SI-BONE, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; the supplied text does not provide clear standalone fourth-quarter financial results. Comparisons below are FY 2019 versus FY 2018.
Business context
SI-BONE develops and sells the iFuse implant system for minimally invasive sacroiliac-joint fusion. Revenue is generated from iFuse products, with most sales in the United States. The company reported more than 44,000 procedures performed since launch, and more than 8,000 procedures globally in 2019. FDA clearance in April 2019 expanded promotion of the Bedrock technique for use with multi-level spinal fusion; the corresponding European CE marking followed in December 2019.
Financial performance and position
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $67.3 million | $55.4 million | +22% |
| Gross profit / margin | $60.5 million / 90% | $50.5 million / 91% | Gross profit +20%; margin down 1 percentage point |
| Operating expenses | $96.5 million | $62.5 million | +54% |
| Loss from operations | $(36.0) million | $(12.0) million | Loss widened |
| Net loss | $(38.4) million | $(17.5) million | Loss widened |
| Net loss per share, basic and diluted | $(1.55) | $(2.20) | Improved per share |
| Operating cash flow | $(31.6) million | $(14.5) million | Cash use increased |
U.S. revenue was $61.8 million (92% of total), compared with $50.1 million (91%) in 2018; international revenue was $5.5 million, versus $5.2 million. Sales growth was primarily attributed to U.S. case-volume gains following sales-force expansion and surgeon training. Operating-expense growth, particularly in sales and marketing, substantially outpaced revenue growth.
At December 31, 2019, cash and cash equivalents were $10.4 million, short- and long-term investments were $82.6 million, and total cash and investments were $93.1 million, down from $122.2 million a year earlier. Current assets were $111.5 million and current liabilities were $18.8 million. Total debt principal was $40.0 million ($39.2 million net of issuance costs); the balance sheet classified $4.4 million as current and $34.9 million as long-term. Stockholders’ equity was $63.0 million, and accumulated deficit was $195.6 million.
Material changes and notable items
- Sales and marketing expense rose 53% to $68.3 million as the company expanded its commercial organization; research and development expense increased 35% to $7.3 million.
- General and administrative expense rose 66% to $21.0 million, including a $3.2 million accrual for a TCPA class-action settlement concerning fax invitations. The company stated the final loss could exceed the accrued amount. A settlement agreement was executed in January 2020.
- Active surgeons increased to 539 from 450. U.S. payors covering 282.7 million lives regularly reimbursed for iFuse, up from 256.2 million; 32 tracked private payors had exclusive iFuse coverage policies.
- The company adopted ASC 606 revenue recognition in 2019; it reported no material impact on its financial statements.
- After year-end, a January–February 2020 follow-on offering generated $63.4 million in net proceeds before offering expenses for the company. Selling stockholders also sold shares; SI-BONE received no proceeds from those sales.
Outlook, risks and contingencies
Management expected operating expenses and losses to continue as it invested in commercial expansion, product development, training and clinical activities. It stated that year-end 2019 cash and investments were expected to fund operating expenses and capital expenditures for at least the next 12 months under its then-current plan; this assessment preceded the 2020 offering proceeds. The filing provides no specific revenue or earnings guidance.
- The Pharmakon term loan bears fixed interest at 11.5%, is interest-only through September 2020, and is scheduled for quarterly principal repayments through December 2022. It is secured by substantially all company assets, including intellectual property, and includes a $5.0 million minimum-cash covenant plus alternative sales or EBITDA targets. SI-BONE reported compliance at year-end; failure to meet the covenants could accelerate repayment.
- Key business risks include reliance on the iFuse product family and a limited number of suppliers, including RMS as the sole iFuse-3D supplier; competition and pricing pressure; uncertain payor coverage and reimbursement; regulatory and clinical risks; and continued operating losses and cash use.
- The filing identifies COVID-19 as a potential risk to elective procedures, hospital activity, supply and distribution, and demand. The ultimate effect was uncertain.
- In February 2020, SI-BONE entered a joint development agreement with SeaSpine, whose CEO is also an SI-BONE director, for a next-generation sacropelvic fixation device. Terms include monthly reimbursements of approximately $10,000, shared or separate ownership of project intellectual property, and royalties to SeaSpine on resulting product sales for 10 years after launch.
- The company reported effective disclosure controls and effective management-assessed internal control over financial reporting as of year-end. The auditor did not attest to internal-control effectiveness because SI-BONE qualified for the emerging-growth-company exemption.
Important facts for investors to verify
- Whether revenue and procedure growth can support a path toward profitability, given expense growth and higher operating cash use.
- Current liquidity after the 2020 offering, and compliance with the loan’s minimum-cash and sales-or-EBITDA covenants as repayments began.
- The final cost and disposition of the TCPA settlement, which could exceed the $3.2 million accrual.
- Whether payor coverage, surgeon adoption and reimbursement rates continue to expand, and how competition or coverage restrictions affect iFuse-3D sales and pricing.
- Whether supply continuity is adequate given dependence on third-party manufacturers and the sole-source supply of iFuse-3D implants.
- The development, regulatory and commercial terms of the SeaSpine collaboration, including related-party governance and potential royalty obligations.