Vivani Medical, Inc. — 10-Q summary
Important identity discrepancy: The supplied filing is for Second Sight Medical Products, Inc., not Vivani Medical, Inc. Confirm that this is the intended filing before relying on this summary.
Business context and reporting period
The filing reports the unaudited quarter ended March 31, 2016, compared with the quarter ended March 31, 2015. Second Sight develops and sells the Argus II retinal prosthesis for people with profound vision loss caused by retinal degeneration. It also reports development work on an expanded Argus II indication and a cortical prosthesis. Financial amounts below are in U.S. dollars; financial statements present amounts in thousands unless noted.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Net sales | $1.053 million | $1.700 million; down 38% |
| Gross profit / margin | $141,000 / 13% | $404,000 / 24% |
| Operating expenses | $5.962 million | $5.365 million |
| Operating loss | $5.821 million | $4.961 million |
| Net loss | $5.816 million; $0.16 per share | $4.956 million; $0.14 per share |
| Cash used in operating activities | $6.039 million | $5.030 million |
At March 31, cash was $459,000 and money market funds were $9.786 million, totaling $10.245 million, down $5.715 million from December 31. Working capital was $14.457 million, down 23% from year-end. Total assets were $22.559 million and current liabilities were $6.623 million. The balance sheet reports no debt liability; it does include $325,000 of deferred revenue and $1.630 million of deferred grant revenue. Investing activities provided $5.845 million, primarily from converting money market funds to cash; financing activities provided $387,000 from option exercises.
Changes, outlook, and material risks
- Implants fell to 10 from 19 year over year. Management attributed the decline to temporary administrative issues at some European sites and lower North American volume amid reimbursement concerns. Revenue recognized per implant rose to $105,000 from $89,000, partly because previously deferred U.S. revenue was recognized.
- Management expected implant volumes to rebound over the next few quarters, but this was an expectation, not a guarantee. Temporary U.S. discounts through December 2016 were expected to bring average revenue per implant to about $80,000–$90,000 for the rest of 2016. If Medicare reimbursement increased, management expected average revenue per implant could exceed $100,000 in 2017.
- Management expected 2016 gross margins to be significantly below 2015 levels, citing lower production volumes, higher unit costs, and lower expected revenue per implant. R&D, clinical and regulatory, and sales and marketing costs were also expected to rise over time.
- Going concern: The company reported recurring operating losses and negative operating cash flows since inception. Management and the auditor had raised substantial doubt about the company’s ability to continue as a going concern. Without adequate financing, the filing says the company might not be able to continue operating at current levels beyond Q3 2016.
- A proposed shareholder rights offering, pending regulatory approvals, could raise up to $19.8 million gross if fully subscribed. Two shareholders had verbally indicated interest in investing up to an aggregate $12.75 million, including through oversubscription, but were not obligated to do so. The filing provides no assurance that the offering would raise adequate funds.
- Medicare outpatient payment was $95,000 for the procedure and system in 2016; the company said hospital costs could require at least $150,000. As of March 31, five of 12 Medicare Administrative Contractor jurisdictions had positive coverage decisions. Coverage and reimbursement remain important uncertainties for demand.
- Other risks include reliance on sole-source suppliers, concentration among a small number of customers, foreign currency exposure without hedging, and 14 European patent oppositions. Management did not expect the patent matters to materially affect operations, but outcomes were uncertain.
- Development plans included Argus II hardware and software enhancements, an AMD pilot study involving five patients, and preclinical Orion I cortical-prosthesis work. Timing, costs, regulatory success, and commercial outcomes were uncertain.
Most important facts for an investor to verify
- Whether the intended company is Second Sight Medical Products or Vivani Medical; the supplied filing identifies Second Sight.
- The status, actual proceeds, and dilution effects of the proposed rights offering, and whether financing adequately addressed the going-concern risk.
- Subsequent implant volumes, realized revenue per implant, gross margins, and progress toward broader reimbursement coverage.
- Cash use and liquidity after March 31, 2016, including whether operating runway assumptions were met.
- Developments in the AMD trial, Argus II product updates, Orion I development, supplier continuity, and the European patent oppositions.