InspireMD, Inc. (NSPR) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon and welcome to the InspireMD Fourth Quarter and Year End 2014 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Vivian Cervantes of PCG Advisory. Please go ahead.

Thank you, Laura. I would like to make the following remarks concerning forward-looking statements. All statements on this conference call, other than historical facts, are forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to risks and uncertainties, and other factors that may affect InspireMD’s business, financial conditions, and other operating results, which include, but are not limited to, risk factors and other qualifications contained in InspireMD’s annual report on Form 10-K, quarterly reports on Form 10-Q, reports filed on Form 8-K, and other reports filed by InspireMD with the SEC, to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. InspireMD expressly disclaims any intent or obligation to update these forward-looking statements. I will now turn the call over to Alan Milinazzo, CEO of InspireMD.

Thank you, Vivian. Good afternoon everyone and thank you for joining our conference call for the three-month period ended December 31, 2014. During the call, we will review Q4 2014 and then shift gears to lay out our 2015 agenda, which we are excited about and focused on executing. After several months of challenges we have a plan in place and the resources to execute on that plan. During the fourth quarter, we began the process of taking steps to recover from the business interruption following our voluntary field action. And subsequent to the quarter's close we announced several important achievements signaling process and key areas of the business including commercial, clinical, and product development. We also recently strengthened our balance sheet, which despite the difficult and painful fundraising was an important part of our plan to return the company to a stronger operating position. I'd like to discuss our recent financing activities before turning the call over to Craig Shore, our CFO. In the fourth quarter we began fundraising activities, which resulted in $8.1 million gross proceeds on November 07, 2014 and on March 09, we announced a subsequent public offering that raised gross proceeds of $13.7 million with insiders taking roughly 10% of the recent offering. It was not an easy financing process mainly, because the company's strategy was in transition. The legacy strategy was built on an assumption that a mesh covered bare metal coronary stent would be widely commercially viable. In addition to business interruptions due to our manufacturing change, as 2014 unfolded the industry also experienced a more pronounced and steady shift to drug-eluding stent use in STEMI patients, which required us to adjust our business strategy. Further, heading into our financing activities, our share price was already under pressure given perceived liquidity concerns. While we found our financing activity extremely difficult and painful it was an important part of our strategy to gain flexibility and return to stronger footing. It was step one of a four-part plan to move the company forward. I'll review this in greater detail after Craig walks you through our fourth quarter results. Let me turn the call over to Craig.

Thank you, Alan and thank you all for joining us. Similar to the previously reported Q2 and Q3 results, the fourth quarter continued to be negatively impacted by the voluntary field action, which is evident in a number of financial metrics that I will review with you over the next several minutes. Let me begin with revenue for the fourth quarter ended December 31, 2014. Revenues were approximately $970,000, compared to $1.6 million during the same period in 2013. The decline in revenue was directly associated with the temporary stoppage of the sales activities for the MGuard EPS, which is our primary commercial product following the voluntary field action implemented on April 30, 2014. Given the unusual commercial dynamics in 2014 the more appropriate comparison is versus prior year will be sequential quarterly growth. Fourth quarter revenue improved over 200% from Q3 to Q4. This is a good indication of positive commercial momentum, although as we enter 2015 we have negative currency headwinds, which impact a number of our key commercial markets. Gross profit for the quarter was $400,000 a decrease of 54.2%, compared to $861,000 for the same period in 2013. This decrease in gross profit was largely attributable to the impact of the voluntary field action on product revenues. Total operating expenses for the quarter were $4.8 million, a decrease of 17%, compared to $5.8 million for the same period in 2013. This decrease was primarily due to a reduction of clinical and development expenses related to our bare metal stent product, a reduction in sales and marketing and general administrative expenses. The loss from operations for the quarter ended December 31, 2014 was $4.4 million a decrease of 10%, compared to a loss of $4.9 million for the same period in 2013. As just explained, this decrease in loss was a result of cost-containment initiatives in R&D, sales and marketing and G&A. Financial expenses for the quarter ended December 31, 2014 decreased 24.4% to $300,000 from $400,000 during the same period in 2013. The net loss for the quarter ended December 31, 2014 totaled $4.8 million or $0.12 per basic and diluted share, compared to a net loss of $5.4 million or $0.16 per basic and diluted share in the same period in 2013. Non-GAAP net loss for the quarter ended December 31, 2014 were $3.8 million or $0.09 per basic and diluted share a decrease of 17.3%, compared to a non-GAAP net loss of $4.5 million or $0.13 per basic and diluted share for the same period in 2013. The non-GAAP net loss for the quarter ended December 31, 2014 primarily excludes $1 million of share based compensation. The non-GAAP net loss for the quarter ended December 31, 2013 primarily excludes $700,000 in share based compensation expenses and $100,000 in non-cash financial expenses. A reconciliation table for these non-GAAP financials is included in the press release issued earlier today. Turning to the balance sheet as of December 31, 2014 cash and cash equivalents were $6.3 million. This excludes a $13.7 million in gross proceeds following the completion of our public offering last week. In late 2014 we began a series of cost-cutting activities to realign our organization with our revised strategy. As we turn the page on 2014 we will maintain our disciplined focus on cash management throughout the company in 2015. We plan to continue with our expense management process and invest accordingly as the business improves. With that, I'll now turn the call back over to Alan.

