InspireMD, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. InspireMD develops and commercializes MicroNet-based vascular stents, principally CGuard EPS for carotid disease and MGuard Prime EPS for coronary procedures. Products were marketed internationally, primarily through distributors; the company stated that none could then be marketed in the United States.
Financial performance
Amounts below are in U.S. dollars; financial statement amounts are in thousands except per-share data.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $980 | $939 | $2,327 | $2,708 |
| Gross profit / margin | $298 / 30.4% | $128 / 13.6% | $473 / 20.3% | $497 / 18.4% |
| Operating expenses | $2,493 | $2,125 | $7,135 | $7,807 |
| Operating loss | $(2,195) | $(1,997) | $(6,662) | $(7,310) |
| Net loss | $(2,233) | $(2,070) | $(6,691) | $(7,483) |
| Basic and diluted net loss per share | $(0.06) | $(1.26) | $(0.38) | $(5.79) |
- Q3 revenue rose 4.4%; MGuard sales increased, while CGuard sales declined slightly. Nine-month revenue fell 14.1%, with lower sales of both products, primarily attributed to pandemic-related postponements of procedures.
- Q3 gross margin improved to 30.4%, including lower write-offs than in the prior-year quarter. Nine-month gross margin improved despite lower revenue.
- Q3 operating expenses increased 17.3%, including higher R&D for CGuard enhancements and higher G&A. Nine-month operating expenses declined 8.6%, mainly due to lower R&D and selling and marketing costs; G&A rose, including a $400,000 underwriter settlement expense.
- Nine-month net loss narrowed 10.6%; Q3 net loss widened 7.9% as higher operating expenses more than offset improved gross profit.
Cash, liquidity and capital
- Cash and cash equivalents were $10.882 million at September 30, 2020, versus $5.514 million at December 31, 2019. Working capital was $10.767 million; current assets were $13.336 million and current liabilities $2.569 million, a reported current ratio of 5.2.
- For the first nine months, operating cash use was $6.881 million, investing cash use was $83,000, and financing provided $12.327 million. Cash increased by $5.368 million.
- The June public offering generated approximately $10.7 million net; additional warrant exercises and ATM sales contributed to financing proceeds. Q3 ATM sales generated $158,000 net proceeds.
- No conventional borrowings are presented on the balance sheet. Reported liabilities were $4.329 million, principally accounts payable/accruals, operating lease liabilities and employee retirement obligations.
- Common shares outstanding were 36.059 million at quarter-end and 36.955 million as of November 5. The filing reported 26.706 million warrants outstanding and preferred shares convertible into approximately 2.254 million common shares, subject to stated terms and adjustments.
Developments, outlook and risks
- Management said available resources were expected to fund operations only through Q3 2021 and disclosed substantial doubt about the company’s ability to continue as a going concern. It expects ongoing losses and negative operating cash flows and plans to pursue commercialization and additional financing, including equity, debt or strategic partnerships; success is not assured.
- COVID-19 delayed elective procedures and reduced demand; management anticipated continued sales pressure and could not predict when procedures would return to pre-pandemic levels. Supplier disruption and restrictions could also affect manufacturing. No quantified revenue or earnings guidance was provided.
- The FDA approved the IDE for the CARENET-III pivotal U.S. CGuard study in September 2020. InspireMD also received Brazilian registration clearance and launched CGuard there. U.S. commercial sales were not yet permitted.
- A former distributor’s suit seeks damages of up to approximately $2.0 million, or alternatively approximately $1.2 million. Management assessed a reasonably possible loss ranging from minimal to the full claimed amount. A former employee’s labor claim was assessed as neither probable nor estimable.
- The July underwriter settlement involved a $400,000 cash payment and repricing of warrants covering 274,029 shares to $0.495 per share. The company also cited dilution risk from preferred-stock anti-dilution provisions, warrants and potential future financing.
- Other stated risks include market acceptance and regulatory approval, clinical-trial outcomes, dependence on a single manufacturing facility, competition, reimbursement, foreign-exchange movements, NYSE American listing compliance and stock-price volatility. The company reported regaining NYSE American compliance in August 2020.
Investor verification priorities
- Assess cash burn, financing needs and the going-concern disclosure, particularly the stated runway through Q3 2021.
- Track procedure volumes and sales recovery by product and region as COVID-19 conditions evolve.
- Verify progress, costs and timing for CARENET-III and any subsequent U.S. regulatory or commercial milestones.
- Review potential dilution from outstanding warrants, convertible preferred stock, equity awards and future capital raises.
- Monitor the distributor litigation, manufacturing and supplier continuity, and the terms and consequences of the underwriter settlement.