InspireMD, Inc. (NSPR) Q3 2022 Earnings Report, Transcript and Summary

Good morning, and welcome to the InspireMD Third Quarter 2022 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Chuck Padala with LifeSci Advisors. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for the InspireMD Third Quarter 2022 Financial Results and Corporate Update Conference Call. Joining us today from InspireMD are Marvin Slosman, Chief Executive Officer; and Craig Shore, Chief Financial Officer. During this call, management will be making forward-looking statements, not historical facts and are based upon management's current expectations, beliefs and projections, many of which, by their nature, are inherently uncertain. They involve risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. For more information about these risks, please refer to the risk factors described in InspireMD's most recently filed periodic reports on Form 10-K and Form 10-Q filed with the U.S. Securities and Exchange Commission and InspireMD's press release that accompanies this call, particularly the cautionary statements made in it. The call contains time-sensitive information that is accurate only as of today, November 8, 2022. Except as required by law, InspireMD disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Marvin Slosman, Chief Executive Officer. Marvin, please go ahead.

Thank you, Chuck, and thanks to everyone for joining our call this morning. Our third quarter results reflect a continuation of our recent progress and momentum. We generated total CGuard revenue of over $1.4 million, representing growth of nearly 39% over the third quarter last year. During the quarter, we sold 2,624 CGuard stent systems as compared to 1,709 in the same period a year ago. This represents a growth of 54% year-over-year. As we share a portion of our sales revenue with distributors in the majority of our markets, procedural volume is a more accurate indication of market penetration and share retention. As we indicated last quarter, we currently enjoy greater than 20% share in approximately half of our markets with some territories up to over 80%, which remains the bellwether of our focus in dominating the carotid revascularization space with the CGuard stent system across the broadest vascular specialist treating patients. Launching our new delivery systems, including a new transcarotid and advanced next-generation transfemoral platform will enable share growth and accelerate the conversion of vascular surgeons converting to our endovascular platform. As a reminder, amongst vascular interventions, carotid artery disease lags all other procedures in terms of percentage of cases that are treated endovascularly, estimated at 25% currently. So when you look at the availability of conversion of procedures to stenting, there remains a significant number of surgical procedures that we believe can be converted with our next-generation MicroNet mesh-protected device, driven by our unmatched clinical data now out as far as 5 years with best patient outcomes as compared to both first-generation stents and open surgery. In terms of market conditions, the regulatory landscape in Europe for all medical device companies remains in the midst of a sea change with new compliance regulations under the new MDR certification for CE Mark. We are working with our notified body on compliance and to secure the continuation of our certificate under the new regulation, which currently ends November 12, while preparing our customers and distributors with sufficient inventory to mitigate as best as possible any potential delays in the certification process. Our presence at important medical meetings is also a key component of our long-term growth strategy and provides an effective platform from which we can espouse the many benefits of CGuard as compared to both conventional stents and surgery. In September, the CGuard Optima study was selected in the 2022 TCT conference to be presented as a part of a featured research program. The presentation which was delivered by Professor Piotr Musialek reviewed the findings of this multicenter investigator-initiated trial known as CGuard Optima, comparing both procedural residual prolapse through the stent struts and clinical outcomes of patients treated with CGuard versus objective performance goals after carotid stenting. Professor Musialek described the results as unprecedented because of the total elimination of carotid artery-related plaque prolapse with CGuard, measured with systemic IVUS ultrasound assessment. The clinical outcomes showed at 30 days an ipsilateral minor stroke rate of only 0.57% and no major strokes. This presentation adds to the significant body of evidence that we have compiled over the years, including 1,850 patients demonstrating unmatched performance and stroke prevention delivered by CGuard with its proprietary MicroNet mesh protection versus all other cath stent platforms and surgical treatment options currently available. Therefore, our strategy remains unchanged, which is to focus on stent performance through superior outcomes and patient care with all specialists treating carotid artery disease. Now turning to other developments. In September, we jointly announced with NAMSA, a leading comprehensive medical technology contract research organization, that we have entered into a strategic partnership agreement to accelerate new product development and commercialization. Speed to market is a critical success factor for any new medical technology. And given the increasingly complex regulatory and clinical requirements in many markets, NAMSA's full continuum of development services will serve us well as we work to further expand our pipeline as quickly and efficiently as possible. In terms of our U.S. IDE trial, C-Guardians, we currently have 19 U.S. sites enrolling patients with plans for 2 more in Europe. Five sites are now enrolling and all 24 are actively enrolling sites that are building cases in an accelerating pace, which is very encouraging. Our current outlook remains consistent with enrollment completion by approximately Q1 of 2023. Regarding Japan, we have made progress since our last quarterly update in our discussions with potential distributor partners interested in representing CGuard and we continue to see a very high level of interest. An agreement, if executed, would complement the distribution agreement in China we signed last year. As we have noted in the past, Asia is a very important market to us as the existing standard of care for procedural intervention is predominantly endovascular focused and less surgically dominated than the U.S. and certain European markets. In terms of product pipeline, the CGuard EPS stent platform remains the foundation of our business as the device drives patient outcomes beyond the selected delivery option. To fully utilize the full potential of CGuard, we are developing 2 new delivery systems to drive utilization across the broadest vascular specialist community. We continue to advance development of our new transfemoral delivery system, CGuard Prime which will be available in both standard and short shaft versions compatible with the development of SwitchGuard, our TCAR accessory device. In combination, these will offer a transcarotid option to our portfolio designed for those clinical needs and conversion of greater surgical procedures to the CGuard EPS stent platform. We continue to work tirelessly toward our goal of changing the paradigm of how carotid stenosis is managed. With CGuard EPS, we believe we can offer the best patient outcomes and broader set of tools to unlock the tremendous potential of this rapidly evolving market segment. We look forward to a catalyst-rich 2023 as we continue to establish CGuard as standard of care. With that, I'll turn the call over to Craig to review our first quarter financials. Craig?

