InspireMD, Inc. Q3 FY2023 Earnings Call

Good morning, and welcome to the InspireMD Third Quarter of 2023 Earnings Call. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I would now turn the conference over to Mr. Chuck Padala with LifeSci Advisors. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us to the InspireMD Third Quarter 2023 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 the call, management will be making forward-looking statements, not historical facts, which are based upon management's current expectations, beliefs, and projections, many of which, by their nature, are inherently uncertain. These forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed in such 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 or on any updates in our current reports on Form 8-K 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. This call contains time-sensitive information that is accurate only as of today, November 6, 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.

Thank you, Chuck, and thanks to everyone for joining the call this morning. The third quarter proved to be a transformational time for our company with several milestones, further validating our strategy and mission to transform the carotid revascularization market with a superior next-generation stent implant, along with our focus on the broadest range of tools, providing both patients and physicians optimal procedural solutions. Execution against internal objectives remains our focus, but I would like to start today with a brief mention of the recent national coverage decision by CMS, enabling a monumental shift by expanding reimbursement for carotid artery stenting, or CAS procedures, to include both standard surgical risk and asymptomatic patients, neither of which were previously covered. We will get into those details shortly. In terms of our financials for the third quarter of 2023, we generated total revenue of $1.556 million on 2,734 devices sold, representing nearly a 9% revenue growth over the comparable period in 2022. Measuring procedural volume continues to be a key metric of our success as our distributor model discounts our average sales price by way of transfer pricing. Unit sales more accurately measures market share in our served territories, which is a key driver of our growth objectives. As we drive market awareness, utilization, and global expansion, performance will remain the cornerstone of our focus, having now established a baseline of real-world experience and world-class data with more than 45,000 CGuard Stents sold to date and nearly 2,200 patients enrolled in clinical studies. We were pleased a few days ago to present the 30-day data from our C-GUARDIANS IDE clinical trial at the VIVA Conference. As a reminder, the C-GUARDIANS trial is designed to support a PMA submission in the second half of next year, which would give us line of sight to possible approval of CGuard EPS in the U.S. in the first half of 2025. Reviewing the results from July 2021 through June 2023, 316 patients were prospectively enrolled in the single-arm carotid artery stenting, or CAS study, performed at 24 sites in the U.S. and Europe, utilizing CGuard EPS as the carotid stent system. The primary endpoint is a composite of incidence of major adverse events, including death, all-cause mortality, any stroke or myocardial infarction through 30 days, post-index procedure or insulateral stroke from day 31 to day 365. All events are adjudicated by a Clinical Events Committee. Dr. Chris Metzger, the PI of the C-GUARDIANS trial, presented unprecedented data at 30 days, total major adverse events, DSMI of 0.95%, and as measured by intent-to-treat analysis considered to be the most rigorous measure of results. These first-in-kind results demonstrate the neuroprotective effect of the CGuard stent and add to the significant and growing body of evidence showing that CGuard delivers outstanding short- and long-term patient outcomes as compared to alternative stents and the current standard of care in revascularization carotid endarterectomy. We were pleased to share these compelling results at VIVA, which is among the most important gatherings of endovascular specialists and should go a long way toward raising awareness of CGuard among the endovascular community, key opinion leaders, and other practitioners alike. Staying on the topic of our IDE trial for a moment. We announced in June that we had completed enrollment of this trial, something that was achieved in just 23 months. And recall that this study also includes the first human cases performed with our new CGuard Prime CAS Stent delivery system. Study follow-up is progressing as planned, and we reiterated our expectation for primary endpoint results in the second half of next year, with anticipated approval in the first half of 2025. Revisiting one of the key market drivers transforming revascularization towards stenting. On October 11, CMS issued a National Coverage Determination, or NCD, implementing coverage of CAS for both symptomatic and asymptomatic patients, whether considered to be high or standard risk for surgery. This coverage determination is very consistent with the draft memo that was released early in July. The updated NCD creates a very meaningful expansion of the addressable market for CAS and will shift the standard of care toward a patient-first approach with greater procedural options, including stenting. 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 long-term sales strategy. We believe that broader access to endovascular options is good for patients. Recall that CGuard EPS has demonstrated outstanding clinical results now in nearly 2,200 patients who were studied in rigorous clinical trials, published in peer-reviewed journals, and tens of thousands of real-world procedures performed to date, establishing a foundation of best-in-class results. This expansion of reimbursement and a broader trend toward endovascular-first shift away from surgery support the approach we have advocated for some time. The consistent driver of outcomes remains the performance of the stent implant, which is the cornerstone of our story, leveraging our third-generation CGuard Stent with its proprietary MicroNet mesh. In anticipation of potential approval for CGuard in the first half of 2025, we've initiated pre-commercial activities in the U.S., and we continue to build out what I consider to be a world-class leadership team. Last month, we announced the hiring of Dr. Patrick Verta as our new Executive VP of Clinical and Medical Affairs. Patrick adds tremendous experience in the carotid field, having supported much of its clinical advancement over the last 20 years, and he brings an impeccable reputation among key opinion leaders, medical, and regulatory bodies. We also announced the hiring of Cheryl Tal to lead our quality assurance and regulatory affairs function, with tremendous expertise in building business scale and capability on a global level. And finally, after 6 months of having a significant impact as our General Manager of North America and VP of Global Marketing, Shane Gleason has been promoted to Chief Commercial Officer, expanding his responsibilities to support our global commercial growth. I would like to close with a word on behalf of our team based in Israel for their remarkable tenacity and bravery to deliver on commitments and objectives, allowing our company to operate without interruption during such a profoundly difficult time. It is truly a testament to our team, fulfilling our mission to deliver the best life-saving and stent-preventing devices to patients worldwide.

