
- Nine-month R&D expense rose 9.1% to $13.404 million, while SG&A declined 10.1% to $6.259 million. For Q3, R&D increased 19.4% and SG&A decreased 26.9% year over year.
- Nine-month net loss widened to $19.979 million from $18.844 million, and operating cash use increased to $18.232 million from $17.358 million.
- Other expense increased, primarily reflecting interest on the new bank debt. The 2015 nine-month tax benefit was $124,000, compared with $265,000 in 2014.
- Cash decreased from $31.293 million at December 31, 2014, despite debt proceeds and equity issuance; common shares outstanding increased to 18.338 million from 16.983 million.
Outlook, risks, and unusual items
- Management expected continued losses and minimal revenue until U.S. pivotal-study enrollment increased and reimbursement was established in selected European markets. It expected R&D expense to remain above prior-year levels as clinical enrollment and development of a fully implantable system advanced.
- COUNTER HF enrollment was temporarily paused in March 2015 and resumed after FDA approval in May. In August, the FDA approved a change to the study’s stopping-rule criteria, from all-cause deaths to deaths associated with the device, procedure, or therapy. The study was expected to randomize 388 patients at up to 40 sites.
- The company failed to meet the milestone for the final $2.0 million available under its bank facility, so that borrowing was not obtained. The loan agreement required at least $20.0 million of unencumbered net proceeds from an equity financing by March 31, 2016, or an alternative arrangement with the lender. The company was negotiating with the bank but gave no assurance of an amendment or successful financing.
- Interest-only payments were to continue through January 1, 2016, after which principal and interest were scheduled to be repaid in 24 equal monthly installments. A default could make the debt immediately payable; the loan is secured by company assets, subject to the stated intellectual-property provisions.
- Management warned that cash might not cover operations and scheduled debt repayments for the next 12 months. The company said additional capital would be needed and that failure to obtain financing or commercialize its product could threaten its ability to continue as a going concern.
- The company had $32.6 million remaining available under its at-the-market stock sales agreement as of September 30, 2015. Further equity issuance could dilute shareholders; debt financing could add senior claims and restrictive covenants.
- The company reported no material legal proceedings, no material capital-expenditure commitments, and no material changes to internal control over financial reporting. Disclosure controls were assessed as effective at a reasonable assurance level.
Important facts for investors to verify
- Whether the $20.0 million equity-financing covenant was met, waived, or amended by March 31, 2016, and the status and terms of the bank debt.
- Cash burn, available liquidity, and subsequent financing needs relative to scheduled debt repayments.
- COUNTER HF enrollment, clinical outcomes, regulatory developments, and the impact of the revised stopping rule.
- Progress toward U.S. commercialization and European reimbursement, including the German reimbursement application noted as pending in the filing.
- The discrepancy between the requested company name, Nuwellis, Inc., and the registrant named in this 2015 filing, Sunshine Heart, Inc.