Thank you, Marvin. For the third quarter of 2022, total revenue was $1.431 million compared to $1.071 million during the third quarter of 2021. This represents an increase of 33.6%. This increase is predominantly driven by a 38.8% increase in the sales of CGuard EPS to $1.431 million in the third quarter of 2022 from $1.031 million in the same period 1 year ago. This sales increase was due to growth in existing markets as well as U.S. sales related to stents used in the C-Guardians U.S. Food and Drug Administration clinical trial. Gross profit for the third quarter of 2022 was $366,000 compared to a gross profit of $92,000 for the third quarter of 2021. This represents an increase of almost 300%. This increase resulted from higher revenue and reduction in write-offs, training expenses and miscellaneous expenses. Gross margin increased to 25.6% during the 3 months ended September 30, 2022, from 8.6% during the 3 months ended September 30, 2021. Total operating expenses for the third quarter of 2022 were $4.976 million, an increase of $853,000 compared to $4.123 million for the third quarter of 2021. This increase was primarily due to increases in expenses related to the commencement of the C-Guardians FDA study and share-based compensation expenses. Net loss for the third quarter of 2022 totaled $4.529 million or $0.58 per basic and diluted share compared to a net loss of $4.071 million or $0.53 per basic and diluted share for the same period in 2021. As of September 30, 2022, cash, cash equivalents and short-term bank deposits were $21 million compared to $34 million as of December 31, 2021. That concludes the financial review. Operator, we will now turn the call over to you for questions.

[Operator Instructions] And our first question comes from the line of Ben Haynor with Alliance Global Partners.

Congrats on the progress. First off for me, just on the enrollment for C-Guardians, good to see that it remains on track to your earlier schedule. Could you give us a sense of where enrollment stands today? I mean, I would imagine it's safe to say that you've got over 200 people enrolled in the study. But any additional color that you can provide there?

Yes. Ben, thanks for the question. I would characterize it this way. We've accelerated our enrollment pretty aggressively over the last quarter or so as we've mentioned in prior calls, and I think your question is relevant, and I think we'll certainly hope that we can be within that time frame in the first quarter -- by the end of the first quarter of 2023 for full enrollment. So things are going very well. And I think adding our European sites over the last quarter certainly helped the enrollment as has added new U.S. sites. So, so far, everything is going according to plan for end of Q1 in 2023.

