Myomo, Inc. 2018 Form 10-K Summary
Business context and reporting period
Myomo develops and sells MyoPro, a custom-fabricated, myoelectric-controlled upper-limb orthosis for individuals with neuromuscular disorders and partial paralysis. Products are sold through orthotics and prosthetics providers, the Veterans Health Administration, rehabilitation hospitals, distributors, and increasingly through direct patient sales with insurance billing.
The filing covers the fiscal year ended December 31, 2018. It is an annual filing rather than a standalone fourth-quarter filing. Myomo reported 45 full-time and one part-time employees at year-end and trades on the NYSE American under the symbol MYO.
Financial performance and liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $2.44 million | $1.56 million | +57% |
| Gross margin | $1.72 million | $1.05 million | +63% |
| Gross margin percentage | 70% | 68% | +2 percentage points |
| Research and development expense | $1.84 million | $1.75 million | +5% |
| SG&A expense | $10.41 million | $5.85 million | +78% |
| Loss from operations | $(10.53) million | $(6.55) million | Loss increased |
| Net loss | $(10.32) million | $(12.10) million | Loss decreased |
| Adjusted EBITDA | $(9.64) million | $(6.26) million | Loss increased |
| Net loss per share | $(0.84) | $(2.93) | Improved |
| Cash used in operating activities | $(9.61) million | $(6.15) million | Cash burn increased |
- Product revenue was approximately $2.38 million, including $363,000 of direct patient sales. There were no product sales to Ottobock in 2018, compared with significant sales to Ottobock in 2017.
- Grant revenue declined to approximately $65,000 from $118,000.
- Cash and cash equivalents were $6.54 million at December 31, 2018; restricted cash was $75,000. Working capital was $6.02 million and stockholders’ equity was $6.43 million.
- The company reported no debt at year-end. Total liabilities were $1.86 million, primarily accounts payable and accrued expenses.
- Financing activities provided $3.34 million, principally from $3.56 million of warrant exercises. Capital expenditures were $127,000.
- Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock-based compensation, depreciation, interest, and derivative-liability changes.
Material changes versus the prior comparable period
- Revenue increased $885,000, driven by higher average selling prices and increased product revenue, partly offset by lower distributor revenue and grant revenue.
- Gross margin improved to 70%, although management cited higher inventory and warranty provisions as offsets to pricing benefits.
- SG&A increased $4.56 million because of additional sales, marketing, reimbursement, administrative, professional-service, facility, and stock-based compensation costs.
- Operating loss widened despite revenue growth because operating expenses grew substantially faster than gross profit.
- Net loss improved primarily because 2017 included a $5.17 million non-cash debt discount expense related to convertible notes, as well as debt-extinguishment costs. The company held no debt during 2018.
- Cash used in operations increased by $3.45 million, reflecting continued expansion and operating losses.
- Myomo organized more than 200 patient screening days in the United States and continued shifting toward direct sales and insurance reimbursement efforts.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects continued operating and net losses while it expands sales and marketing, develops products, supports clinical research, and builds administrative capabilities. The filing does not provide formal revenue, earnings, or margin guidance.
- CMS issued new HCPCS codes L8701 and L8702 for MyoPro products, effective January 1, 2019. At the filing date, CMS had not established coverage criteria or allowable reimbursement amounts. Management expected a coverage and payment decision in the first half of 2019 but provided no guarantee of timing, coverage, access, or profitability.
- The auditor’s report includes an explanatory paragraph stating that substantial doubt exists about the company’s ability to continue as a going concern. Management stated that year-end cash plus approximately $5.6 million of net proceeds from a February 2019 public offering would not fund operations for the twelve months after the filing date and that additional capital would be required.
- Myomo expects available cash to fund operations through the end of calendar 2019, based on its then-current plan, but disclosed that it may need additional equity or debt financing thereafter. Failure to obtain financing could require curtailing operations or delaying the business plan.
- On February 12, 2019, Myomo sold 4,542,500 common shares at $1.40 per share for gross proceeds of approximately $6.4 million and issued the underwriter a warrant for 363,400 shares. The offering also triggered a reduction in the exercise price of outstanding 2017 warrants from $2.95 to $1.40 per share, creating potential dilution.
- As of December 31, 2018, potentially dilutive securities included 5.07 million warrants, 723,744 options, 38,125 restricted stock units, and 38,269 restricted shares.
- The company relies on Cogmedix for electromechanical manufacturing and GRE, a related party owned by a Myomo executive, for custom fabrication. Sales to a related-party O&P practice were approximately $306,000, while fabrication and consulting charges from the related party were approximately $530,000.
- Myomo relies on exclusive MIT licenses for core patents, with minimum license payments of $25,000 annually through 2023. The core patents expire in 2023, and the license may be terminated for certain uncured breaches or failure to meet obligations.
- Two customers represented approximately 25% of 2018 revenue excluding grant income, and two customers represented approximately 36% of year-end accounts receivable. Reimbursement denials, case-by-case payment decisions, customer concentration, manufacturing dependence, regulatory compliance, product liability, intellectual property, and competition are material risks.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls and internal control over financial reporting were effective at December 31, 2018; the auditor was not engaged to express an opinion on internal control effectiveness.
Most important facts for an investor to verify
- Whether CMS ultimately established favorable coverage criteria and reimbursement rates for L8701 and L8702, and whether private payers expanded coverage.
- Actual post-offering cash usage, operating runway, and the timing and terms of any additional financing.
- Whether revenue growth can outpace SG&A growth and reduce the substantial operating cash burn.
- Customer concentration, reimbursement collections, and the sustainability of direct patient sales.
- The effect of the February 2019 offering and warrant repricing on share count, dilution, and future financing capacity.
- Dependence on Cogmedix and related-party GRE, including pricing, capacity, quality, and continuity arrangements.
- Compliance with MIT license obligations and the commercial significance of patent expirations beginning in 2023.