SI-BONE, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results. SI-BONE develops and sells the iFuse minimally invasive sacroiliac joint implant system; substantially all revenue comes from iFuse, primarily in the United States.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $16.3m | $13.7m | $31.3m | $26.4m |
| Gross profit / margin | $14.7m / 90.3% | $12.5m / 91.3% | $28.2m / 90.1% | $24.1m / 91.5% |
| Operating expenses | $22.9m | $14.2m | $45.1m | $28.8m |
| Operating loss | $(8.1)m | $(1.7)m | $(16.9)m | $(4.6)m |
| Net loss | $(8.7)m | $(3.1)m | $(18.0)m | $(7.3)m |
| Basic and diluted net loss per share | $(0.35) | $(0.87) | $(0.74) | $(2.04) |
- Revenue grew 19% in both Q2 and the first half. Management attributed growth mainly to higher U.S. procedure volumes, increased sales-force productivity and staffing, more active surgeons, and improving reimbursement coverage. International revenue declined year over year.
- Sales and marketing expense rose 62% in Q2 and 53% in the first half; research and development increased 50% and 45%, respectively; general and administrative expense increased 64% and 80%. The increases reflected business expansion, staffing, commissions, stock-based compensation, commercialization, and public-company compliance costs.
- Gross margin declined year over year, which management attributed primarily to added operations personnel supporting growth. Q2 interest income was $0.7m, compared with $0.1m; interest expense was $1.2m, broadly similar to the prior-year quarter.
- At June 30, cash and cash equivalents were $11.5m; short- and long-term investments totaled $97.0m. Total cash and investments were approximately $108.5m, versus $122.2m at December 31, 2018. Current assets were $119.0m and current liabilities $9.9m.
- First-half operating cash outflow was $15.5m, compared with $5.7m in 2018. Investing activities provided $0.2m, including security maturities and purchases; financing activities provided $1.7m, primarily from employee stock-plan issuances and option exercises. Cash declined $13.6m during the half.
- Long-term borrowings, net of discount, were $39.1m. The Pharmakon term loan bears fixed interest at 11.5%, has interest-only payments through September 2020, and then scheduled principal payments through December 2022. It is secured by a first lien on company assets and requires at least $5.0m cash. The company reported covenant compliance at June 30.
Material changes, outlook and risks
- The April 2019 FDA clearance allowed SI-BONE to promote its iFuse Bedrock technique for sacroiliac joint fusion alongside multilevel spinal fusion. The company noted that clinical experience with this technique remains limited and that it had not completed a clinical trial evaluating it.
- Management expected operating expenses to continue increasing as it expands commercial operations, develops products, and supports public-company requirements. It stated existing cash, cash equivalents, and investments were expected to fund operating and capital needs for at least the next 12 months, while cautioning that sales, spending, regulatory developments, and other factors could accelerate cash use. The filing provides no specific revenue or earnings guidance.
- Coverage remains a key growth dependency. At quarter-end, U.S. payors covering 266 million lives, including private payors covering 131 million, regularly reimbursed for iFuse procedures. The filing also identifies major private insurers that continued to treat the procedure as experimental, and potential coverage and pricing pressure, including policies concerning the iFuse-3D implant.
- SI-BONE reported operating losses since inception, a $175.2m accumulated deficit, and no positive operating cash flow to date. It depends on a single product family and on third-party manufacturers and suppliers, including some sole-source suppliers. Management identified risks involving reimbursement, competition, supplier capacity, regulation, product acceptance, and possible additional financing.
- A putative TCPA class action alleges unsolicited fax invitations to healthcare providers. The court denied the company’s motion to dismiss on August 5, 2019. SI-BONE said it intended to defend the case; it stated that the outcome and any possible loss could not yet be reasonably predicted or estimated.
- Other commitments included $5.4m of future minimum operating lease payments and $0.3m of inventory purchase commitments. The filing reported no material change in contractual obligations outside the ordinary course of business.
Most important facts for investors to verify
- Whether U.S. procedure growth and private-payor coverage expansion continue, and whether non-covering payors change their policies.
- Whether operating-expense growth and cash burn moderate while revenue expands; compare actual liquidity with management’s stated 12-month funding outlook.
- Compliance with the term-loan cash and sales-or-EBITDA covenants, upcoming principal payments, and the cost and terms of the secured debt.
- Clinical adoption and outcomes for iFuse Bedrock, competitive and reimbursement developments for iFuse-3D, and any material progress or loss exposure in the TCPA case.