Earnings Call Transcript - NSPR Q3 2022

Operator, Operator

Good morning, and welcome to the InspireMD Third Quarter 2022 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to Chuck Padala with LifeSci Advisors. Thank you. You may begin.

Chuck Padala, LifeSci Advisors

Thank you, operator, and good morning, everyone. Thank you for joining us for the InspireMD Third Quarter 2022 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, 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, November 8, 2022. 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.

Marvin Slosman, CEO

Thank you, Chuck, and thanks to everyone for joining our call this morning. Our third quarter results reflect a continuation of our recent progress and momentum. We generated total CGuard revenue of over $1.4 million, representing growth of nearly 39% over the third quarter last year. During the quarter, we sold 2,624 CGuard stent systems compared to 1,709 in the same period a year ago. This represents a growth of 54% year-over-year. As we share a portion of our sales revenue with distributors in the majority of our markets, procedural volume is a more accurate indication of market penetration and share retention. As we indicated last quarter, we currently enjoy greater than 20% share in approximately half of our markets with some territories exceeding 80%, which remains the bellwether of our focus in dominating the carotid revascularization space with the CGuard stent system across the broadest network of vascular specialists treating patients. Launching our new delivery systems, including a new transcarotid and advanced next-generation transfemoral platform will enable share growth and accelerate the conversion of vascular surgeons transitioning to our endovascular platform. As a reminder, among vascular interventions, carotid artery disease lags all other procedures in terms of percentage of cases that are treated endovascularly, estimated at 25% currently. So when you look at the availability of converting procedures to stenting, there remains a significant number of surgical procedures that we believe can be transitioned with our next-generation MicroNet mesh-protected device, driven by our unmatched clinical data now extending to 5 years with the best patient outcomes when compared to both first-generation stents and open surgery. In terms of market conditions, the regulatory landscape in Europe for all medical device companies is currently undergoing a major change with new compliance regulations under the new MDR certification for CE Mark. We are working with our notified body on compliance and to secure the continuation of our certificate under the new regulation, which currently ends November 12, while preparing our customers and distributors with sufficient inventory to mitigate as best as possible any potential delays in the certification process. Our presence at important medical meetings is also a key component of our long-term growth strategy and provides an effective platform from which we can present the many benefits of CGuard compared to both conventional stents and surgery. In September, the CGuard Optima study was selected for presentation at the 2022 TCT conference as part of a featured research program. The presentation, delivered by Professor Piotr Musialek, reviewed the findings of this multicenter investigator-initiated trial known as CGuard Optima, comparing both procedural residual prolapse through the stent struts and clinical outcomes of patients treated with CGuard versus defined performance goals after carotid stenting. Professor Musialek described the results as unprecedented because of the total elimination of carotid artery-related plaque prolapse with CGuard, as assessed with systemic IVUS ultrasound evaluation. The clinical outcomes showed at 30 days an ipsilateral minor stroke rate of only 0.57% and no major strokes. This presentation adds to the significant body of evidence we have compiled over the years, including 1,850 patients demonstrating unmatched performance and stroke prevention achieved by CGuard with its proprietary MicroNet mesh protection versus all other cath stent platforms and surgical treatment options currently available. Therefore, our strategy remains unchanged, which is to focus on stent performance through superior outcomes and patient care with all specialists treating carotid artery disease. Now turning to other developments, in September, we jointly announced with NAMSA, a leading comprehensive medical technology contract research organization, that we have entered into a strategic partnership agreement to accelerate new product development and commercialization. Speed to market is a critical success factor for any new medical technology. And given the increasingly complex regulatory and clinical requirements in many markets, NAMSA's full continuum of development services will serve us well as we work to further expand our pipeline as quickly and efficiently as possible. In terms of our U.S. IDE trial, C-Guardians, we currently have 19 U.S. sites enrolling patients with plans for 2 more in Europe. Five sites are now enrolling, and all 24 sites are actively enrolling and building cases at an accelerating pace, which is encouraging. Our current outlook remains consistent with enrollment completion by approximately Q1 of 2023. Regarding Japan, we have made progress since our last quarterly update in our discussions with potential distributor partners interested in representing CGuard, and we continue to see a very high level of interest. An agreement, if executed, would complement the distribution agreement in China we signed last year. As we have noted in the past, Asia is a vital market for us as the existing standard of care for procedural intervention is predominantly endovascular-focused and less surgically dominated than the U.S. and certain European markets. In terms of our product pipeline, the CGuard EPS stent platform remains the foundation of our business as the device drives patient outcomes beyond the selected delivery option. To fully utilize the potential of CGuard, we are developing 2 new delivery systems to drive utilization across the broadest vascular specialist community. We continue to advance the development of our new transfemoral delivery system, CGuard Prime, which will be available in both standard and short shaft versions compatible with the development of SwitchGuard, our TCAR accessory device. In combination, these will provide a transcarotid option to our portfolio designed for those clinical needs and the conversion of greater surgical procedures to the CGuard EPS stent platform. We continue to work tirelessly toward our goal of changing how carotid stenosis is managed. With CGuard EPS, we believe we can offer the best patient outcomes and a broader set of tools to unlock the tremendous potential of this rapidly evolving market segment. We look forward to a catalyst-rich 2023 as we continue to establish CGuard as the standard of care.

