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Edited Transcript of NSPR earnings conference call or presentation 14-May-19 12:00pm GMT

Q1 2019 InspireMD Inc Earnings Call

TEL AVIV-YAFO May 16, 2019 (Thomson StreetEvents) -- Edited Transcript of InspireMD Inc earnings conference call or presentation Tuesday, May 14, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig Shore

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

* James J. Barry

InspireMD, Inc. - President, CEO & Director

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Conference Call Participants

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* Jeremy Feffer

LifeSci Advisors, LLC - MD

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Presentation

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Operator [1]

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Greetings, and welcome to the InspireMD First Quarter 2019 Earnings Conference Call. (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.

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

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Thank you, Devin. Good morning, everyone, and thank you for joining us for the InspireMD 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 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 as to 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.

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

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Thank you, Jeremy, and thanks to you all who are joining us today on this call and the webcast. Craig will go through the financials 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 product 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 backorders. 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 sterilization problem early. We understood the potential longer-term implications, immediately engaged another 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 1. 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 the determination of the team showed to engage a new supplier and get that supplier approved by the notified body.

Now turning to highlights during the quarter. We continue to execute on our multi-faceted growth strategy which is driven by continued focus of our sales efforts in key European markets, while at the same time preparing our U.S. [IDG] 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 anticipate 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-struct carotid stents and far less invasively 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, 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 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 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 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 carotid and endarterectomy procedures. To that end, as we've discussed on previous calls, we have instituted a program of establishing centers of excellence or COEs in conjunction with our distribution partners in key territories to train and educate surgeons and interventionists 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 lottery disease in Europe, such as Professor [Cremanasi] in Bergamo, Italy; Professor [Statiale] in Rome; Professor [Muselic] in Krakow and Professor [Kolzenbach] in Dusseldorf.

We have drawn these leading key opinion leaders from all specialties that treat carotid artery disease from vascular surgeons to interventional neurologists, with the aim to allow all clinician 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-finance 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 dynamic of treating carotid artery disease.

We are expanding this program to the U.K., 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 surgeons which has validated the COE program as we had planned.

This program is key to providing hands-on experience with CGuard in 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 3 additional clinical specialists and 2 are MDs. 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 successes, having converted the largest carotid artery stenting center in the U.K., 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 important medical meetings including [VEEP], LINC and the TCT. These presentations in addition to publications in top peer-reviewed journals such as JACC Cardiovascular Interventions, continue to add to the growing body of evidence demonstrating the clinical advantages of CGuard versus conventional carotid stents, that complement both our own organic sales outreach efforts as well as our Centers of Excellence program. We look forward to detailing additional presentations and publications in the coming months.

At this point it may be worth recapping what we believe to be the market opportunity for CGuard. We are pursuing what we estimate to be at minimum a $1 billion addressable market and perhaps significantly more as a percentage of physicians and patients opt for CGuard instead of surgery. It's estimated that as many as 13 million people have high-grade stenosis in the carotid artery around the world. Of those, just 2.2 million have been diagnosed and only 600,000 receive some form of treatment with approximately 80% surgically treated by carotid endarterectomy. The remaining 20% are treated with conventional carotid stents.

If we take the roughly 600,000 who are treated at approximately $1600 end-user price for a stent, that equates to a $1 billion addressable market. Clearly if the remaining 1.6 million people who are diagnosed but untreated were to undergo treatment, that would drive a significant increase in the size of the market, and we believe CGuard can evolve into the standard of care and begin to find its way into the treatment of these patients.

We believe there is an enormous commercial opportunity for InspireMD and our products, which can deliver significant value for our investors and make substantial improvement in the care of patients.

One corporate update. Subsequent to the end of the first quarter we completed an equity financing that raised gross proceeds of approximately $2.5 million. We are pleased to be able to complete this transaction which provides us with resources necessary to execute our growth and development plan and to achieve significant milestones between now and the end of the year.

And with that, I'll turn the call over to Craig to review the financials.

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

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Thanks, Jim. For the 3 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 3 months ended March 31st, 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 3 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 3 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 revenue less the related material and labor cost resulting from delays related to product sterilization interrupted as discussed previously, and an increase of $118,000 in write-off 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 is 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 predominantly due to a non-cash expense associated with a preferred stock in Q1 2018, that did not repeat itself this quarter. Net loss for the first 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 as of 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 point we'll turn the call over to the operator for questions. Operator?

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Operator [5]

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(Operator Instructions) There appear to be no questions at this time. I'd like to turn the floor back over to Mr. Barry for closing comments.

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James J. Barry, InspireMD, Inc. - President, CEO & Director [6]

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Okay. Thank you, Devin. That concludes today's call. Thank you all again for taking the time to join us and hearing the last 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.

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Operator [7]

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