Filing summary
Issuer identity: The request identifies Vivani Medical, Inc., but the supplied Form 10-Q is for Second Sight Medical Products, Inc. (now associated with the Argus II retinal prosthesis). Confirm that this is the intended filing before relying on this summary.
Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2015; the comparable periods are 2014. Second Sight develops and sells the Argus II System, an implantable retinal prosthesis for people blinded by retinitis pigmentosa. The filing also describes an early AMD study and preclinical development of the Orion I cortical prosthesis.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $2.23 million | $0.61 million | $6.59 million | $1.88 million |
| Gross profit (loss) | $1.47 million | $0.19 million | $2.97 million | ($0.26 million) |
| Gross margin | 66% | 32% | 45% | (14%) |
| Operating loss | ($4.66 million) | ($5.65 million) | ($14.57 million) | ($15.67 million) |
| Net loss | ($4.67 million) | ($7.64 million) | ($14.54 million) | ($21.62 million) |
For the nine months, operating cash used was $14.65 million, versus $16.00 million a year earlier. Investing activities provided $12.02 million, largely from converting money-market investments to cash; financing provided $2.35 million, mainly from option and warrant exercises. Cash and money-market funds totaled $21.67 million at September 30, down from $34.62 million at December 31, 2014. Working capital was $23.08 million, versus $33.52 million. Total assets were $33.29 million and current liabilities $8.78 million. The balance sheet reported no debt; the prior convertible notes had converted to equity at the November 2014 IPO.
Changes versus prior periods
- Sales rose 265% in Q3 and 251% for the first nine months. The company reported 15 implants in Q3 2015 versus five in Q3 2014, and 54 for the nine months versus 14. Growth reflected increased implants in North America and Europe/Middle East, including reimbursement programs in France and Italy.
- Nine-month gross margin improved from negative 14% to positive 45%, which management attributed to higher production volumes and yields, lower unit costs, and higher revenue. Manufacturing yields remained low and quarterly margins may fluctuate.
- Operating expenses increased 5% in Q3 and 14% for the nine months. Lower reported R&D expense was mainly due to grant funding; clinical/regulatory, sales/marketing, and general/administrative costs increased.
- Net losses narrowed substantially, partly because the prior-year periods included convertible-note interest and discount amortization that ceased after the IPO conversion.
Outlook, risks, and unusual items
- Management expected 2015 revenue recognized per implant of approximately $110,000–$125,000, but said the outlook beyond Q4 2015 was uncertain following CMS’s final 2016 outpatient payment rate of $95,000 for the procedure and system. The company planned to meet with CMS and submit comments seeking a higher rate. Management warned that an unchanged rate could materially harm short- and medium-term cash flow, financial position, and results.
- Management expected current cash and money-market funds to fund operations into Q4 2016, while anticipating a need to raise debt or equity capital in the following months. There was no assurance financing would be available on acceptable terms. The company expected continuing operating losses and negative operating cash flows through 2016 and likely thereafter; insufficient funds could force cuts to development or trials, strategic arrangements involving product rights, or cessation of operations.
- Plans included new Argus II software in the first half of 2016 and new eyewear/VPU in late 2016. A small AMD pilot study was underway; a larger efficacy trial could begin in 2016 depending on results. Timing and costs for Orion I clinical trials were not estimable.
- Reimbursement availability and adequacy are central commercial risks. Other risks include reliance on sole-source suppliers, foreign currency exposure (no currency hedges in place), and customer concentration. Thirteen European patent oppositions challenge company patents; management did not expect a successful challenge to materially affect operations.
- Potential dilution includes up to 411,914 shares under IPO Long Term Investor Rights based on the stock-price measurement disclosed, plus outstanding warrants, options, restricted stock units, and employee stock purchase plan awards. Actual Long Term Investor Right shares depend on future stock prices and may range from zero to that maximum.
Important facts for investors to verify
- Confirm the filing issuer and period: the supplied document names Second Sight Medical Products, Inc., not Vivani Medical, Inc.
- Review CMS’s final 2016 payment rate, the company’s subsequent submissions and discussions, and realized reimbursement and revenue per implant.
- Assess cash burn, expected financing needs, and whether the stated Q4 2016 runway remains supportable.
- Track implant volumes, manufacturing yields, gross margins, and the extent to which R&D expense depends on grant funding.
- Check progress and costs for the AMD study and product upgrades, and monitor patent challenges, supplier concentration, and potential share dilution.