Thank you, Craig. With 2014 behind us, let me now shift gears and focus on our planned activities for 2015. As I mentioned earlier, we have a four-part plan to restore momentum to the business. Part one was this efficient fundraising to execute on our plans. Part two is to continue to align our expenses to extend our runway. Part three is to selectively develop our pipeline and part four is to reaccelerate revenue with the focus on our emerging carotid product opportunity. We have already highlighted the first part of our strategy, which was the fundraising. Let me spend a few minutes on the second part of our strategy, which was and is to align our cost structure to support our new strategy. We started this process in late 2014 and in early 2015 we took further steps to align the resources of the organization around our strategy to exploit the immediate carotid opportunity in the emerging neurovascular opportunity. This resulted in reducing headcount and suspending further investments in coronary until we have secured a strategic sponsor for the program. Our confidence on our DES program was bolstered by positive preclinical PK data we receive in the fourth quarter setting the stage for future collaborations. Based on work we have done to-date, we expect to be in a position to execute an agreement in late Q2 or early Q3 of 2015. Obviously, this timeframe is predicated on a successfully negotiated and mutually beneficial business relationship. Our final point on aligning our expenses is that we continue to explore opportunities to reduce our expenses and extend our cash, which is greatly facilitated by our streamlined strategy. The third part of our strategy is that we reset our development activities to cost-effectively pursue impactful indications for our MicroNet technology. Informed by the success of our recent CE Mark approval of CGuard RX and the carotid program that went from concept to approval of CGuard in a roughly 18-month period, we are now focused on the development of additional near-term product opportunities. In the neurovascular market flow diverters are being used more frequently to treat unruptured brain aneurysms. We believe a MicroNet base flow diverter may have distinct advantages over current devices in terms of flexibility and deliverability. It is an attractive and high-growth market with the non-coil neurovascular product market estimated to grow at an average compound annual rate of 12% between 2010 and 2016 and per device pricing of roughly $9000 per unit. Interestingly, we have had a number of physicians report successfully treating coronary aneurysms with our product, which gives us increased confidence in this project. In the peripheral market we will initially focus on a below the knee indication as the need for embolic protection is more pronounced in this clinical setting. We believe, we can efficiently, and cost effectively investigate the below the knee market opportunity in 2015. If these two programs succeed, we anticipate CE Mark submissions in late 2015 to early 2016. Finally, the fourth part of our strategy is to re-accelerate our revenues. To that end, we are now well-positioned to launch our carotid platform with the recent CE Mark approval for CGuard RX and positive six-month CARENET data. Six-month data announced in January at the Leipzig Interventional Course the LINC meeting continued to validate the CGuard technology. The duplex ultrasound analysis performed at six months confirmed widely patent carotid arteries, which were stented with CGuard as determined by flow measurements indicating no sign of vessel narrowing consistent with historical data of conventional carotid artery stenting. Importantly, the external carotid artery showed unimpeded flow in 100% of cases demonstrating that the MicroNet allows excellent blood flow into bifurcated arteries. The reduction in both the incidence and the volume of new ischemic lesions as reported in our CARENET trial, as well as the six-month data showing minimal restenosis and 100% patent internal and external carotid arteries indicate that the therapeutic benefits of the CGuard technology may extend well beyond the acute procedural period. If this trend continues, we not only have the ability to take market share from current conventional stent companies, but we may also begin to see cases converting from endarterectomy to the less invasive stenting procedure. After our extremely positive results from the CARENET clinical trial we are eager to focus on sales activities for CGuard. To-date with CGuard in a limited and controlled launch, we have now completed over 100 successful cases in six countries with 20 physicians with demand for the product growing weekly. Our plan is to drive the valuations of the CGuard and then convert those physicians to our device on an ongoing basis. We are delighted with the early physician feedback and the successful evaluations and resulting orders, which have already put us into a back order situation despite the limited number of sites we have opened. Our inventory position is still quite limited, but we expect to ramp our production based on this positive uptake on a monthly basis throughout the year. Turning to the coronary business with approximately 80% of the voluntary field action behind us we and our distribution partners have returned to shipping and restocking MGuard to hospital accounts in most, but not all of our key markets. In those markets where we have returned inventory and resumed selling, we are seeing positive signs and gaining traction. As reported, MGuard sales increased to $850,000 in Q4 versus $218,000 in Q3 and $69,000 in Q2, which is when we initiated our voluntary field action. That being said, the definitive trend towards drug-eluting stent used in STEMI patients will require us to be more selective with the allocation of our sales resources. The shift to drug-eluting stents accelerated late in 2014 as new European guidelines were introduced supporting drug-eluding stents for STEMI patients. The good news is that we can now lead our commercial activities with the CGuard RX and pull through MGuard opportunistically. This may result in a less linear return to growth for MGuard throughout 2015 although we do expect to finish 2015 with continued improvements in our revenue trajectory. In 2015 we expect CGuard RX to contribute significantly to our revenue growth as our inventory position improves throughout the year. We also hope to be fully back online with MGuard Prime in all markets by the third quarter, which will further enhance the revenue outlook. Based on our internal projections, we expect to exit Q4 of 2015 on a historically high revenue ramp. Before opening the call up for questions, I'd like to highlight that the company today is in a much different position and thus executing a different strategy than we were six to nine months ago. We have gained financial flexibility to fund our return to growth programs, expanded our commercial reach with the entry into the $500 million carotid market. We have a focused approach to our coronary platform, and we've mapped out our pipeline development for near-term market opportunities. The company is moving forward with great purpose, a clear strategy, and an intense focus on cash management. We appreciate your ongoing support and patience through the past couple of quarters and look forward to keeping you updated on many of these fronts. With that, operator, I think it's time that we should open up the call for questions.

