Good morning, and welcome to the InspireMD Second Quarter 2023 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to Glenn Garmont with LifeSci Advisors. Thank you. You may begin.

Thank you, operator. Good morning, everyone. Thank you for joining us for the InspireMD Second Quarter 2023 Financial Results and Corporate Update Conference Call. Joining us today from InspireMD are Marvin Slosman, Chief Executive Officer. During this call, management will be making forward-looking statements that are 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, August 8, 2023. 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's now my pleasure to turn the call over to Marvin Slosman, Chief Executive Officer. Marvin, please go ahead.

Thank you, Glenn, and thanks to everyone for joining our call this morning. I'm pleased to share that the second quarter of 2023 proved to be a transformational time for our company, as we advanced our mission to lead the carotid revascularization market with next-generation solutions built on the foundation of our CGuard carotid stent platform. The second quarter produced our highest revenue to date for our CGuard Carotid Stent System, as well as the successful financing of up to $113.6 million in new capital. Specific to our financials, we generated total revenue of $1.649 million, our highest CGuard quarterly revenue to date, representing growth of nearly 10% over the second quarter of 2022 and sequential growth of 33% over the first quarter of 2023. We sold 2,804 stent systems during the quarter as compared to 2,602 during the second quarter of 2022, and 2,033 during the first quarter of 2023. Procedural volume continues to be the key metric of our success, measuring unit volume and market utilization. This record quarterly performance reflects the acceleration in the use of CGuard EPS in our approved CE Mark territories as we continue to focus on growing share. Foundationally, we have established a baseline of real-world experience and best-in-class data, with more than 40,000 CGuard stents sold to date. As we drive market awareness and global expansion, implant performance will remain the cornerstone of our focus. We announced in May the completion of a private placement financing of up to $113.6 million, with $42.2 million upon closing of the transaction, followed by issuance of warrants for an additional $71.4 million tied to the achievement of four prespecified milestones, or $17.85 million each. The tranches are tied to the following milestones, with warrants expiring 20 trading days following. The first tranche is tied to the release of primary and secondary endpoints related to one-year follow-up of study results from our C-Guardians pivotal trial; receipt of premarket approval from the FDA for CGuard Prime 135 carotid stent system; receipt of FDA approval for the SwitchGuard transcarotid neuroprotection system and CGuard Prime ADCM stent system; and completion of four quarters of commercial sales of the CGuard in the United States. We value the significance of this recapitalization of our company by some of the world's top-tier healthcare investors, including Marshall Wace, OrbiMed, Soleus, Rosalind, Nantahala, and Velan, as validation of our business strategy and direction. It fuels a long-term growth plan to market leadership through the advancement of our plans to serve the broadest specialist community treating carotid artery disease, with the most complete offering of delivery and neuroprotection systems. As the only company developing and offering both transfemoral CAS and transcarotid neuroprotection systems, prioritizing procedural optimization, with a focus on the implant as the catalyst to best clinical results, forms the foundation of our business, and we look to lead the market by way of this comprehensive approach. Shifting now to updates on our clinical programs. Most recently, we announced the enrollment completion of our C-Guardians IDE clinical trial, which is designed to support eventual FDA approval of the CGuard Prime EPS stent system in the United States. The objective of the trial, which enrolled 316 patients across 20 centers in the U.S. and 5 in Europe, is to evaluate the safety and efficacy of the CGuard Carotid Stent System for the treatment of carotid artery stenosis. The trial's primary endpoint is a composite of the incidence of death, stroke, and myocardial infarction at 30 days, and ipsilateral stroke from day 31 to a one-year follow-up. Enrollment in the C-Guardians was completed in just 23 months, offering a line of sight to results