Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying
condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.
Unless
the context requires otherwise, references in this Form 10-Q to the “Company,” “InspireMD,” “we,”
“our” and “us” refer to InspireMD, Inc., a Delaware corporation, and its subsidiaries.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events,
future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,” “will,”
“should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking
statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance
or results will be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s
good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance
or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could
cause such differences include, but are not limited to:
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our
need to raise additional capital to meet our business requirements in the future and such capital raising may be costly or difficult
to obtain and could dilute out stockholders’ ownership interests; |
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the
impact of the COVID-19 pandemic on our manufacturing, sales, business plan and the global economy; |
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negative
clinical trial results or lengthy product delays in key markets; |
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our
ability to maintain compliance with the Nasdaq Capital Market listing standards; |
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our
ability to generate revenues from our products and obtain and maintain regulatory approvals for our products; |
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our
ability to successfully obtain, maintain and adequately protect our intellectual property rights; |
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our
dependence on a single manufacturing facility and our ability to comply with stringent manufacturing quality standards; |
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our
ability to increase production as necessary; |
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the
risk that the data collected from our current and planned clinical trials may not be sufficient to demonstrate that our technology
is an attractive alternative to other procedures and products; |
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market
acceptance of our products; |
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an
inability to secure and maintain regulatory approvals for the sale of our products; |
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intense
competition in our industry, with competitors having greater financial, technological, research and development, regulatory and clinical,
manufacturing, marketing and sales, distribution and personnel resources than we do; |
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entry
of new competitors and products and potential technological obsolescence of our products; |
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inability
to carry out research, development and commercialization plans; |
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loss
of a key customer or supplier; |
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technical
problems with our research and products and potential product liability claims; |
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product
malfunctions; |
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price
increases for supplies and components; |
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adverse
economic conditions; |
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insufficient
or inadequate reimbursement by governmental and other third-party payers for our products; |
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adverse
federal, state and local government regulation in the United States, Europe, Israel and other foreign jurisdictions; |
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the
fact that we conduct business in multiple foreign jurisdictions, exposing us to foreign currency exchange rate fluctuations, logistical
and communications challenges, burdens and costs of compliance with foreign laws and political and economic volatility in certain
jurisdictions; |
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the
escalation of hostilities in Israel, which could impair our ability to manufacture our products; and |
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loss
or retirement of key executives and research scientists. |
The
foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or
risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements.
For a discussion of these and other risks that relate to our business and investing in our common stock, you should carefully review
the risks and uncertainties described in this Quarterly Report on Form 10-Q, and those described from time to time in our future reports
filed with the Securities and Exchange Commission. The forward-looking statements contained in this Quarterly Report on Form 10-Q are
expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking
statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated
events.
All
information in this Quarterly Report on Form 10-Q relating to shares or price per share reflects the 1-for-15 reverse stock split effected
by us on April 26, 2021.
Overview
We
are a medical device company focusing on the development and commercialization of our proprietary MicroNet™ stent platform technology
for the treatment of complex vascular and coronary disease. A stent is an expandable “scaffold-like” device, usually constructed
of a metallic material, that is inserted into an artery to expand the inside passage and improve blood flow. MicroNet, a micron mesh
sleeve, is wrapped over a stent to provide embolic protection in stenting procedures.
Our
CGuard™ carotid embolic prevention system (“CGuard EPS”) combines MicroNet and a self-expandable nitinol stent in a
single device for use in carotid artery applications. Our CGuard EPS received CE mark approval in the European Union in March 2013 and
was fully launched in Europe in September 2015. Subsequently, we launched CGuard EPS in Russia and certain countries in Latin America
and Asia, including India. In September 2020, we launched CGuard EPS in Brazil after receiving regulatory approval in July 2020 and on
February 3, 2021, we executed a distribution agreement with Chinese partners for the purpose of expanding our presence in China. Currently,
we are seeking strategic partners for a potential launch of CGuard EPS in Japan and other Asian countries.
On
September 8, 2020, we received approval from the U.S. Food and Drug Administration (“FDA”) of our Investigation Device Exemption
(“IDE”), thereby allowing us to proceed with a pivotal study of our CGuard™ Carotid Stent System, C-Guardians, for
prevention of stroke in patients in the United States. C-Guardians is a prospective, multicenter, single-arm, pivotal study to evaluate
the safety and efficacy of the CGuard™ Carotid Stent System when used to treat symptomatic and asymptomatic carotid artery stenosis
in patients undergoing carotid artery stenting. The trial was designed to enroll approximately 315 subjects in a maximum of 40 study
sites located in the United States and Europe. Study sites in Europe may contribute a maximum of approximately 50% of the total enrollees.
The primary endpoint of the study will be the composite of incidence of death (all-cause mortality), all stroke, and myocardial infarction
(DSMI) through 30-days post-index procedure, based on the clinical events committee (CEC) adjudication and ipsilateral stroke from 31-365
day follow-up, based on Clinical Events Committee (CEC) adjudication.
On
July 23, 2021, we announced the initiation of enrollment and successful completion of the first cases of our C-Guardian trial of CGuard
EPS. The first patients, who were under the care of principal investigator, Chris Metzger, M.D., system chair of clinical research at
Ballard Health System in Eastern Tennessee, were successfully implanted with the CGuard EPS stent device. These are the first of 315
patients who are expected to be enrolled in the trial and receive CGuard EPS in the treatment of carotid artery stenosis in symptomatic
and asymptomatic patients undergoing carotid artery stenting. We are currently continuing with the enrollment phase. In April 2022,
we completed our first European recruitment.
