U.S. Markets open in 2 hrs 58 mins

Edited Transcript of NSPR earnings conference call or presentation 6-Aug-19 12:00pm GMT

Q2 2019 InspireMD Inc Earnings Call

TEL AVIV-YAFO Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of InspireMD Inc earnings conference call or presentation Tuesday, August 6, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Craig Shore

InspireMD, Inc. - CFO, Chief Administrative Officer, Secretary & Treasurer

* James J. Barry

InspireMD, Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Vernon Tolentino Bernardino

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Jeremy Feffer

LifeSci Advisors, LLC - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings, and welcome to the InspireMD Second Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeremy Feffer, Investor Relations for InspireMD. Thank you, you may begin.

--------------------------------------------------------------------------------

Jeremy Feffer, LifeSci Advisors, LLC - MD [2]

--------------------------------------------------------------------------------

Thank you, Melissa. Good morning, everyone, and thank you for joining us for the InspireMD Second Quarter 2019 Business Update Conference Call. On the line with us today are Jim Barry, Chief Executive Officer of InspireMD; 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 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's my pleasure to turn the call over to Jim Barry. Please go ahead, Jim.

--------------------------------------------------------------------------------

James J. Barry, InspireMD, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Jeremy, and thanks to all of you for joining us on the call and the webcast today. While Craig will review our financial results in detail in a few minutes, I want to begin by commenting on revenue and specifically the reported year-to-date revenue. Total revenue through the first 3 months of the year was $1.8 million. This represents a decrease of $241,000 or 12% as compared to the comparable period in 2018. CGuard revenue for the first 6 months of the year was $1.5 million, a decline of 10% as compared to the comparable period in 2018.

As you recall, during the first quarter of this year, our sterilization partner experienced equipment issues that resulted in our inability to sterilize product for most of the quarter. As such, we had a shortage of product that was available to ship to our distributors and customers for the majority of the first 3 months of this year. However, we immediately engaged another sterilization provider, conducted all the testing and validation required, submitted a comprehensive package to our European notified body, who subsequently approved our new supplier in early April, thus, completely resolving the issue. The product that was shipped in the first quarter was mostly from inventory from year-end 2018. This is inventory that we maintain on an ongoing basis to allow us to react quickly and fill orders as they come in. However, the consequences of the lack of supply of CGuard to the market during this time period had a major impact on our revenue not only in Q1, but had additional unintended consequences in Q2.

Examples of these unintended consequences were the inability to open new CGuard centers in our key markets and where typical ongoing CGuard sales and procedures were lost due to the reluctance of some customers to place orders during the second quarter until their backlog orders had been cleared. We spent the second quarter remedying these issues and getting back on track with supplying our distribution partners and restoring their confidence. The good news is that CGuard is now back on the shelves of the hospitals and available for carotid procedures. I have personally been talking to and meeting with many of our distribution partners as a result of our Q1 sterilization issue and have been reassuring them that this was a one-time issue that has been resolved. While the discussions were appropriately challenging, our partners are placing orders.

One could have anticipated us to be down nearly 50% versus last year due to our being out of the market for almost 3 months of the first half of 2019 compared to 2018. However, we managed to catch up almost completely with just a 10% decrease in CGuard revenue versus the same time period in 2018.

Now turning to the United States. As you know, we planned on submitting our IDE, or our Investigational Device Exemption, application to the U.S. FDA midyear. This submission has occurred as planned, and if approved, would allow us to commence clinical studies of CGuard in the United States. Typically, the FDA responds to an IDE application within 30 days with an approval, conditional approval, disapproval or additional questions on the application, which is not atypical. Given a significant body of evidence confirming the safety profile of CGuard, we remain optimistic that our IDE will be approved. If so this would be a significant inflection point for our company as it would allow us to begin clinical development of this novel device in the world's most important market. We will provide further updates as warranted.

Outside of the United States, we are working to introduce CGuard into meaningful territories, many of which have higher regulatory requirements, most notably, South Korea, Taiwan, China and Japan. In addition, we continue to anticipate that Anvisa, the regulatory body in Brazil, will approve CGuard by the end of this year. This is significant as Brazil is currently the fifth largest market in the world that treats carotid artery disease and has attractive pricing for carotid devices. A major component of our long-term multifaceted growth strategy is our Centers of Excellence initiative, which began late last year, and seeks to provide physicians interested in using CGuard, including vascular surgeons, with training and real-world experience of using the device. This allows our distribution partners to target physicians in key hospitals that wish to convert to our product.

As we have pointed out in the past, vascular surgeons perform the vast majority of surgical carotid endarterectomy procedures, which are an invasive alternative to treating the disease with the device. So educating them on the safety and efficacy of CGuard is an important growth driver for us and would benefit countless numbers of patients who would no longer have to undergo such an invasive surgical procedure, such as endarterectomy and its associated risk profile.

In our Centers of Excellence sessions, we educate on the compelling clinical data of CGuard compared to the first generation or conventional carotid stent, other double layer next-generation carotid stents and carotid endarterectomy. We then train the visiting clinicians in a number of hands-on live patient cases, allowing them to return ready-to-use CGuard in their own clinics. The Centers of Excellence are proctored by key opinion leaders, or KOLs, and are well -- who are all well respected in their specific clinical specialties. These KOL partners also investigate the safety and efficacy of CGuard on an ongoing basis in the clinic, generating important clinical data.

To date, we've opened Centers of Excellence in Germany, Italy, Spain, Poland and Slovenia, and the results have been extremely positive. Looking ahead, we intend to further expand this important program into new territories, such as the U.K., the Netherlands and Belgium. At present, our Centers of Excellence activities typically allow us to open 15 to 20 new centers per quarter, about half of them in vascular surgery. As the program expands, these numbers will increase. It is our goal to make CGuard available to the broadest possible patient population, and our Centers of Excellence will go a long way towards driving awareness and uptake.