in a premarket approval submission planned in the second half of next year. If we achieve those timelines with acceptable results, we anticipate launching CGuard Prime in the United States in the first half of 2025. Notably, the trial also included the first-in-human cases successfully treated with our next-generation CGuard Prime CAS delivery system, which includes advanced features and functional improvements that increase the ease of stent trackability and deployment, and is included in our regulatory approval pathway. In anticipation of potential approval of CGuard EPS in the first half of 2025, we have initiated pre-commercial activities in the United States, which include building a world-class team and infrastructure to make CGuard broadly available to patients who stand to benefit from this novel stenting technology. By way of an update on market drivers toward stenting, in July, CMS issued a proposed decision memo recommending coverage of CAS for both symptomatic and asymptomatic patients, whether considered to be at high or standard risk for surgery. This coverage decision is expected to be finalized in October and, if approved, would represent a very meaningful expansion of the addressable market for CAS and further shift the approach toward an endovascular-first strategy. This adds to our enthusiasm for the U.S. market opportunity for CGuard Prime for both CAS and TCAR, both of which are integral parts of our sales strategy. Broader access to endovascular options is good for patients, and this expanded coverage for stenting optimizes procedural results. CGuard EPS has demonstrated superior clinical results over 1,850 patients studied in rigorous peer-reviewed trials, with over 40,000 real-world procedures performed to date, establishing a foundation for best-in-class results. This potential expansion of reimbursement and trends toward an endovascular-first shift away from surgery fit the approach we've advocated for some time. The consistent driver of outcomes remains the performance of the implant, which will remain our priority as clinical evidence remains the cornerstone of our story as we leverage our next-generation CGuard stent with proprietary MicroNet mesh. Turning now to the quarter. As our Chief Financial Officer, Craig Shore, is recovering from a recent medical procedure, I will now cover the quarterly financials in detail. For the second quarter of 2023, we generated total CGuard revenue of $1.649 million, a 9.6% increase over $1.531 million for the second quarter of 2022, and sequential growth of 33% over the first quarter of 2023. This includes $59,000 of CGuard Prime revenue. Recall that our first quarter of 2023 revenue was negatively impacted by the temporary suspension of our CE mark until approximately mid-February, and as a result, we ended Q2 with a product backlog of approximately $600,000. For the three months ended June 30, 2023, gross profit increased by $60,000 or 14% to $491,000 from $431,000 during the first three months ended June 30, 2022. This increase in gross profit resulted from a $90,000 increase in revenue, as mentioned before, less the associated related material and labor offset by $30,000 in miscellaneous expenses. Gross margin, or gross profits as a percentage of revenue, increased to 29.8% during the three months ended June 30, 2023, from 28.1% during the three months ended June 30, 2022, driven by the factors mentioned above. Total operating expenses for the second quarter of 2023 were $5,806,000, an increase of $694,000 or 13.6% compared to $5,122,000 for the second quarter of 2022. This increase was primarily due to increases in share-based compensation-related expenses due to the expense recognition of grants made during the second quarter of 2023, an increase in salary expenses mainly due to the hiring of a General Manager for North America and VP of Global Marketing, and an increase in legal expenses. Net loss for the second quarter of 2023 totaled $5,077,000 or $0.24 per basic and diluted share compared to a net loss of $4,636,000 or $0.59 per basic and diluted share for the same period in 2022. As of June 30, 2023, cash, cash equivalents, short-term bank deposits, and marketable securities were $47 million, compared to $17.8 million as of December 31, 2022. This includes an upfront payment of approximately $37.5 million net of expenses that we received in May, pursuant to the terms of the transformational private financing that I discussed earlier. This concludes my personal remarks, and we will now turn it back for questions. Operator?

