Business context and reporting period
The supplied filing is Second Sight Medical Products, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018—not a filing under the name Vivani Medical, Inc. Second Sight develops and sells the Argus II retinal prosthesis and is developing the Orion visual prosthesis.
Financial performance and position
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net sales | $1.91 | $2.24 | $2.88 | $3.25 |
| Gross profit (margin) | $1.07 (56.2%) | $1.11 (49.6%) | $1.38 (47.8%) | $0.99 (30.5%) |
| Operating expenses | $9.06 | $7.98 | $19.14 | $15.42 |
| Net loss | $(7.96) | $(6.84) | $(17.71) | $(14.39) |
| Net loss per share | $(0.12) | $(0.12) | $(0.29) | $(0.28) |
| Operating cash used | Not stated for quarter | Not stated for quarter | $14.62 | $12.56 |
- At June 30, cash and cash equivalents were $7.48 million, total current assets $12.36 million, current liabilities $7.07 million, and working capital approximately $5.3 million. Total assets were $13.62 million; stockholders’ equity was $6.54 million.
- The balance sheet reports no debt; liabilities presented are current operating liabilities. Cash fell $0.36 million from year-end 2017. Six-month investing cash use was $0.12 million and financing cash provided was $14.39 million.
- Revenue was recognized for 17 implants in Q2 2018 versus 20 in Q2 2017, and 26 in the first half versus 29 a year earlier. The company reported 33 implantations in each first-half period, reflecting timing differences between implantation and revenue recognition.
Material changes versus prior periods
- Sales declined 14% in Q2 and 9% in the first half. Direct-channel revenue was $1.80 million in Q2 and $2.46 million in the first half; distributor revenue was $0.11 million and $0.43 million, respectively.
- First-half operating expenses rose 24%, led by research and development ($4.90 million, up 29%), clinical and regulatory ($2.48 million, up 92%), and selling and marketing ($5.89 million, up 26%). Management attributed increases principally to Orion feasibility work, next-generation product development, and commercial and market-development spending.
- Gross margin improved year over year, while reported cost of sales was affected by excess-inventory reserve adjustments. The first-half 2017 comparison included a $1.4 million reduction in that reserve; 2018 included a $0.1 million increase.
- Common shares outstanding increased to 67.08 million from 57.63 million at December 31, 2017. The company raised $10 million net in a May 2018 private placement to entities beneficially owned by its chairman and $4 million net through its at-the-market program earlier in 2018.
Outlook, risks and unusual items
- Going concern and funding: Management stated that available funds were insufficient for the next 12 months from issuance of the financial statements; management and the auditor identified substantial doubt about the company’s ability to continue as a going concern. Additional financing, grants, collaborations, or partnerships may be unavailable or on unfavorable terms. Failure to obtain funding could force cuts or delays to development, clinical trials, or operations.
- Management outlook: Expected average revenue recognized per Argus II implant for the remainder of 2018 was $100,000–$120,000, depending on geographic mix. Management expected research, clinical/regulatory, and selling and marketing costs to rise as product development and commercialization continue, and anticipated improved manufacturing yields and cost stability as production increases.
- Products and reimbursement: Orion’s five planned initial feasibility-study subjects had been implanted and activated; FDA approval to enroll a sixth was received, and screening was underway. Management said the study could support a larger trial in 2019, but results in this small study may not predict later outcomes. Medicare’s proposed 2019 national average outpatient rate for Argus II and implantation was $137,501; the final rate was pending. Coverage and payment vary by payer and geography.
- Other risks and items: Twenty-two European patent oppositions challenge patents the company owns or licenses. The filing describes potentially serious Orion clinical and surgical risks. Entities affiliated with the chairman held approximately 39.7% of outstanding shares as of July 31, 2018, with potential beneficial ownership of 45.3% including exercisable options or warrants. A separation agreement with a former executive included $0.4 million severance and a $0.1 million charge related to extending option exercise periods.
- Management said disclosure controls were effective at a reasonable assurance level, while previously identified material weaknesses in internal control over financial reporting remained under remediation. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer: the supplied 10-Q names Second Sight Medical Products, Inc., not Vivani Medical, Inc.
- Assess funding runway, cash burn, financing availability, and the consequences of the explicit going-concern warning.
- Track Argus II sales, implant-to-revenue timing, payer coverage, reimbursement rates, and customer/geographic concentration.
- Monitor Orion feasibility-study safety and efficacy, enrollment, and any transition to a larger trial; early results are not assured to generalize.
- Review dilution and governance implications of the chairman-affiliated financing and ownership, along with remediation of the reported internal-control weaknesses.