InspireMD (NASDAQ:NSPR) Q4 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by. Good morning and welcome to the InspireMD year-end 2020 financial results and corporate update conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one, on your telephone keypad. To withdraw your question, please press star then two. Participants on this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes.

0:46 A webcast replay of the call will be available approximately one hour after the end of the call through June 9, 2021. I would now like to turn the call over to Scott Gordon, president of Core IR, the company's investor relations firm. Please go ahead, sir. Thank you, Andrew. Good morning, everyone, and thank you for joining us for the InspireMD year-end 2020 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, including statements that address InspireMD's expectations for future performance or operational results, particularly in light of the COVID-19 pandemic. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those 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, the Form 8-K filed with the SEC today, and InspireMD's press release that accompanies this call, particularly the cautionary statement in it.

2:07 The content of this call may contain time-sensitive information that is accurate only as of today, March 9, 2021, 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, Scott, and thank you all for joining the call and webcast today. The year 2020 began as a year of transition and optimism. and despite of the unprecedented historical impact throughout the world and in particular the healthcare community as a result of COVID-19, we not only weathered these challenges at InspireMD but have become stronger by way of many important milestones achieved during the year.

3:01 We set a focus direction in 2020 built around our C-Guard EPS platform to advance awareness, utilization and recognition within the medical community of the value and superiority of C-Guard. as measured by our growing body of clinical evidence and positive patient outcomes in stroke prevention. C-Guard's unique and proprietary design makes it the most advanced treatment of carotid artery disease of all other stent technologies and endarterectomy, a highly invasive surgical procedure. Inclusive of all vascular specialty and delivery system options, our goal is to continue to establish C-Guard as a carotid device of choice amongst physicians across the multiple clinical specialties that treat carotid artery disease.

3:47 Our team's performance during these times remained steadfast as we focused on availability of our products to our served markets with a patient-first mindset. Execution of our strategic priorities, financial stability, and the growth of our commercial footprint all continued with focused determination. As expected, revenue performance for the year was impacted primarily by the effects of COVID-19, which restricted elective procedures across our markets. We anticipated procedures to return to pre-pandemic levels and even grow as vaccines continue to roll out globally, and we will return to a more normalized way of life. Even with the headwinds of extraordinary and unforeseen one-time historic events, we experienced a promising year of remarkable milestones and have positioned our business for success.

4:39 Supporting and growing our customers' use of C-Guard EPS for treating carotid artery disease in our 33 served markets remains our top priority. We are proud to have sold over 21,000 C-Guard EPS systems to date, continuing to grow the number of patients receiving the best performing and safest carotid stent in the market. We continue our global expansion and market penetration goals including achieving regulatory registration and distribution for Seaguard EPS in Brazil, the largest market for medical devices in Latin America. More recently, we secured an investment and product registration agreement with a key medical device partner, enabling the commercial availability of Seaguard EPS to the Chinese market. We are also pleased to have settled a dispute with a former distributor dating back to 2014, permitting us to advance our business with a clean slate.

5:33 Perhaps our biggest achievement this past year was receiving approval from the U.S. FDA for our Investigational Device Exemption, or IDE, application to initiate a pivotal clinical study of C-Guard EPS in the United States. Bringing C-Guard to the U.S. market is a top priority for InspireMD, and we are pursuing that objective methodically and with measured tenacity. To that end, we recently partnered with a world-class CRO, Heart Clinical Consultants, who will provide the clinical support to the upcoming global IDE trial with significant expertise in successfully conducting global trials in the cardiovascular market. Additionally, we are pleased to announce world-renowned interventional cardiologist Dr. Chris Metzger has agreed to lead the trial of investigators who will conduct the IDE trial now named the Sea Guardian Study.