Our first question comes from Adam Maeder with Piper Sandler.

Marvin, congrats on the progress. And Craig, wishing you a speedy recovery. Maybe to start, Marvin, I just wanted to go a little bit deeper on the performance outside the U.S., just kind of better understand what drove the nice quarter share capture versus better market dynamics. It sounds like there's maybe a little bit of catch-up as well. So I just wanted to go a little bit deeper on the Q2 results. And then I'll lump the second part of the question. Just on Q3 and Q4, I know you don't have guidance out there in the public domain, but just any broad strokes or color that you can provide on the back half of the year.

Adam, thanks for the question. As it relates to our strategy in Europe, there was a bit of catch-up, as you referenced there, just in terms of us being able to transition that backlog. But I think in general, the market strength continues to grow, and carotid stenting continues to be our focus day to day. We're in the field working with our customers and our distributor partners. And I think this is a payoff for a lot of investment in that marketplace. Now that we have worked our way through the MDD and MDR scenario, we're back to our normal operating cadence and continue to drive utilization and work in the field. This is a tough business, as you know, and I think we've assembled a very good group of distributors and a great team, and we're just continuing to execute on a day-to-day basis. So the market continues to strengthen, and I think we continue to create awareness. For example, at the LINC conference in Leipzig this year, we had two live cases. It was a well-attended conference. So I think, generally speaking, that exposure helps us, as does our work in the IDE trial in the U.S. We really do operate in a global environment as it relates to vascular specialists. And so we're really pleased with those results, and we'll continue to invest in that area. As it relates to your question for Q3 and Q4, there is definitely a seasonal impact for Q3 that we all tend to predict in the European market. But on balance, I think our expectation is that we will continue to advance the numbers, grow share, and build our business and strengthen things as it relates to our European and served markets. So it's 30 markets, not just in Europe, but South America as well.

Okay. Great. That's helpful color, Marvin. I appreciate that. And the next question that I have is just around the NCD here in the United States, just kind of a bigger-picture, open-ended question for you. What are your key takeaways from the proposed memo? How do you think about implications for your business and the broader market if finalized?

Yes. So it's a great question and certainly a contemporary topic that we're all discussing. First, we believe that the proposed coverage decision, first and foremost, is good for patients. So I think above everything else, opening procedural options that otherwise haven't been available to patients, that will yield better outcomes and better discussions and decisions with their physicians is good. And I think clearly we benefit from this broadening of coverage, as we're building a business around a technology platform that's intended to be a catalyst for changing standard of care, with the broadest set of delivery options, and we believe the best implant alternative in the marketplace. So we see this as a great direction, and as the proposed coverage decision continues to unfold, we support the decision memo and certainly look forward to that final decision in October. But on balance, I think this really just helps this market transition as a whole. And we're poised to take full advantage of this, as we've invested in this carotid space for many years. And we think the timing is perfectly suited for CGuard and what we've been able to demonstrate in terms of patient outcomes. So we're really energized by the direction here and building our business around it.

Very helpful, Marvin. A couple more, if I may. I next wanted to ask about the TCAR system, SwitchGuard. Just wanted to kind of better understand commercial timelines there, both in the U.S. and Europe, as well as what the regulatory strategy pathway looks like. I think it's crystal clear in terms of timelines for CGuard what you've talked about today. But I wanted to just get a little bit more color on the TCAR system in particular.

Yes. So we continue to advance our work in that area. Right now, Adam, I would characterize it this way: we're following a regulatory pathway at this point, which will certainly be determined by studying the system following a protocoled approach, and we're sort of looking for guidance from that regulatory effort. I think we've been able to develop a very interesting system and are looking forward to studying that in real market access, both in Europe and in the U.S. And so I think we'll be able to provide a bit more detail as it relates to specific timelines. But as we work through the regulatory pathway, there's still some clarity in that, that we're looking for just in terms of overall feedback. We're meeting with the FDA this quarter to sort of finalize some of the last touches on the protocol and direction. So we hope that's positive, and we can begin to study this in a practical form.

Helpful, Marvin. And not to press too much here, but you talked about CGuard potential commercial launch in the United States in the first half of 2025. Is it reasonable to assume that the TCAR system, SwitchGuard could come in the not-too-distant future after that, subsequent quarters? I just want to make sure, just broadly speaking, I have timelines right for the TCAR product.

Yes. So great. So it's a very good question, Adam. And again, we're waiting for sort of final feedback from FDA on this topic. But our expectation is that the approval of our CGuard stent system will run concurrent with our studying of TCAR and the short shaft system, as the stent itself and the device itself are the same. We'll be able to take advantage of that approval process on the stent system and concurrent approval or close to a concurrent approval with SwitchGuard, all things being equal. Obviously, we have to study the TCAR device itself, but the stent system remains the same. I'm hopeful that we'll be able to parlay that into a fairly quick approval process for both on or about the same timeline.

Okay. Perfect. And then just one last question for me. Just on the go-to-market strategy in the U.S., maybe you can speak a little bit to kind of how you're getting prepared. You talked about pre-commercial activities in the prepared remarks. Just elaborate on that, please? And how are you thinking about kind of building out a sales team and the infrastructure ahead of that first half '25 timeline?