[Operator Instructions] And our first question will come from Josh Jennings of Cowen & Company.

Hi guys, this is actually Neil calling in for Josh. Thanks for taking the questions. So to start, if you can kind of follow-up on you talked about the six-month follow-up data for CARENET and I guess you are seeing, and you've seen 100 successful cases with growing demand. If you could just talk a little bit more about any specific feedback you've gotten through clinicians and is that body of evidence enough to drive market share capture?

We think it is Neil, we think it is. Our data, compared quite favorably from a number of patients to other products that are out there with very good market share, so 30 patient first in mandate is very common for the carotids. Our six-month data I think was reassuring that we had widely patent vessels. So the initial positive success, which we reported with the CARENET trial zero Mace, very, very good diffusion weighted MRI results as our principal investigator calls it, the unforgiving metric, we had very good results. So I think in combination the acute results, the six-month data as confirmatory gives us sufficient ammunition to go out and test the market. Those 100 cases are obviously, they include some CARENET cases, but we've done a number of post CARENET cases expanding out to those 20 physicians, and so far so good. In terms of the initial reaction, again the acute procedure success has been very high and to our knowledge we still have very, very good success from the initial enrollment. So we do think it's enough and we're excited by the overall reaction we've had so far.

And just one follow-up here, just as you think longer term, how do you think about the path to U.S. approval for CGuard and can you talk about potential partnership opportunities?

Yes, we've got a straw man of a strategy, a clinical strategy. We need to wet that, so we'll be looking for an FDA meeting in the next couple of months to wet that. Our desire would be to submit something this year to the FDA, but we've got more work to do. That trial will likely have a sponsor participant with us. We think that the carotid market in the U.S. is attractive, but could be wildly attractive if you could actually start to get the reimbursement to align, and so that may take someone with more horsepower than we have. But in the short-term we have significant immediate opportunities in the European markets. Again, we're selecting the European markets with favorable pricing, favorable reimbursement environment and then that will inform us as we go through the year. So stay tuned for more information on that as we go through the year.

Great. And then just on the DES side, so I guess do you have any update on the status of kind of the platform development for DES MicroNet? And then, also, if you could just maybe just to remind us on the timelines and any update there for potential partnerships?