6:25 We also welcome Dr. Christina Brennan, a leading clinical researcher at Northwell Health System in New York, who will assist with the trial execution. We previously announced the addition of Dr. Gary Rubin, a pioneer in carotid artery stenting, to our board of directors, and he remains actively involved in the trial effort, guiding our strategic planning as well. In addition, we continue to build out our senior leadership team, adding Mr. Patrick Jamnick as our vice president of business development and strategic initiatives, and Mr. Andrea Tomasoli as senior vice president of global sales and marketing, both of whom will develop and implement the strategies to execute on our aggressive commercial goals. Perhaps our most impactful event for the company was our ability to have recently completed a targeted oversubscribed capital raise of $20.7 million.

7:15 This should provide us with the essential financial support needed to complete our Sea Guardian study, which is the first step to the U.S. market, as well as funding company operations through 2023, including our expanding R&D efforts. with a pipeline of new delivery solutions to facilitate broader and greater utilization of C-Guard. Our strategic commercial pathway to business growth for C-Guard includes expansion of market share across the multiple clinical specialties that treat carotid artery disease by making C-Guard APS the first-line stent solution with continued focus on conversion of vascular surgeons who perform the vast number of carotid revascularizations. This is a significant sea change for growth, and we will continue to work diligently to increase awareness and foster these conversions in our current and future markets.

8:07 Speaking of growth markets, we filed for registration and reimbursement in France, plan to establish a direct sales effort as a part of our enhanced overall go-to-market strategy. Japan, Taiwan, and Korea are also advancing market expansion opportunities, as well as our overall Asia growth initiative combined with our China agreement. In our served markets, we have plans to expand our online training and proctoring efforts along with reinstating our Centers of Excellence or COE programs, which prior to COVID provided highly effective educational support of new users for the C-Guard platform. Finally, we are advancing our work with new tools, accessories, and portfolio additions to support broad utilization of C-Guard and look forward to providing progress updates soon.

8:56 As we look back at the past year of unprecedented challenge and the unpredictability of the market, we also look forward with optimism to a renewed consistency in patient care in 2021. We remain entrenched in our fundamental value proposition, which is to change how carotid artery disease is managed and stroke is prevented with our clinically proven proprietary platform solution, the C-Guard Embolic Protection System. Historically, physicians have had to make inherent compromises in choosing a carotid artery stent with either open or closed cell designs. C-Guard EPS eliminates those compromises, and it offers the best of both worlds by simultaneously providing open and closed cell features with performance that we believe to be the most advanced protection of embolic events as a leading cause of stroke. Seaguard's unique Micronet technology mitigates the prolapse of plaque into the lumen of the artery and thus prevents associated embolization.

9:56 It continues to demonstrate superior clinical outcomes for patients compared to alternative carotid stent types, conventional or next-generation double-layered stents, as well as invasive surgical procedures such as endarterectomy. Seaguard has demonstrated clinical superiority in protected treatment of carotid artery disease with the potential to firmly establish a new standard of care. And to that end, we aspire and are committed to improving outcomes for patients and changing the practice of vascular medicine. With that, I'll turn the call over to Craig to review our year-end and fourth quarter financials. Craig? Thank you, Marvin, and to everyone for joining today. Here are some key financial highlights for our fourth quarter and year-end 2020 results.

10:42 Total revenue for the three months ended December 31st, 2020 was $158,000, a decrease of 84.4% compared to $1,013,000 during the three months ended December 31st, 2019. Revenues were negatively impacted by our settlement of litigation with a former distributor relating to a 2014 transaction, as Marvin alluded to earlier. Per the settlement, we agreed to pay them $580,000. Under U.S. SCAP, we were required to charge that amount against sales. Excluding such impact, revenue was $738,000, a decrease of 27.1% compared to $1,013,000 during the similar period in 2019. This decrease was driven mainly by a 25.2% decrease in sales volume of Seagard EPS, from $921,000 during the three months ended December 31st, 2019 to $689,000 during the three months ended December 31st, 2020, mainly due to the postponement of procedures from CEGAR EPS, which are generally scheduled or non-emergency procedures as hospitals shifted resources to patients affected by COVID-19.

