InspireMD, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014, compared with the three months ended March 31, 2013. Balance-sheet amounts are compared with December 31, 2013. Financial statement amounts are in U.S. dollars, generally thousands, except per-share data.
Business context and key financial metrics
InspireMD develops and commercializes MGuard stent technology for embolic protection in coronary procedures. It sells mainly through international distributors and direct hospital sales in parts of Europe.
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Revenue | $1.482 million | $1.514 million |
| Gross profit / margin | $857,000 / 57.8% | $840,000 / 55.5% |
| Operating expenses | $6.392 million | $4.051 million |
| Operating loss | $5.535 million | $3.211 million |
| Net loss / loss per share | $5.968 million / $0.18 | $4.885 million / $0.27 |
| Operating cash used | $3.709 million | $2.817 million |
| Cash and cash equivalents | $13.706 million | $17.535 million at Dec. 31, 2013 |
| Total debt | $9.847 million | $9.774 million at Dec. 31, 2013 |
| Working capital | $9.7 million surplus | $5.7 million higher at Dec. 31, 2013 |
Net cash decreased $3.829 million during the quarter. Current assets were $17.211 million and current liabilities were $7.508 million; management reported a 2.3-to-1 current-assets-to-current-liabilities multiple. Accumulated deficit was $88.3 million. The company had 34.054 million shares issued and outstanding at March 31 and reported 34.983 million outstanding on May 6.
Material changes versus the prior-year quarter
- Revenue declined $32,000, or 2.2%, reflecting lower sales volume and prices. Higher Middle East revenue was offset by lower European revenue as the company shifted certain markets from distributors to direct sales. Management said the transition could take two to three quarters or longer.
- Gross margin improved to 57.8% from 55.5%; excluding a $52,000 slow-moving inventory write-off, management stated it would have been 61.3%.
- Research and development expense rose to $2.577 million from $907,000, primarily as MASTER II entered trial setup and enrollment. Selling and marketing expense increased to $1.276 million from $804,000 as sales activities expanded.
- Net loss widened by $1.083 million, primarily because of higher operating expenses. The comparison is affected by substantial noncash financing items in Q1 2013; management estimated that excluding specified noncash effects, Q1 2013 net loss would have been $3.4 million.
- Customer concentration was notable: Customer A represented 40% and Customer B 14% of Q1 2014 revenue. The Middle East contributed $624,000 of revenue.
Outlook, liquidity, risks and unusual items
- Going concern and financing: The company reported recurring losses and negative operating cash flows, and stated that its forecasts did not show sufficient resources to fund operations into the third quarter of 2015. Management identified continued commercialization and additional equity or debt financing, including its at-the-market program, as plans, but gave no assurance of obtaining necessary funding. The filing states there is substantial doubt about the company’s ability to continue as a going concern.
- Product corrective action: On April 30, 2014, after the quarter, the company initiated a voluntary field corrective action for MGuard Prime EPS following reports of stent dislodgements. No patient harm had been reported in the cases reviewed. Shipments were stopped and MASTER II enrollment suspended pending regulatory review. The company estimated corrective-action expenses of $200,000–$300,000, primarily in Q2 2014, and anticipated European review by the end of Q2; these were expectations, not guarantees.
- Other risks: The filing highlights clinical and regulatory approval uncertainty, product liability and recall exposure, dependence on a single manufacturing facility, competition, customer and supplier concentration, currency movements, and the need for additional capital. It reported no material litigation as of the filing date; one Argentine labor claim had a $250,000 provision, with a possible additional loss estimated at up to $80,000.
- Other items: Q1 2014 share-based compensation was $1.019 million in the cash-flow reconciliation. The company granted 1.287 million options and 445,240 restricted shares during the quarter. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
Guidance: No formal revenue or earnings guidance is provided. Management’s stated outlook centers on commercialization, fundraising, the anticipated corrective-action review, and resumption of shipments subject to regulatory approval.
Important facts for investors to verify
- Available cash, quarterly cash burn, financing progress, and whether the stated runway or going-concern assessment changes.
- Regulatory review and corrective-action completion, the timing and cost of product modifications, and when MGuard Prime EPS shipments and MASTER II enrollment may resume.
- Sales recovery as European direct-sales channels develop, customer concentration, and whether the gross-margin improvement persists.
- Clinical-trial spending and results, product safety reports, and any developments in the disclosed litigation or other contingencies.