Yes, no problem. What we did mention on the call today, which we hadn’t previously is that we have concluded our initial preclinical studies and done so favorably, these are the PK studies and what we were looking for there was, are we getting the drug transfer that we were expecting to see post, with you've to the combined device or again the drug transfer rates and we were quite pleased with the preliminary results, which really allows us to sort of put pencils down on that program and now get into negotiations with the sponsors that that we've identified as being potential near-term opportunities, good long-term partners, but also within the near-term relative to an agreement. I mentioned the end of Q2 early Q3 should be our timing and that of course assumes that we can get to a mutually agreeable business relationship. But we feel very good, we've got enough evidence to get us to the point where we can negotiate and I hope we'll be talking about this at the end of Q2 or early Q3 at the latest.

Right, great. Sorry if I missed a little bit of that, I had kind of a little trouble connecting, but I'll just jump back in the queue.

Yes, no problem, Neil thanks.

And the next question will come from Steven Lichtman of Oppenheimer.

Thank you. Hi guys. I guess just, first question in terms of the potential partnership late 2Q or early 3Q would that be sort of in that private-label process you've talked about or would be with your license, what do you anticipate around potentially around that timeframe?

We have two discussions going on Steve, and so it could be one or the other. So, I'm not sure, which one we will get to first, but it could be one or the other. So it would be one or the other.

Okay, and do you, and are you anticipating the potential for some sort of cash component to that upfront or how should we be thinking about that?

That's our objective, is to get some capital in the company from that agreement. That's a critical part for us going forward is to validate the opportunity through some upfront investment, but we also would look at that as some upfront capital. We'd look at that as milestone capital and ongoing whether it's revenue-sharing in a private-label type arrangement or license fees from a license agreement.

Okay, so could take different, it could be in a different form than just an upfront?

Could be, again for us we'd like to, we can probably sacrifice a little bit on the backend in order to get capital in the door just, because we want to start to rebuild our capital position here. This fundraising was difficult, but necessary and I think to the extent that we can do that, of course we're not going to do something long-term that would harm our ability to benefit from the bigger sort of pat over time, but if we could get a balanced agreement that's what we desire.

Okay and so on a pro forma basis, I guess you had around $20 million exiting 2014 pro forma for the raise, where do you anticipate the burn to be in 2015?

Hi Steve, it's Craig. So if you remember the latter half of 2014 our burn rate was artificially high approximately $2 million a month and that was driven due primarily through the lack of sales associated with the VFA. We since taking cost-saving initiatives we also stopped as you know the FDA trial, which was a significant drain on our burn and our cash usage. So assuming we hit all of our objectives for this year, we anticipate our burn rate being reduced about 50% so roughly $1 million per month on average for 2015.

Okay and that, I just wanted to get a sense on the top and, that’s predicated on what should we be thinking about approximate euro assumptions for total revenues in 2015?

Well, as Alan said, we should end the year at historically high numbers exiting 2015. So I think you should sort of ramp your way up to that level.

I think, I'm sorry go ahead.

Yes, no sorry Steven I just want to jump in, so I mean, last quarter obviously wasn’t start to return to normal. Our normal run rate if you look pre VFA we were at $1.5 million a quarter. We're not fully back in all the markets and we're not fully launching the CGuard primarily due to inventory and resources, but that will improve over the course of the year. So we’d love to give you more formal guidance than that, but our view is that if you take the 800 or so 1870 we did in Q4 typically Q1 is a little bit soft for us if you look at our ordering cycles, we tend to sort of follow some seasonality, but as revenue start to come in with increase as we get back into all the markets for coronary and as we start to roll out the product, we’d expect to see a revenue ramp. Could we be a little bit lumpy with regard to the coronary just do the distributor ordering patterns that could certainly happen, but as Craig said, I think if your sort of trend out towards the end of the year when we’re really, we should be at full steam on coronary by Q3 and we should be, I wouldn’t say unconstrained, but we’ll be close to unconstrained for Q3 end of Q3 certainly going into the Q4 on the carotid side.

So it sounds as though maybe in fourth quarter something in the 1.5 million to 2 million is sort of where something, because you have mentioned 1.6 where we’re about somewhere maybe slightly north of that’s where you would think today exiting 2015, is that sound fair?

That’s fair.

And given that revenue rate, just where else do you see some opportunities on the expense side versus the fourth quarter obviously R&D came down meaningfully. Should we be thinking that SG&A is also going to come down from the level was in fourth quarter to get you down to that 1 million a month on the burn?

Yes.

Got it. that’s all I got. Thanks guys.

Thank you, Steve.

[Operator Instructions] And showing no further questions, I would like to turn the conference back over to management for any closing remarks.

Well, I want to thank everyone for dialing in today. Again we are looking forward to turning the page very optimistic about 2015. We have a very specific set of plans and activities that we’ve already started executing on and we look forward to continuing to update you throughout the year. Have a good afternoon.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.