12:02 The 46.7% decrease in sales volume of Engard EPS from $92,000 during the three months ended December 31st, 2019 to $49,000 during the three months ended December 31st, 2020 was also mainly due to the impact of COVID-19 as previously mentioned. For the three months ended December 31st, 2020, we had a gross loss of $390,000 compared to a gross profit of $259,000 during the three months ended December 31, 2019. This decrease in gross profit resulted from the impact of the $580,000 settlement with our former distributor, as well as the $79,000 decrease in revenue less the related material and labor costs.

12:48 This decrease was partially offset by a decrease of $10,000 in miscellaneous expenses during the three months ended December 31, 2020. Gross margin decreased by a negative 247% during the three months ended December 31st, 2020 and 25.6% during the three months ended December 31st, 2019, driven mainly by the negative effect of the gross margin of 273% due to the $580,000 settlement with our former distributor. Total operating expenses for the quarter ended December 31st, 2020 with $3,328,000, an increase of 20.4% compared to $2,765,000 for the same period in 2019. This increase was primarily due to increases of $363,000 in compensation expenses as we added resources to our clinical, product development, and sales infrastructure.

13:35 $134,000 of directors' and officers' liability insurance expense due to recent economic changes in the insurance industry, $96,000 in development expenses associated with Seaguard EPS mainly related to the new advanced delivery system and associated accessories, and $75,000 in miscellaneous expenses. These increases were partially offset by a decrease in travel expenses of $105,000 in light of restrictions imposed by governments worldwide in order to mitigate the spread of COVID-19.

14:24 For the three months ended December 31st, 2020, financial expenses increased to $131,000 from $27,000 during the three months ended December 31st, 2019. This increase in financial expenses primarily resulted from changes in exchange rates. Net loss for the fourth quarter of 2020 totaled $3,853,000, or 10 cents per basic and diluted share, compared to a net loss of $2,557,000 or 57 cents per basic and diluted share for the same period in 2019. For the 12 months ended December 31st, 2020, revenue was $2,485,000, a decrease of 33.2% compared to $3,721,000 during the 12 months ended December 31st, 2019. Revenue was negatively impacted by 15.6% due to the previously mentioned settlement of our litigation with the former distributor.

15:26 As I previously stated under U.S. GAAP, we were required to charge this $580,000 settlement against sales. Excluding such impact, revenue was $3,065,000, a decrease of 17.6% compared to $3,721,000 during the 12 months ended December 31st, 2019. This decrease was driven mainly by a 15.3% decrease in sales volume of C-Guard EPS from $3,265,000 during the 12 months ended December 31st, 2019 to $2,764,000 during the 12 months ended December 31st, 2020. Mainly due to the postponement of procedures with C-Guard EPS, which were generally, as I said, which are generally scheduled or non-emergency procedures.

16:14 as hospitals shifted their resources to patients affected by COVID-19. There was also a 34% decrease in sales volume of Vanguard Prime EPS from $456,000 during the 12 months ended December 31st, 2019 to $301,000 during the 12 months ended December 31st, 2020, also mainly due to the impact of COVID-19. For the 12 months ended December 31st, 2020, gross profit decreased by 89% to $83,000, compared to $756,000 for the same period in 2019. Once again, this decrease in gross profit resulted from the impact of the $580,000 settlement with our former distributor, as well as $198,000 decrease in revenue, less the related material and labor costs. This decrease was partially offset by a decrease of $69,000 in expenses related to upgrades made to our production facility during the year ended December 31st, 2019, which did not reoccur during the year ended December 31st, 2020, and a decrease of $36,000 in miscellaneous expenses.

17:24 Growth margin decreased to 3.3% during the year of 2020, from 20.3% during the year ended 2019. driven mainly by a negative effect on gross margin of 18.3% due to the settlement of a former distributor, which was offset by a 1.3% gross margin increase due to the upgrades made to our production facilities and miscellaneous expenses, as mentioned above or previously. Total operating expenses for the 12 months ended December 31st, 2020 were $10,463,000. a decrease of 1% compared to $10,572,000 for the same period in 2019. This decrease was primarily due to a decrease of $861,000 in clinical expenses associated with CVARD-EPS mainly related to the IDE approval process for which an approval from the FDA was received on September 8, 2020.