Sure, no problem. About five months ago, we hired Shane Gleason to run the U.S. business and as the VP of Global Marketing. That was the first step in a sequence of architecting our plan for a direct sales organization and support structure in the U.S. Shane has taken on the challenge of building that enterprise and beginning to put in place all the pieces, both operationally and in planning our go-to-market strategy. I think it's safe to assume that we're going to build a world-class sales organization and support structure. And the ability to serve multiple subspecialties within this community, both vascular surgeons and interventionals. I think we're building that plan out, and we'll continue to invest in that over the next 18 months until we get to a point where we're able to launch. The whole point here is to create a lead-in for our approval process in the U.S., so we can have a very warm start and take full advantage of this tailwind created by both the NCD and just overall stenting. We're looking forward to leveraging our European experience and parlaying that into a strong U.S. launch.

Our next question comes from the line of Benjamin Haynor with Alliance Global Partners.

Marvin, now that you have completed the C-Guardians enrollment, it appears everything is progressing well. What will be your main focus moving forward? I know you have the FDA meeting this quarter and the precommercial activities, but what will you and the management team prioritize in the upcoming quarters leading up to the C-Guardian release?

Ben, thanks for the question. There's a tremendous amount of work, as you know, related to executing on the PMA to accomplish that approval goal in 2025. The team is working hard to make sure that now that enrollment is complete, we're following all the necessary steps to get to the PMA approval. Certainly, studying SwitchGuard in the context of its own regulatory pathway is a tremendous amount of work as well. Finally, just managing and maintaining our growth plan and strategy in Europe. I would characterize it this way: we're very much in execution mode. Now that our financing has been accomplished and we've secured good funds going forward, it's all about focusing and executing on these milestones we've set forth. I think it's a pretty clear pathway at this point, but nothing is easy, and we're all focused on successfully managing all these variables so that we can meet these commitments.

Okay. Great, no, that's helpful. And then you mentioned internationally. Any plan to kind of go direct, any changes to the commercial organization that will take place outside the U.S. here?

Yes, Ben, I think we've discussed this at length. We continue to evaluate every one of our international markets and try to figure out what the best go-to-market strategy is for that. We want to keep the momentum and growth going. But in terms of any immediate shifts toward making changes in our current go-to-market strategy outside the U.S., we're pretty much stable for the moment. I think it's in our best interest to focus our attention on the U.S. and the tasks in front of us related to building a direct organization, which is not a small task to accomplish. We don't want to distract ourselves from the next 18 months' effort to get a successful U.S. launch. We've been able, under great leadership in Europe, to stabilize our distributor partners and maintain that cadence for growth.

Okay. That certainly makes sense. And then just maybe I didn't catch this correctly. But on the CE Mark recertification, it sounds like you're in document review by the notified body, and that will kind of get everything complete for the MDR. Is that where you're at? And is that correct?

Yes, that's correct, Ben. We have received the all-clear from our notified body, and we are currently in the document review process within the European health system for final touches, which tends to take longer than expected with the MDR process. However, I believe we are in a good position and anticipate that it will be officially finalized in the coming weeks. Regarding our ability to continue shipping and selling in Europe, we are in a strong position under the MDR, thanks to the MDD certification we reestablished in April.

Okay. Got it. And then lastly for me, more of a housekeeping question. On G&A, less again, I don't know, $400,000 or so of legal expenses and miscellaneous expenses. Are those things that you expect not to recur, maybe associated with the transaction that you had during the quarter? Or what's the right way to think about those?

Actually, Amir Kohen is with us today, who is our Senior VP of Finance. Maybe I'll let Amir address that question, in the absence of Craig being with us, if that's okay.

So there is some increase in legal expenses. Half of it relates to actually expenses in prepaid expenses from last year, so it's noncash and nonrecurring. I think it's from a specific transaction we had to do after the fundraising, including share-based compensation and grant letters, etc.

So the simple answer, Ben, is that it's nonrecurring. Those were calculated both through last year as well as through our fund raise. So we're set for that.

Congrats on the progress.

This concludes our question-and-answer session. I would like to turn the conference back over to Marvin Slosman for any closing remarks.

Yes. Thanks again to everyone for joining the call today, and we're very encouraged by our progress into 2023, and look forward to the balance of the year being a very successful time for InspireMD. Thanks for joining.