InspireMD, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The unaudited filing covers a medical-device company developing and commercializing its MicroNet stent platform, principally CGuard EPS for carotid procedures. Products are marketed through distributors, mainly in Europe; none may be sold or marketed in the United States.
Key financial results
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $1.034 million | $415,000; up 149.2% |
| Gross profit (loss) | $295,000 | $(73,000) |
| Gross margin | 28.5% | (17.6%) |
| Operating expenses | $2.316 million | $3.057 million |
| Operating loss | $(2.021) million | $(3.130) million |
| Net loss | $(1.978) million | $(3.207) million |
| Net loss per share, basic and diluted | $(0.43) | $(3.82) |
| Net cash used in operating activities | $(2.354) million | $(3.485) million |
Revenue growth was led by CGuard EPS sales of $971,000, versus $376,000 a year earlier; MGuard sales were $63,000 versus $39,000. Management attributed much of the year-over-year improvement to recovery from sterilizer equipment failures that disrupted product supply and caused inventory write-offs in Q1 2019, as well as continued market expansion. Research and development expense fell 53.5% to $523,000, partly because the prior-year period included settlement costs and higher clinical expenses. Selling and marketing expense was $624,000; general and administrative expense was $1.169 million. Net financial income was $43,000, compared with $77,000 of financial expense in Q1 2019.
Liquidity, capital and balance sheet
- Cash and cash equivalents were $3.141 million at March 31, 2020, down from $5.514 million at December 31, 2019. Operating cash outflow was $2.354 million; investing outflow was $3,000 and financing inflow was $3,000.
- Working capital was $2.833 million, down $1.862 million from year-end; current assets were 2.1 times current liabilities. Total current assets were $5.436 million and current liabilities were $2.603 million.
- Total assets were $7.385 million and total liabilities were $3.908 million. The balance sheet lists operating lease liabilities, but no conventional borrowings are identified in the supplied financial statements.
- Accumulated deficit was approximately $159.6 million. Management said available resources were sufficient to fund operations only through the end of August 2020 and disclosed substantial doubt about the company’s ability to continue as a going concern.
- Common shares outstanding were 4,338,910 at March 31 and May 10, 2020. The company also reported 4,016,597 outstanding warrants and convertible preferred shares, among other potential share issuances; dilution and preferred-stock anti-dilution provisions are risks.
Outlook, risks and unusual items
- COVID-19: Hospitals postponed many scheduled, non-emergency CGuard procedures as they redirected resources to COVID-19 patients. Management expected the pandemic and related restrictions could significantly reduce sales in upcoming periods; the extent of the impact was not estimable. Supplier disruption and limits on manufacturing were also identified as risks.
- Financing: Management planned to pursue equity, debt or strategic-partnership funding, but gave no assurance financing would be available. Failure to raise capital or commercialize products could require reduced activity or cessation of operations.
- Cost reductions: Effective April 1, 2020, the board reduced non-employee director cash compensation by 50%; the CEO and CFO agreed to salary reductions, and most employees’ salaries were reduced 20%–30%. The company estimated these measures would lower Q2 2020 operating expenses by approximately $300,000.
- Regulatory milestone: The company was addressing FDA requests on its pending CGuard IDE application and planned to resubmit in May 2020 after resolving comments. U.S. clinical testing depends on FDA approval.
- Listing risk: NYSE American had accepted a plan giving the company until August 7, 2020 to regain compliance with a continued-listing standard; failure could result in delisting.
- Contingency: A former distributor sought approximately €1.83 million (about $2.0 million), or alternatively €1.024 million (about $1.1 million), in litigation relating to prepaid goods and a 2014 voluntary field action. Management assessed a reasonably possible loss ranging from a minimal amount up to €1.83 million.
- The filing also cites risks involving distributor ordering patterns, regulatory approvals and clinical results, competition, reimbursement, foreign exchange, manufacturing dependence, and operations in Israel. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control during the quarter.
Most important facts for investors to verify
- Whether the company secured sufficient financing to fund operations beyond the stated August 2020 runway and resolved the going-concern uncertainty.
- Actual sales trends and hospital procedure volumes following COVID-19 disruptions, including the degree of recovery in Europe.
- Progress on FDA requests and the planned CGuard IDE resubmission, as well as any subsequent regulatory decisions.
- NYSE American compliance status and the outcome or updated assessment of the former-distributor litigation.
- Potential dilution from warrants, preferred-stock conversions and anti-dilution provisions; also verify the reported share-count and per-share figures against subsequent filings.