Thanks, Marvin. For the 3 months ended September 30, 2023, revenue was $1,556,000 compared to $1,431,000 during the 3 months ended September 30, 2022. This revenue increase of $125,000 was predominantly driven by an increase in commercial sales of $166,000 of CGuard EPS to existing geographies, offset by a $41,000 decrease in the United States as we completed in June 2023 the enrollment of all patients in the C-GUARDIANS IDE clinical trial. Accordingly, there were no further enrollments in the 3 months ended September 30, 2023. For the 3 months ended September 30, 2023, gross profit increased by 19.7% to $438,000 from $366,000 during the same period in 2022. This increase in gross profit resulted from an $85,000 increase in revenues less the associated related material and labor, offset by miscellaneous expenses. Gross margin increased to 28.1% during the 3 months ended September 30, 2023, from 25.6% during the 3 months ended September 30, 2022, driven by the factors just mentioned. Total operating expenses for the third quarter of 2023 were $6,077,000, an increase of $1,101,000 or 22.1% compared to $4,976,000 for the third quarter of 2022. This increase was predominantly due to an increase in compensation expenses. Total financial income for the third quarter of 2023 was $461,000, an increase of $380,000 or 469% compared to $81,000 for the third quarter of 2022. This increase was primarily due to a $412,000 increase in interest income from investments in marketable securities, money market funds, and short-term bank deposits. Net loss for the third quarter of 2023 totaled $5,178,000 or $0.15 per basic and diluted share compared to a net loss of $4,529,000 or $0.58 per basic and diluted share for the same period in 2022. As of September 30, 2023, cash, cash equivalents, and short-term investments and bank deposits were $43 million compared to $17.8 million as of December 31, 2022. That concludes our prepared remarks. We will now open the call for questions.

Thank you, sir. Ladies and gentlemen, we will now be conducting the question-and-answer session. Our first question comes from Adam Maeder of Piper Sandler. Please go ahead.

Congrats on the excellent interim data presentation last week, the print and the operating progress. Maybe just to start, I wanted to give you the opportunity to kind of flesh out the Q3 performance just a little bit more. Can you talk about kind of the key trends, messages in the quarter? And then I had a handful of follow-ups.

Adam, thanks for the question. Our progress in commercial growth outside of the U.S. continues to be strong. I think the message continues to be consistent, which is to drive clinical outcomes and performance by way of data. Our distributors are becoming more and more comfortable with CGuard. In fact, we had a full distributor call the other day with all of them. I think the momentum that we're building in recognizing what's happening in the U.S. is also engaging them more and is paying residual benefits to our markets outside the U.S. In terms of real numbers and growth, we're seeing consistency there and we'll continue to drive that in those markets as our foundation of revenue at this point.

That's helpful color. My next question is a multipart question on the Israel-Hamas war. I hope all of your team members are staying safe. Can you just talk about kind of any thoughts around your ability to supply the market? Do you anticipate any future impact to commercial sales or any kind of hindrances to push forward the U.S. initiatives in an efficient manner? Are you taking any precautions or proactive steps with inventory management or alternative manufacturing efforts?

Yes. Thanks for the question, Adam. Thus far, we've not had any direct impact on our ability to deliver and perform due to the war. But we're not sitting still. Obviously, we're keeping a very close eye on things and have put into place some examples of mitigating risk by advancing our supply chain, building inventory, looking at alternative locations for securing finished goods, and implementing other good practices under the circumstances. Our shift toward a U.S. focus continues as well. In the short term, all of our team is operating pretty much according to plan. We have a couple of folks that have gone to active duty from reserve, but everybody is picking up the extra work that needs to be done. In terms of our progress toward U.S. approval, nothing changes there. We're all on plan. Many of our consultants and activities are actually based outside of Israel as it relates to our regulatory effort and work and testing. Most critical right now is to ensure our supply chain and production remains sound and we're continuing to see good results there, while also ensuring that if this progresses into a different direction, we're on good ground as well.

That's great to hear, Marvin. Thank you for the fulsome response there. Maybe switching over to the forward outlook. I recognize you don't have guidance, but was wondering if you can give any broad strokes or color about how you're thinking about the business in Q4 as well as 2024 from a top line standpoint.

