Filing summary
Issuer discrepancy: The supplied filing is Second Sight Medical Products, Inc. and subsidiary’s Form 10-Q, not a filing under the name Vivani Medical, Inc. It covers the quarter ended March 31, 2015 and was signed May 14, 2015.
Business context and reporting period
Second Sight develops, manufactures, and markets implantable visual prostheses. Its commercial product was the Argus II System, approved for retinitis pigmentosa (RP) in the United States and Europe. The company reported limited product revenue and continued to depend on capital raised and grants to fund operations.
Financial performance and liquidity
- Revenue: $1.70 million, up 159% from $656,726 in Q1 2014. The company reported 19 Argus II implants versus six; recognized revenue per implant averaged $89,478 versus $109,454.
- Gross profit and margin: Gross profit was $404,329, a 23.8% margin, compared with a gross loss of $70,707, or a negative 10.8% margin, a year earlier.
- Operating expenses and loss: Operating expenses rose 22% to $5.37 million. Operating loss was $4.96 million versus $4.46 million. Net loss improved to $4.96 million from $6.44 million, largely because convertible-note interest and discount amortization ceased after the notes converted in the November 2014 IPO. Basic and diluted loss per share was $0.14 versus $0.28.
- Cash flow: Operating activities used $5.03 million, compared with $4.66 million in Q1 2014. Investing activities provided $4.83 million, primarily from sales of money market funds, while financing activities provided $288,000. Ending cash was $652,254.
- Liquidity: Cash and money market funds totaled $29.74 million at quarter-end, down 14% from $34.62 million at December 31, 2014. Working capital was $29.40 million, down 12%. Management stated the IPO proceeds were sufficient to fund operations for more than the next 12 months.
- Debt and equity: No convertible notes remained outstanding after their IPO conversion; the balance sheet reported no debt. Total liabilities were $9.00 million, all current, including $4.06 million of deferred grant revenue. Stockholders’ equity was $30.46 million.
- Revenue concentration: Italy and France represented 36% and 30% of Q1 2015 revenue, respectively; the United States represented 18%. Four customers each accounted for at least 10% of revenue, with the largest at 23%.
Material changes versus Q1 2014
- Sales increased as implants rose from six to 19, particularly in Europe, where France and Italy together accounted for 10 implants versus none a year earlier.
- Cost of sales increased 78%, slower than revenue growth; management attributed improved gross results to higher production volume, better yields, and fewer inventory write-offs.
- Selling and marketing expense increased 59% to $1.99 million, reflecting added personnel and marketing activity. Clinical and regulatory expense rose 12%; research and development was broadly flat.
- Operating cash use increased by approximately $373,000. Cash and money market funds fell by approximately $4.88 million from year-end.
Outlook, risks, and unusual items
- Plans, not formal guidance: The filing gave no specific revenue or earnings guidance. Management planned to expand sales and marketing in existing markets, enter additional countries, enhance Argus II, study its use for age-related macular degeneration (AMD), and pursue preclinical development of the Orion I cortical prosthesis.
- Management expected research, clinical, and selling expenses to increase. It anticipated further manufacturing improvements and positive gross profit, while cautioning that quarterly cost of sales and margins could fluctuate. Reaching operating and cash-flow breakeven within two years was an objective, not an assurance.
- Commercial growth depends in part on reimbursement coverage; the company noted that payer coverage remained incomplete. Manufacturing yields were low, and some components or services depended on sole-source suppliers.
- Ten European patent oppositions challenged company-owned or exclusively licensed patents. Management did not expect a successful challenge to materially affect operations, but acknowledged it could affect the ability to block competitors from using some technology.
- Other disclosed exposures included customer and geographic concentration, foreign-currency movements (not hedged with forward contracts), and the possibility that additional financing could be needed if internal resources proved insufficient. Management said additional financing might not be available on acceptable terms, or at all.
- The filing described a potential Long Term Investor Right of up to 813,429 additional shares as of March 31, 2015, depending on future share-price conditions. This is a potential dilution item, not debt.
Important facts for investors to verify
- Confirm the intended issuer: the supplied 10-Q identifies Second Sight Medical Products, Inc., not Vivani Medical, Inc.
- Track cash burn against the stated runway and the company’s plan to reach operating and cash-flow breakeven.
- Monitor implant volumes, recognized revenue per implant, reimbursement decisions, and customer and regional concentration.
- Assess whether manufacturing yields improve and whether sole-source supply risks affect delivery, costs, or margins.
- Follow AMD study progress, Argus II enhancements, Orion I development, patent opposition outcomes, and potential share dilution from investor rights and equity awards.