Okay. Great. And then on CREST-2, any more color there? I think last quarter, you were looking at kind of the first case being done in the very near future. Have there been a lot of cases done where -- I think you're talking about 20 potential sites. Where does that stand today?

Yes. The process of getting these contracts completed with these sites has been a little more time consuming than we had thought. And since we're piggybacking on a current trial that's being sponsored outside of our control, it's been a little slow in terms of enrollment, but we certainly look forward to that progressing and accelerating as well. We've -- as I think I mentioned in the last call, we've added sites specifically that are also C-Guardian sites, which I think will help in terms of training and comfort with the device. So we'll give you an update and a bit more detail, I think, over the next quarterly reporting in terms of specific number of cases.

Okay. That's helpful. And then on the CE Mark certification, if there is a delay, I know you've got a handful of days left here. Do you have a sense of how long it might be before that's in place?

Yes. Ben, it's difficult to estimate that. We've worked very closely with our notified body there. As you know, the complexities of the regulatory climate in Europe have changed dramatically, and we've stayed very close to this, obviously, and it's our top priority as a company to make sure that all the documents are well in order and that we're in full compliance. But as we work through the details, there are just some unknowns that we haven't fully gotten our hands around, and we're waiting for feedback. But we've also been working closely with our distributor partners to make sure that there's sufficient inventory in the market so that CGuards are always available. But certainly, as that unfolds, we'll provide a lot more detail, but we're working very closely on a day-to-day basis with our notified body to make sure that things remain in order.

Okay. So is it fair to say that you don't anticipate any impact to the end users or at least at this time? Or what's -- how would you characterize that?

Yes. I think our first priority, Ben, has been to make sure that we have sufficient inventory in the market, notwithstanding the dates of certification. So that's priority 1 is to make sure that CGuards are sufficiently inventoried in the market as we work through the final details as far as the certificate is concerned. So that's step number one. And then as we work through the timetable with our notified body, hopefully, there will be no delays in further filling the pipeline with devices. That's the plan.

Okay. That's helpful. And then just on the -- obviously, there have been some pretty big currency impacts here, dollar versus the euro, certainly. But backing those out, I mean, it looks to me like your local currency ASPs have increased kind of mid-single digits. Does that sound right, Craig? And then any more color on the market share gains? I think you mentioned maybe a couple of geographies being over 60% last quarter and now it sounds like there's at least one that's over 80% share that you guys have picked up. Any color on that?

Yes. So you're right about the exchange, most of our sales in Europe similar with the euro. So there has been a strengthening of the U.S. dollar, which we reported. But we have been trying to raise prices across the board as supply chain issues are causing prices to go up worldwide. But that's why we're focusing on number of units sold. And as you can see, we're over 50% growth year-over-year. That was more -- yes, so that is the correct way to look at it. And as far as market share, yes, you're actually correct. So we do, as Marvin said, more than -- about 50% of our company is greater than 20%. And we have some company -- countries actually reaching 60% as well as 80% of the market.

Okay. Great. And then lastly for me on the Japanese level of interest. Just curious on -- are there terms that are more or less likely -- I mean, it's a more -- if you do -- once you do find a partner over there, is it more likely to be more upfront-loaded or back-end loaded with a royalty or what's kind of the current thinking there to the extent that you can share?

Yes, Ben, I think we sort of considered three aspects of two, maybe three different distributor partners over the last year or so that have expressed consideration. One is, obviously, the regulatory path, making sure that they're prepared to participate with us and as we did in China to make sure that the regulatory path was clear and that, that could be considered as part of any agreement. Second is, obviously, their reputation and capability to distribute the carotid stents within their marketplace. And then beyond that, it generally follows kind of a standard royalty approach to numbers of units, numbers of years, those kinds of things. But we also are looking at the consideration of an investment as well, which was also consistent in China when we signed that agreement. So those three aspects are what we're considering. And as I said, we've got more than one interested party, so that's good as well. And we're working on those details. So we hope to have some new information soon along those lines.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Marvin Slosman for closing remarks.

Great. Thank you. I'd like to thank everyone for taking the time today to join the call and the ongoing support. We're extremely proud of the progress from this quarter and year-to-date. We look forward to a strong finish as well as continued momentum into 2023. Thanks very much.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.