18:24 $421,000 in travel expenses in light of the restrictions imposed by governments relating to COVID-19, $354,000 due to the settlement expenses that were paid to a former service provider pursuant to a settlement agreement during the 12 months ended 2019, $136,000 in quality assurance and regulatory expenses related to the development of various projects, and $129,000 in promotional expenses, primarily related for a outreach program already built in our social media infrastructure in 2019. These decreases were partially offset by an increase in expenses of $531,000 in development expenses related to SeaGuard EPS, new advanced delivery system and accessories.

19:13 $400,000 due to the settlement agreement with the underwriter of our prior offering, paid during the 12 months ended 2020, $386,000 in compensation expenses as we added resources to our clinical product development and sales infrastructure and $249,000 in our directors and officers liability insurance expenses partially due to recent changes in the insurance industry and $177,000 in regulatory expenses required for new regulatory standards set by the European Union and $49,000 in miscellaneous expenses. Financial expenses for the 12 months ended December 31st, 2020 was $160,000 compared to $200,000 for the same period in 2019.

19:59 The decrease in financial expenses primarily resulted from changes in exchange rates. Net loss for the 12 months ended December 31st, 2020 totaled $10,544,000 or 46 cents per basic and diluted share. compared to a net loss of $10,040,000 or $4.80 per basic and diluted share for the same period in 2019. As of December 31st, 2020, cash and cash equivalents were $12,645,000 compared to $5,514,000 as of December 31st, 2019. During the first quarter of 2021, the company raised and net of $35.1 million through various equity transactions.

20:48 With that, I'd now like to turn the call over for questions. Operator, please go ahead. Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star then the number one on your telephone. If your question has been answered and you wish to withdraw your request, You may do so by pressing star then two. If you are using a speakerphone, please pick up your handset before entering your request and speaking on the call. One moment please for the first question. The first question comes from Benjamin Hainer of Alliance Global Partners.

21:36 Please go ahead. Good day, gentlemen. Thanks for taking the questions. First up for me, just on the CIGAR trial here, how do you expect the ramp-up of sites to track? When do you expect the first patient in? Any color you can give us on the kickoff of this thing would be helpful. Great. Thanks, Ben. Thanks for the question. Yeah, we're excited about the progress that we're making. Naming Chris Metzger as the PI was a huge advantage for us, and we have subsequently been working diligently to make sure that all the setup is properly done, sites have been identified, the protocol's been reviewed, and so forth.

22:26 So I think it's one of those scenarios where we want to, you know, measure three times to cut once, and so we're We're trying to make sure that everything falls in place nicely. We anticipate first-patient enrollment sometime around the June 1st timeframe, sometime beginning of June, and everything since we've hired HCC as our CRO and brought Chris on board has gone very well. We're also in the process of building additional investigation sites in Europe. and we feel that that's important given the experience of some of our operators in the European market as well. So we look to generally that time frame to begin our enrollment of patients. Okay, that's helpful. So we're about a quarter out from there.

23:12 And then, you know, the European sites, you know, how, you know, I know you can't do more than half, but how many do you expect to add or is it too early to be talking about that? Yeah, we don't have a firm number at this point, Ben, but I think it's safe to assume that the quality of the sites is most important more than quantity. And we anticipate that, you know, up to about 20% of the enrollment we believe is reasonable from the European sites and operators who have had, you know, a breadth of experience using SeaGuard at this point. So we look forward to, you know, fine-tuning that number. But at this point, that's where we think we'll land. Okay, so stay tuned. Got it. And then, you know, just the reimbursement process and, you know, how's that moving along in France? Is that something that we could see before the year is out? And then, you know, what's your expectation, you know, once you do gain the reimbursement, you know, do you have kind of that early adopter cohort kind of defined over there?