Craig Shore, CFO

Thank you, Marvin. For the third quarter of 2022, total revenue was $1.431 million compared to $1.071 million during the third quarter of 2021. This represents an increase of 33.6%. This increase is predominantly driven by a 38.8% increase in the sales of CGuard EPS to $1.431 million in the third quarter of 2022 from $1.031 million in the same period one year ago. This sales increase was due to growth in existing markets as well as U.S. sales related to stents used in the C-Guardians U.S. Food and Drug Administration clinical trial. Gross profit for the third quarter of 2022 was $366,000 compared to a gross profit of $92,000 for the third quarter of 2021. This represents an increase of almost 300%. This increase resulted from higher revenue and a reduction in write-offs, training expenses, and miscellaneous expenses. Gross margin increased to 25.6% during the three months ended September 30, 2022, from 8.6% during the three months ended September 30, 2021. Total operating expenses for the third quarter of 2022 were $4.976 million, an increase of $853,000 compared to $4.123 million for the third quarter of 2021. This increase was primarily due to increases in expenses related to the commencement of the C-Guardians FDA study and share-based compensation expenses. Net loss for the third quarter of 2022 totaled $4.529 million or $0.58 per basic and diluted share compared to a net loss of $4.071 million or $0.53 per basic and diluted share for the same period in 2021. As of September 30, 2022, cash, cash equivalents and short-term bank deposits were $21 million compared to $34 million as of December 31, 2021. That concludes the financial review.

Operator, Operator

We will now turn the call over to you for questions.

Benjamin Haynor, Analyst

Congrats on the progress. First off for me, just on the enrollment for C-Guardians, good to see that it remains on track to your earlier schedule. Could you give us a sense of where enrollment stands today? I mean, I would imagine it's safe to say that you've got over 200 people enrolled in the study. But any additional color that you can provide there?

Marvin Slosman, CEO

Yes. Ben, thanks for the question. I would characterize it this way. We've accelerated our enrollment pretty aggressively over the last quarter or so, as we've mentioned in prior calls, and I think your question is relevant, and I certainly hope that we can be within that time frame by the end of the first quarter of 2023 for full enrollment. So, things are going very well. And I think adding our European sites over the last quarter certainly helped the enrollment as has adding new U.S. sites. So, so far, everything is going according to plan for end of Q1 in 2023.

Benjamin Haynor, Analyst

Okay. Great. Can you provide more details on CREST-2? Last quarter, you mentioned that the first case would be completed soon. Have many cases been conducted so far, considering you mentioned 20 potential sites? What is the current status?