Taking a step back for those of you who may be new to the story, CGuard is a highly differentiated device platform that can deliver superior patient outcomes relative to conventional open-cell carotid stent and far less invasively than carotid endarterectomy surgery. It is a best-in-class minimally invasive treatment for carotid artery disease, 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 of both patients and treating physicians.

CGuard is designed to prevent late embolization by trapping potential emboli against the arterial wall behind the MicroNet, while maintaining perfusion 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. We estimate that CGuard can address a $1 billion near-term market opportunity just based on patients who are currently treated with either conventional stents or carotid endarterectomy. There's opportunity to grow exponentially if we can divert the approximately 1.6 million people who are diagnosed, but untreated. As awareness of CGuard continues to grow, we've seen a notable increase in inbound inquiries from potential partners and collaborators. We plan to add business development resources in the coming weeks to more effectively assess these queries and allow us to implement a more focused proactive business development strategy. Business development has always been a key pillar of our long-term growth strategy and with the recent inquiries, we recognize the need to place additional focus on this pillar.

With that, I'll turn the call over to Craig for a review of the financials.

--------------------------------------------------------------------------------

Craig Shore, InspireMD, Inc. - CFO, Chief Administrative Officer, Secretary & Treasurer [4]

--------------------------------------------------------------------------------

Thanks, Jim. For the 3 months ended June 30, 2019, revenue was $1.354 million, representing an increase of 35% from the comparable period in 2018. This increase was predominantly driven by a 34% increase in sales of CGuard EPS from $833,000 in the second quarter of 2018 to $1.116 million in the second quarter of 2019 and a 40% increase in sales of MGuard EPS from $170,000 in the second quarter of 2018 to $238,000 in the second quarter of 2019. Both increases were due to the shipments during the second quarter of this year of approximately $592,000 of backlog that accumulated in the first quarter that we were unable to previously ship. These increases, however, were partially offset by sales decreases in certain of our markets during the 3 months ended June 30, 2019, resulting from new orders being delayed while the product backlog was being cleared.

The company's gross profit for the quarter ended June 30, 2019 was $442,000 compared to a gross profit of $277,000 for the same period in 2018.

Gross margin increased 32.6% in the second quarter of 2019 from 27.6% in the same period of 2018. This increase in gross profit resulted primarily from $180,000 increase in revenue, less the related material and labor costs, as discussed above, and a receipt of 135,000 compensation from our former third-party sterilizer for the delays related to the product sterilization interruption during the first quarter of 2019. These increases were offset by $69,000 of expenses related to upgrades made to the company's production facility, $40,000 of expenses pertaining to annual and new employee training of the production workers and an increase of $41,000 in miscellaneous expenses.

Total operating expenses for the quarter ended June 30, 2019 were $2.625 million, an increase of 50% compared to $1.750 million for the same period in 2018. This increase was primarily due to an increase in clinical expenses associated with CGuard EPS, mainly related to IDE efforts in 2019, and due to a salary-related accrual reversal in Q2 2018 that did not repeat itself in the same period this year.

Financial expenses for the quarter were $23,000 compared to financial income of $846,000 for the same period in 2018. This decrease in financial income of $869,000 was predominately due to a noncash income associated with our preferred stock in the second quarter of 2018 that we did not incur this quarter. Net loss for the second quarter of 2019 totaled $2.206 million or $1.59 per basic and diluted share compared to a net loss of $627,000 or $7.66 per basic and diluted share for the same period in 2018. As of June 30, 2019, cash and cash equivalents were $4.823 million. Our forecast to cash and equivalents are expected to finance our operations and development plans through the end of 2019.

At this point, we'll turn the call over to the operator for questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Vernon Bernardino with H.C. Wainwright.

--------------------------------------------------------------------------------

Vernon Tolentino Bernardino, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [2]

--------------------------------------------------------------------------------

Congrats on the results. It looks very positive. The backlog seems to be behind and the issues with the sterilizer also the third-party sterilizer. I was just wondering if you could talk a little bit more about the expectations for the aspects of that backlog and future sales footstep. I think you had mentioned, Jim, that part of the sales were affected in the second quarter because you didn't open new centers or just didn't have product. Could you just over the details again, please?

--------------------------------------------------------------------------------

James J. Barry, InspireMD, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Yes. Sure. I think that's exactly right, Vernon. So we -- what I called unintended consequences, having to clear the backlog sort of caused a little bit of delay on what orders that might have typically come in, in Q2. And as I said, we've been spending a lot of time with the distributors sort of reassuring them, getting the product back out in the market, getting the backlog not only on the shelves, but getting used, so that new orders can come in. And as I said, we are starting to see those new orders come in right now. So again, I hope and believe that this is a one-time incident, and we will be back to full production and hopefully growth.

--------------------------------------------------------------------------------

Vernon Tolentino Bernardino, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [4]

--------------------------------------------------------------------------------

And so it looks like then perhaps overall revenue in the third quarter should be slightly better or maybe even more than slightly better?

--------------------------------------------------------------------------------

James J. Barry, InspireMD, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes. I mean as you know, we're not going to comment on that just yet. And I also want to start seeing how things roll out, but so far, we're feeling pretty optimistic.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Barry for any final comments.

--------------------------------------------------------------------------------

James J. Barry, InspireMD, Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

Okay. So thank you. That concludes today's call. Thanks again for taking the time to join us and hear the latest on the company. I wish you all good day, and look forward to speaking with you again on the next quarterly update in November.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

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