24:21 We do. The process has gone quite well. We submitted the dossier at the beginning of the year. And so far, all the indications back from the French Health Authority have been positive. And we hope to be able to get the reimbursement finalized and approved within, let's call it the third quarter. So we hope that for 2021, we'll be able to realize the benefit of entering the market commercially. We've already put into place our commercial backbone, but begun to think about locations, operators, and we want to certainly be prepared that once we get that reimbursement and approval, we're ready to go full speed ahead. So there's great momentum from that standpoint and an awareness within the French market, obviously, at Seaguard.

25:09 Even though we've not been commercially available there before, the European market in general is well aware. So we have a couple of KOLs in particular that are really excited to have the product in their hands. Okay, great. And then, you know, now that you've launched in, I believe you've launched in Brazil, I think. Yes. A lot of stuff in place there. What's been the initial feedback there? Yeah, the uptake has been quite strong. Yeah, you know, unfortunately, the Brazilian market was affected by COVID in a really terrible way. And so it's been a bit of a challenge. And the country in general is quite large and diverse. We've got five sub distributors that are in place. But the results so far have been, you know, remarkably positive.

25:58 And we've tried to focus on the operators that are really at the high volume centers and the innovators and and really kind of build our base of business from there. And so far it's gone really well. So we hope that that will continue to get out into deeper segments of the market as we get into 2021. But so far, so good. Good deal. And then on the R&D front in terms of the new delivery and accessory solutions that you mentioned, You know, was more that spending the half a million bucks or so that you spent last year, it was more that in the latter half of the year and then, you know, it does sound like we could hear more on what those products look like in the near future.

26:49 Any more color you can provide there? Yeah, I mean, the spend was generally level-loaded, but as we get closer to submitting to DECRA and other regulatory bodies, the spend obviously increased as we get closer to the end here. And certainly, we want to discuss those in detail. It's a little bit premature at this point, but we're really excited about the fact that we've got a couple of new delivery systems available or coming to the market, which we hope will broaden both access and acceptance to the Seaguard EPS platform. Generally speaking, our goal is to make sure that our stent is used by the broadest range of vascular operators, and we want to make sure that we have a full breadth of delivery systems that allow this as a first-line stent solution.

27:40 Got it. And lastly for me, one of the other players in the carotid market, You know, has, I guess, now filed a PMA for standard risk patients. You know, I just wanted to get your thoughts there. I mean, I know that's, you know, whatever, a third of the market or so. But, you know, your thoughts on that and, you know, whether that kind of expands the market or kind of, I guess, the If they get it, it kind of paves the way for adoption of C-Guard once you guys are able to gain U.S.

28:25 clearance. Yeah, Ben, I think we certainly value the fact that converting surgeries over to stenting is certainly our priority and our focus has been and will continue to be on the value of C-Guard as the best stent in the marketplace. But we certainly welcome that trend of transition Thank you for joining us. were encouraged by all of that adoption and conversion.

29:22 Excellent. Well, I'll leave it there. Thanks a lot, gentlemen, and again, congrats on the progress. Thanks, Ben. Appreciate it. This concludes the question and answer session of the call. I will now return the call to Marvin Slosman for closing remarks. Thank you. I'd like to thank everyone for their ongoing support of InspireMD and to remind you that despite the challenges of 2020, we're well positioned for a successful and impactful 2021. In spite of the continued COVID-associated challenges, to date, Seaguard EPS continues to outperform with clinical evidence all other competitive carotid stents, and we will continue to drive this awareness to our customers and provide the best absolute clinical and patient outcomes.

30:11 We're expanding our reach and preparing for perhaps the most exciting year ahead in the company's history as we prepare to execute on our U.S. pivotal trial, and we look forward to continuing to report on our success, and we thank you for your support. The conference has concluded. You may disconnect your line at this time. Thank you.