Yes. I think the way to frame our growth direction at this point is to say that we continue to operate effectively in the 30 countries that we serve. We want to see consistent growth in those countries until we're able to offer new tool sets, which we're working on aggressively in the area of TCAR and obviously, our new CGuard Prime transfemoral CAS delivery system. I think things will remain consistent according to what we've presented up to this point. But obviously, those new tools will add a very different dimension to how we believe we can penetrate the market. Our objective outside of the U.S. is the same as it will be in the U.S., which is to convert surgeries to endovascular first by using our stent performance to do that. That is no different outside of the U.S. There is still a lot of endarterectomy being practiced, and numerous surgeries being done. Our goal is not just to have the premier stent in the market but, most importantly, to continue to convert surgeries. So, that will remain consistent. I believe our growth plan will continue to show consistency there as well.

If I may push a little bit there, Marvin, about the CGuard Prime and the TCAR European CE Mark approval. Can you provide an update at this point? I know MDR is a little unpredictable, but any latest thoughts on when you could have those commercially available internationally?

Yes. The whole MDR process and just the regulatory environment in Europe in general have been somewhat frustrating. We're certainly prepared but are waiting for the longest pole in the tent here, which remains the ability to get through the regulatory cycles. I anticipate that by mid-year 2024, we'll be in a good position to hopefully be able to launch new tools into the 30 countries that we're serving now.

That's helpful. I wanted to ask a similar kind of forward outlook question for Craig. Craig, welcome back. Nice to hear from you. Wanted to ask you about Q4 and '24 in terms of the P&L components. Gross margin, do you think you can continue to drive year-over-year growth improvement there? And how do we think about the pace of OpEx spend in '24 as you guys start to prepare for a U.S. launch?

Thanks, Adam, for welcoming me back. For the fourth quarter, we are anticipating a higher spend as we start conducting more of the studies we talked about, particularly related to TCAR, and as we start focusing a bit more on sales and marketing activities in Europe. I wouldn't expect a huge amount of money to be spent in the United States until we get closer to the launch. I mean, a few positions here and there, but nothing major.

Okay. And I think that's a good segue into my last question, which is on some of the clinical work you're doing outside of the pivotal. The U.S. TCAR study, I think you pointed to early '24 for a start date. What's the latest there? Any specifics on timing or trial design? And also for the Tandem Lesion Early Feasibility study, are you still targeting the first half of '24 for that clinical work?

Yes, let's start with the last one first. We are still anticipating for the Tandem EFS to begin enrollment in the first half of 2024 and continue to progress in that area. Just to note, we've had two separate conversations with the FDA on a pre-sub basis regarding both our TCAR study and the Tandem EFS, which have gone very well. We are currently finalizing all of the procedural details, the protocols, and aligning the investigators to begin this enrollment process. So I think it is safe to assume that we will initiate both studies in the first half of 2024. As we tackle all those details, there is a significant amount of administrative effort required for the setup and roll-in of these studies. What I want to mention is that we have received remarkable interest on both fronts, both from the surgical community regarding our TCAR system and the EFS within the neuro community. We think that the neuro community has been underserved by carotid focus, and we're looking forward to adding both studies to our tool set for our foundational cash system.

The next question comes from Ben Haynor of Alliance Global Partners.

First off for me, congrats on the national coverage determination. Regarding that, what's your view on the expansion in terms of numbers? If the addressable patient population was x and now it's x plus y, what are those Xs and Ys?

Great question, Ben. I think some of that is certainly to be determined, right? What we know is that there is a tremendous amount of energy behind this decision by CMS. What we envision over the next several years is a shift from surgery first, let’s say, 70% or 80% surgery first, to a 70% or 80% endovascular stenting first. How that plays out in terms of what percent of that market is CAS procedures versus TCAR is still to be determined. We know that both are very viable options, which is why we invested in both of those tool sets in order to give us the broadest range within carotid revascularization. It’s interesting that discussions at the conferences are starting to focus on whether a lesion is stentable, which we’ve never heard before, as opposed to just assuming the default of endarterectomy or surgery being the baseline. So, the CMS coverage really opens up the market opportunity for us and fits perfectly into our strategy to have comprehensive toolset coverage regardless of which access is used for the best implant. I think we are in good shape and feel confident about the transition. The timing and percentage question is still to be determined.

That's helpful. Regarding the discussions at the conferences, obviously, at VIVA, did you have any surprises on the discussions? Was the stent-based treatment trend something that had not previously been considered?

I think what has been most surprising is just the remarkable results that we presented. Delivering a sub-1% complication rate within just 30 days is truly unprecedented. It goes beyond just whether stents will become the standard of care; it really raises the question of how unique this platform is in terms of outcomes. I will mention that this validates our previous experience with the 1,850 patients we've studied, which recorded about a 1.2% complication rate. It is a combination of increased discussion, momentum, and transition. We enjoy being in a position to lead the conversation about clinical outcomes and procedural opportunities that result in the best implants and outcomes. We expect to see more momentum in CAS and TCAR treatments, but ultimately the decision-making will focus on what is best for the patient and how those outcomes translate from the implant itself—not just the procedure.

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now hand over to Mr. Marvin Slosman for closing remarks.

I would like to thank everyone for joining the call today. We look forward to a strong finish in 2023 and advancing our plans for growth toward great execution for 2023 and beyond.

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.