Business context and reporting period
Filing/entity mismatch: The supplied filing is Second Sight Medical Products, Inc. (NASDAQ: EYES), not Vivani Medical, Inc. It is the company’s Form 10-K for the fiscal year ended December 31, 2018, filed March 18, 2019; it includes unaudited fourth-quarter results.
Second Sight develops and sells the Argus II retinal prosthesis for certain patients with retinitis pigmentosa and is developing Orion, a cortical visual prosthesis intended for a broader population of blind individuals. Argus II generated the company’s commercial revenue; Orion remained in an early feasibility study.
Financial performance and position
Amounts below are in U.S. dollars; annual figures are for the year ended December 31.
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $6.9 million | $8.0 million |
| Gross profit / margin | $2.0 million / 29% | $2.8 million / 36% |
| Operating expenses | $37.2 million | $31.5 million |
| Operating loss | $35.2 million | $28.6 million |
| Net loss | $35.1 million | $28.5 million |
| Net loss per share | $0.53 | $0.53 |
| Cash used in operating activities | $29.8 million | $23.9 million |
Fourth-quarter 2018 revenue was $1.77 million, gross profit $0.17 million, operating loss $8.88 million, and net loss $8.86 million. In fourth-quarter 2017, the corresponding figures were $3.11 million, $1.25 million, $7.43 million, and $7.41 million.
At December 31, 2018, cash and cash equivalents were $4.47 million, working capital was $2.02 million, total assets were $10.68 million, and stockholders’ equity was $3.08 million. Current liabilities were $7.60 million. The balance sheet shows no debt balance; the filing describes operations as financed principally by equity, grants, and product revenue. Financing activities provided $26.6 million in 2018, primarily from stock issuance, while cash declined by $3.37 million during the year.
Material changes versus the prior comparable period
- Revenue fell 14% year over year. Management attributed the decline to lower international sales amid commercial restructuring and lower average revenue recognized per implant, partly reflecting U.S. reimbursement rates. Worldwide implant volume was 69 in 2018 versus 75 in 2017; the filing separately reports 64 versus 67 implants recognized for revenue.
- Gross margin declined to 29% from 36%, which management attributed in part to lower production volumes and higher per-unit costs. The 2017 comparison also included a $3.1 million inventory-reserve reversal.
- Operating expenses rose $5.7 million, led by higher R&D and clinical/regulatory spending. Net loss increased by $6.6 million.
- Cash used in operations increased by $5.9 million, and year-end cash fell from $7.84 million to $4.47 million. Working capital decreased from $6.55 million to $2.02 million.
Outlook, risks, contingencies, and unusual items
- Capital and liquidity: The company reported recurring operating losses and negative operating cash flows and said additional financing may be needed. It stated that cash, the February 2019 rights offering proceeds, and anticipated Argus II revenue were expected to fund operations for at least 12 months from the report date. The February 2019 offering raised approximately $34.6 million gross through shares and warrants; entities affiliated with Chairman Gregg Williams invested approximately $30 million. This subsequent financing is not included in December 31, 2018 cash.
- Argus restructuring: In October 2018, Second Sight stopped supporting new Argus II implants in Turkey, Iran, Singapore, and Russia while retaining support for existing patients and selected markets. It recorded approximately $0.6 million of fourth-quarter restructuring charges and forecast annual savings of approximately $3.0 million, to be redirected toward Orion and related projects.
- Orion development: Five subjects had been implanted and activated during 2018; a sixth was implanted in January 2019. Management planned further feasibility enrollment and FDA discussions on a pivotal study during 2019. Its anticipated minimum study design was 30 subjects with at least six months of follow-up, subject to agreement with the FDA. The filing cautions that early results may not predict pivotal-trial outcomes and that approval is uncertain.
- Clinical/device events: One Orion subject experienced a seizure during a stimulation-algorithm evaluation in June 2018; it resolved quickly with medication, and the subject continued in the study after review. In January 2019, elevated impedance on 11 of 60 electrodes in the first subject’s implant reduced phosphene response from some electrodes. The company reported no known safety risk, was investigating root cause, and could not rule out similar or broader issues.
- Market access and regulatory risks: Argus II reimbursement varies by payer and geography. The company reported positive Medicare coverage in eight of 12 jurisdictions. Its CE Mark was due for renewal by September 1, 2019; failure to renew could prevent sales in most international markets. The filing also described potential MDSAP compliance requirements for Canadian sales and a January 2019 Nasdaq notice regarding the stock’s bid price below $1.00.
- Other exposures: The company reported patent opposition proceedings in Europe, sole-source supplier dependencies, product-liability exposure (with $10 million aggregate insurance coverage), and possible equity dilution. The filing notes a Section 382 ownership change that limits use of tax-loss carryforwards. No pending material legal proceedings were reported apart from matters involving Pixium described in the risk factors.
- Audit and controls: The auditor gave an unqualified opinion on the financial statements but highlighted dependence on additional financing in its liquidity discussion. Management said internal control over financial reporting was effective; the auditor did not issue an internal-control opinion.
Most important facts for investors to verify
- Confirm the issuer: this document is Second Sight Medical Products’ 2018 10-K, not a Vivani Medical filing.
- Review post-year-end financing, cash runway assumptions, and the extent of reliance on Chairman-affiliated investors.
- Track Argus II sales, reimbursement, implant volumes, gross margins, and whether restructuring savings are realized.
- Monitor Orion electrode-impedance investigation, clinical safety and efficacy data, enrollment, and FDA-agreed pivotal-trial requirements.
- Check CE Mark renewal, Nasdaq bid-price compliance, and the potential effects of dilution and outstanding warrants.