Marvin Slosman, CEO

Yes. The process of getting these contracts completed with these sites has been a little more time-consuming than we had thought. And since we're piggybacking on a current trial that's being sponsored outside of our control, it's been a bit slow in terms of enrollment, but we certainly look forward to that progressing and accelerating as well. As I think I mentioned in the last call, we've added sites specifically that are also C-Guardian sites, which I think will help in terms of training and comfort with the device. So we'll provide you an update and a bit more detail, I think, over the next quarterly reporting in terms of specific number of cases.

Benjamin Haynor, Analyst

Okay. That's helpful. And then on the CE Mark certification, if there is a delay, I know you've got a handful of days left here. Do you have a sense of how long it might be before that's in place?

Marvin Slosman, CEO

Yes. Ben, it's difficult to estimate that. We've worked very closely with our notified body there. As you know, the complexities of the regulatory climate in Europe have changed dramatically, and we've stayed very close to this, obviously, and it's our top priority as a company to make sure that all the documents are well in order and that we're in full compliance. But as we work through the details, there are just some unknowns that we haven't fully gotten our hands around, and we're waiting for feedback. But we've also been working closely with our distributor partners to ensure that there's sufficient inventory in the market so that CGuard is always available. But certainly, as that unfolds, we'll provide a lot more detail, but we're working very closely on a day-to-day basis with our notified body to ensure that things remain in order.

Benjamin Haynor, Analyst

Okay. So is it fair to say that you don't anticipate any impact to the end users, or at least at this time? Or how would you characterize that?

Marvin Slosman, CEO

Yes. I think our first priority, Ben, has been to ensure that we have sufficient inventory in the market, notwithstanding the dates of certification. So that's priority one: to make sure that CGuard is sufficiently inventoried in the market as we work through the final details as far as the certificate is concerned. So that's step number one. And then as we work through the timetable with our notified body, hopefully, there will be no delays in further filling the pipeline with devices. That's the plan.

Benjamin Haynor, Analyst

Okay. That's helpful. Regarding the significant currency impacts, especially between the dollar and the euro, if we exclude those, it seems that your local currency average selling prices have risen in the mid-single digits. Does that sound accurate, Craig? Also, could you provide more details on the market share increases? I recall you mentioning a couple of regions exceeding 60% last quarter, and now it appears at least one has surpassed 80% market share. Can you elaborate on that?

Craig Shore, CFO

Yes, you're correct about the exchange; most of our sales occur in Europe, similar to the euro. The U.S. dollar has strengthened, which we reported. We have also been working to raise prices across the board due to rising prices worldwide caused by supply chain issues. That's why we're emphasizing the number of units sold. As you can see, we have over 50% growth year-over-year, which is the appropriate way to assess our performance. Regarding market share, you are correct. We have more than 20% market share overall, and in some countries, our share is reaching as high as 60% and even 80%.

Benjamin Haynor, Analyst

Okay, great. Lastly, regarding the level of interest in Japan, I'm curious about the terms that might be more or less likely. Once you find a partner there, will the agreement be more inclined to be front-loaded or back-end loaded with royalties? What is the current thinking on this, to the extent you can share?

Marvin Slosman, CEO

Yes, Ben. I think we sort of considered two or three different distributor partners over the last year or so that have expressed interest. One is, obviously, the regulatory path, making sure that they're prepared to participate with us and as we did in China to ensure that the regulatory path is clear and could be considered as part of any agreement. Second is, obviously, their reputation and capability to distribute carotid stents within their marketplace. Generally, it follows a standard royalty approach based on numbers of units and years, among other factors. But we are also looking at the consideration of an investment as well, which was also consistent with our agreement in China. So those three aspects are what we are considering. And as I said, we have more than one interested party, so that’s good as well. We are working on those details and hope to have new information soon.

Operator, Operator

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Marvin Slosman for closing remarks.

Marvin Slosman, CEO

Great. Thank you. I'd like to thank everyone for taking the time today to join the call and for the ongoing support. We're extremely proud of the progress from this quarter and year-to-date. We look forward to a strong finish as well as continued momentum into 2023. Thanks very much.

Operator, Operator

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.