InspireMD, Inc.
Q1 2019 Earnings Call Transcript

Published: 14 May 2019

[Operator:]

Greetings and welcome to the InspireMD First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeremy Feffer, Investor Relations. Thank you. Mr. Feffer, you may begin.

[Jeremy Feffer:]

Thank you, Devon. Good morning, everyone, and thank you for joining us for the InspireMD's first quarter 2019 business update conference call. On the line with us are Jim Barry, Chief Executive Officer; and Craig Shore, Chief Financial Officer. We will start with an overview of the company results and our recent highlights and we will then open up the call up for your questions. Before we begin, let me take a minute to note that this conference call may contain forward-looking statements. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. Such information is subject to known and unknown risks, uncertainties, and other factors that can influence actual results or events and cause actual results or events to differ materially from those stated, anticipated, or implied in the forward-looking information. Listeners are cautioned not to place undue reliance on forward-looking information as no assurance can be given after the future results, levels of activities, or achievements. Having addressed that, it is my pleasure to turn the call over to Jim Barry. Please go ahead, Jim?

[Jim Barry:]

Thank you, Jeremy, and thanks to all who are joining us today on the call and the webcast. Craig, will go through the financial in a moment, but I wanted to start by addressing our reported first quarter revenue. During the quarter our sterilization partner experienced equipment issues that resulted in us being unable to sterilize products for most of the quarter. As such, we had a shortage of product that was available to ship to our distributors. The majority of product that was shipped was product that we had in stock prior to the start of the quarter. This issue negatively impacted our first quarter revenue by approximately $600,000 as determined by our back orders. This was particularly disappointing as we have seen many success stories where CGuard is now rapidly gaining market share in some of our key markets. For instance, in India our bookings have increased by 63% compared to the same period last year, in Poland 74%, in Spain close to 30% and remarkably in Switzerland where we are well on our way to becoming the market leader by 288%. However, we recognized the sterilisation problem early. We understood the potential longer term implications, immediately engaged in other sterilization provider, conducted all the testing and validation that was required, submitted a comprehensive package to our European Notified Body who subsequently approved our new supplier on April 1st. So this issue has been completely resolved. And while it will take some time to recognize the full amount of backlog as revenue, we have already shipped a good portion of it. We are highly confident that the revenue will be recognized this year. It is important to note that while first quarter revenue came in below our expectations this is a timing issue and this represents revenue that has been deferred, not revenue that has been lost. I would be remiss if I didn't recognize the efforts the team at InspireMD put forward to resolve this difficult issue quickly. It was impressive and I'm grateful for the focus, urgency and determination the team showed to engage in supplier and get that supplier approved by the notified body. Now turning to the highlights during the quarter. We continue to execute on our multifaceted growth strategy which is driven by continued focus of our sales efforts in key European markets, while at the same time preparing our US IDE, which we expect to file mid-year, consistent with our prior guidance. In parallel, we continue to have discussions with others to introduce CGuard into territories with higher regulatory requirements, most notably China and Japan. Furthermore, we have submitted our regulatory dossier to ANVISA, the regulatory body in Brazil and a two state approval for CGuard in late 2019. This is significant as Brazil is currently the fifth largest carotid stenting market in the world with an attractive pricing for carotid devices. CGuard is a highly differentiated device platform that can deliver superior patient outcomes relative to conventional open strut carotid stents and far less invasive ways than carotid endarterectomy surgery and our highest corporate priority is to make this novel technology available to the broadest possible patient population. CGuard is a best-in-class minimally invasive treatment for carotid artery disease, just designed around our proprietary MicroNet technology to dramatically reduce or even eliminate the incidence of stroke, following carotid artery procedures, which has historically been a major concern to both patients and their treating physicians when evaluating the different treatment options that are available to them. CGuard is designed to prevent late embolization by trapping potential emboli against the arterial wall behind the MicroNet. And while maintaining profusion of blood flow to the external carotid artery and other branch vessels that feed the brain. This is an important breakthrough and we believe represents a new paradigm in the treatment of high grade carotid stenosis. One of the keys to the future success of CGuard is to raise awareness of the clinical advantages among treating physicians, including vascular surgeons who perform the majority of surgical carotid endarterectomy procedures. To that end, as we've discussed in previous calls, we have instituted a program of establishing Centers of Excellence for COEs in conjunction with our distribution partners in key territories to train and educate surgeons and interventionists [ph] on the benefits of CGuard as a safer choice for carotid revascularization and stroke prevention and to allow clinicians to share their positive experiences during - using the device in their daily practice. These centers are run by some of the foremost key opinion leaders who treat carotid artery disease in Europe, such as Professor Clement Acey [ph] in Bergamo, Italy, Professor Speziale in Rome, Professor Musiałek in Kraków and Professor Kolvenbach in Dusseldorf. We have drawn these leading key opinion leaders from all specialities that treat carotid artery disease from vascular surgeons to interventional neurologists with the aim to allow all clinicians specialties access to tailor made training and education. We currently operate centers in Germany, Italy, Spain, Poland and Slovenia. It's important to note that these centers of excellence have not only been enthusiastically embraced by our distribution partners, but they also co-finances the sessions at these centers. They view these COEs as a key tool to convert prospective customers, as well as to give their field sales force a deeper insight into the dynamics of treating carotid artery disease. We are expanding this program to the UK, the Netherlands and Belgium. These centers not only provide local support to our distribution partners, but are attended by clinicians from all over the world from as far away as Australia and South Africa. And in these instances the attendees were exclusively vascular surgeon which has validated the CEO program as we had planned. This program is key to providing hands on experience with CGuard and educating clinicians who will go on to become champions of advice and help spread awareness. Furthermore, we are developing this network of COEs into a research community that will generate new clinical data for CGuard to further underline its potential to become the gold standard for treatment of carotid artery disease. In addition to our COE initiative, we have expanded our local sales and marketing focus by installing local clinical specialist teams supporting all our key European markets. Just this past quarter, we have added three additional clinical specialists and two RMDs. Additionally, we continue to work with our distributors not only with COEs but also to conduct local workshops, give informative presentations in key markets and support local conferences. This has been met with enthusiasm by our distribution partners who are building their CGuard businesses far more efficiently. We have also decided to take the Czech Republic to a direct sales model, as our contract with the current distributor has ended. Additionally, we have invested in building up our direct sales model in the UK and we are beginning to see our first success as having converted the largest carotid artery stenting centre in the UK away from their old conventional carotid stents to CGuard. We will provide more updates on this market shortly as we continue to make progress. On our last quarterly call, we recapped presentations that were delivered at multiple astute [ph] medical meetings, including [indiscernible] LINCC and the TCT. These presentations in addition to publications and top peer reviewed journals such as JACC

