InspireMD, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Financial amounts below are in U.S. dollars; statements present most amounts in thousands. InspireMD develops and commercializes MicroNet-based stent products. Its CGuard carotid product was launched in Europe; no products could be marketed in the United States.
Financial performance
| Metric | Three months ended Sept. 30, 2015 | Nine months ended Sept. 30, 2015 |
|---|---|---|
| Revenue | $632,000, up 131% year over year | $1.794 million, down 7.9% |
| Gross profit (loss) | $89,000; 14.1% margin | ($160,000); (8.9)% margin |
| Operating expenses | $3.500 million | $11.714 million |
| Operating loss | ($3.411 million) | ($11.874 million) |
| Net loss | ($3.641 million), versus ($6.775 million) | ($12.731 million), versus ($20.305 million) |
| Net loss per share | ($0.48) | ($1.89) |
Quarterly revenue growth was mainly from CGuard sales, including initial sales through distributor Penumbra, and an increase in European sales. For the nine-month period, CGuard contributed $0.5 million, partly offset by a $0.7 million decline in MGuard sales. Management attributed weaker MGuard demand to physicians’ shift toward drug-eluting stents, lower distributor pricing and currency effects.
Operating expenses fell substantially year over year, largely reflecting reduced clinical-trial, research and development, and sales and marketing spending under the cost-reduction plan. Nine-month gross margin deteriorated due to inventory write-offs, higher CGuard production costs, product mix, manufacturing underutilization, and lower MGuard average selling prices.
Cash, liquidity and debt
- Cash and cash equivalents were $6.509 million at September 30, 2015, versus $6.300 million at December 31, 2014.
- Operating cash use was $9.379 million for the nine months; financing provided $9.605 million, including $12.4 million net proceeds from a March share-and-warrant offering, partly offset by $2.739 million of loan repayments. Cash increased $209,000 over the period.
- Current assets were $8.561 million and current liabilities $7.530 million; working capital was approximately $1.0 million and the current ratio was 1.1.
- Loan balances totaled approximately $6.270 million: $4.123 million current and $2.147 million long term, compared with $8.895 million at year-end 2014.
- Accumulated deficit was $120.142 million and stockholders’ equity remained negative at $574,000.
Management said existing resources were insufficient to fund operations beyond the first half of 2016 and disclosed substantial doubt about the company’s ability to continue as a going concern. Plans included further commercialization and raising capital through equity, debt, or strategic partnerships; success was not assured.
Material changes, outlook and risks
- The company curtailed development and promotion of its bare-metal stent platform, reduced headcount and spending, focused development on carotid and neurovascular products, and shifted toward third-party distributors. It received CE mark approval for CGuard’s rapid-exchange delivery system in January 2015 and fully launched the product in Europe.
- A $576,000 impairment was recorded on the MGuard royalty-buyout asset because of anticipated lower future sales. The company also recorded restructuring costs, including lease-exit and employee-termination costs.
- One distributor’s request for compensation related to prepaid goods subject to a voluntary field action was assessed as reasonably possible, with potential losses ranging from a minimal amount to €1.075 million.
- An Argentina employment dispute provision was reduced to $100,000 after a verbal settlement agreement, which management believed the court was highly likely to accept. A separate options claim was settled by allowing exercise of 5,855 options.
- The company cited distributor ordering patterns, regulatory and clinical timing, manufacturing efficiencies, foreign-exchange movements, reimbursement, competition, supplier dependence, product acceptance, and geopolitical conditions in Israel as risks. No formal financial guidance was provided.
- The NYSE MKT had accepted the company’s plan to regain compliance with its stockholders’ equity listing standard by July 20, 2016; failure to meet the plan could lead to delisting proceedings. The company completed a one-for-ten reverse stock split effective October 1, 2015 and reduced authorized common shares from 125 million to 50 million.
- Management concluded disclosure controls were effective at a reasonable assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether additional financing or strategic capital is secured in time to address the stated first-half-2016 cash runway and going-concern uncertainty.
- Whether CGuard sales can scale and improve margins, and whether MGuard demand and pricing continue to weaken.
- The timing and cash impact of the distributor field-action claim and other legal contingencies.
- Progress toward the NYSE MKT compliance deadline and the potential effect of any listing action.
- Exposure to distributor and customer concentration: Customer A and Customer B accounted for 31% and 21% of third-quarter revenue, respectively.