[Craig Shore:]

Thanks, Jim. For the three months ended March 31, 2019, revenue was $415,000, representing a decrease of 59% from the comparable period in 2018. This decrease was predominantly driven by a 55% decrease in sales of CGuard EPS from $831,000 in the three months ended March 31, 2018, to $376,000 in the first quarter of this year and a 78% decrease in sales of MGuard EPS from $176,000 in the three months ended March 31, 2018, to $39,000 in the first quarter of this year. Both decreases were due to our third-party sterilizer’s equipment failures that resulted in significant interruption in sterilized product supply for the majority of the quarter. As a result, we were unable to fulfill a significant portion of the orders received during the quarter resulting in a backlog of approximately $600,000. As of today, the third-party sterilizer issue has been resolved and the majority of the $600,000 of the backlog recorded has been shipped. The company’s gross loss for the quarter ended March 31, 2019 was $73,000 compared to a gross profit of $293,000 for the same period in 2018. Gross margin decreased to a negative 17.6% in the three months ended March 31, 2019 from 29.1% in the same period in 2018. This decrease in gross margin resulted from a $249,000 decrease in revenues, less the related material and labor costs, resulting from delays related to product sterilization interruption as discussed previously and an increase of $118,000 in write-offs of inventory due to the same issue. Total operating expenses for the quarter ended March 31, 2019 were $3.1 million, an increase of 36% compared to $2.2 million for the same period in 2018. This increase was primarily due to an increase in clinical expenses associated with our CGuard EPS, mainly related to IDE efforts in 2019 and due to a payment made to a former service provider pursuant to a settlement agreement. Financial expenses for the quarter ended March 31, 2019 were $77,000 compared to $436,000 for the same period in 2018. This decrease of $359,000 was predominately due to a non-cash expense associated with our preferred stock in Q1 2018 that did not repeat itself this quarter. Net loss for the quarter this year totaled $3.2 million or $3.82 per basic and diluted share, compared to a net loss of $2.4 million or $54 per basic and diluted share for the same period in 2018. As of March 31, 2019, cash and cash equivalents were $5.8 million compared to $9.4 million at December 31, 2018. Subsequent to the end of the first quarter, the company completed an offering of common stock that yield gross proceeds of approximately $2.5 million. At this time, we’ll turn the call over to the operator for questions. Operator?

[Jim Barry:]

Okay. Thank you, Devon. That concludes today's call. Thank you all again for taking the time to join us and hear the latest on InspireMD. I wish you all a good day and I look forward to speaking with you again on our next quarterly update call in August.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.