Additionally,
we intend to continue to invest in current and future potential product and manufacturing enhancements for CGuard EPS that are expected
to reduce cost of goods and/or provide the best-in-class performing delivery system. In furtherance of our strategy that focuses on establishing
CGuard EPS as a viable alternative to vascular surgery, we are exploring adding new delivery systems and accessory solutions for procedural
protection to our portfolio.
We
consider the current addressable market for our CGuard EPS to be individuals with diagnosed, symptomatic high-grade carotid artery stenosis
(HGCS, ≥70% occlusion) for whom intervention is preferable to medical (drug) therapy. This group includes not only carotid artery
stenting patients but also individuals undergoing carotid endarterectomy, as the two approaches compete for the same patient population.
Assuming full penetration of the intervention caseload by CGuard EPS, we estimate that the addressable market for CGuard EPS will be
approximately $666 million in 2022 (source: Health Research International Personal Medical Systems, Inc. September 13, 2021 Results of
Update Report on Global Carotid Stenting Procedures and Markets by Major Geography and Addressable Markets). According to this same report,
assuming full penetration of the caseload for all individuals diagnosed with high-grade carotid artery stenosis, we estimate that the
total available market for CGuard EPS in 2022 will be approximately $5 billion.
Our
MGuard™ Prime™ embolic protection system (“MGuard Prime EPS”) is marketed for use in patients with acute coronary
syndromes, notably acute myocardial infarction (heart attack) and saphenous vein graft coronary interventions, or bypass surgery. MGuard
Prime EPS combines MicroNet with a bare-metal cobalt-chromium based stent. MGuard Prime EPS received CE mark approval in the European
Union in October 2010 for improving luminal diameter and providing embolic protection. Over the past years there has been a shift in
industry preferences away from bare-metal stents, such as MGuard Prime EPS in ST-Elevation Myocardial Infarction (“STEMI”)
patients. As a result of declining sales of the MGuard Prime EPS, which we believe this is largely driven by the predominant industry
preferences favoring drug-eluting, or drug-coated, stents, we intend to phase out future sales of our MGuard Prime EPS in 2022.
Our
pipeline of innovative delivery solutions such as CGuard Prime and SwitchGuard are anticipated to launch early 2023, to facilitate greater
utilization of our devices as first line solution for carotid artery disease management.
We
also intend to develop a pipeline of other products and additional applications by leveraging our MicroNet technology to improve peripheral
procedures such as the treatment of the superficial femoral artery disease and vascular disease below the knee as well as neurovascular
procedures, such as the treatment of acute stroke.
Presently,
none of our products may be sold or marketed in the United States, but we do derive revenues from the use of our products in the currently
ongoing trials.
We
were organized in the State of Delaware on February 29, 2008.
Recent
Developments
The
COVID-19 global pandemic has led governments and authorities around the globe to take various precautionary measures in order to limit
the spread of COVID-19, including government-imposed quarantines, lockdowns, and other public health safety measures. We experienced
a significant COVID-19 related impact on our financial condition and results of operations, primarily during the year ended December
31, 2020, which we primarily attribute to the postponement of CGuard EPS procedures (non-emergency procedures), as hospitals have shifted
resources to patients affected by COVID-19. To the best of our knowledge, there are European countries in which we operate reinstated
non-emergency procedures. However, new COVID-19 variants, and potentially increasing infection rates make the current COVID-related environment
highly volatile and uncertain and we anticipate that the continuation of the pandemic and related restrictions and safety measures will
likely result in continued fluctuations in sales of our products, potentially enrollments in our studies as well as potential disruptions
to our supply chain for the upcoming periods.
In
February 2022, Russia launched a military invasion into Ukraine. We derived approximately 10.5% of total sales in Russia, Ukraine
and Belarus in 2021 while in 2022 there no sales in Russia and Ukraine and minimal sales in Belarus. The
escalation of geopolitical instability in Russia and Ukraine as well as currency fluctuations in the Russian Ruble could negatively
impact our operations, sales, and future growth prospects in that region. As a result of the crisis in Ukraine both the United
States and the EU have implemented sanctions against certain Russian individuals and entities and have made it more difficult for us
to collect on outstanding accounts receivable from customers in this region. Our global operations expose us to risks that could
adversely affect our business, financial condition, results of operations, cash flows or the market price of our securities,
including the potential for increased tensions between the United States and Russia resulting from the current situation involving
Russia and Ukraine, tariffs, economic sanctions and import-export restrictions imposed by either nation, and retaliatory actions by
the other nation, as well as the potential negative impact on our business and sales in Russia, Ukraine and Belarus. Current geopolitical
instability in Russia and Ukraine and related sanctions by the U.S. government against certain companies and individuals may hinder
our ability to conduct business with potential or existing customers and vendors in these countries. The U.S. government has imposed
sanctions through several executive orders restricting U.S. companies from conducting business with specified Russian and Ukrainian
individuals and companies. While we believe that the executive orders currently do not preclude us from conducting business with our
current customers or vendors in Russia, Ukraine and Belarus, the sanctions imposed by the U.S. government may be expanded in the
future to restrict us from engaging with them. If the Company is unable to conduct business with new or existing
customers or vendors or pursue business opportunities in Russia, Ukraine or Belarus, our business, including revenue,
profitability and cash flows, and operations could be adversely affected. We cannot provide assurance that current sanctions or
potential future changes in sanctions will not have a material impact on our operations in Russia, Ukraine and Belarus or on our
financial results.
Critical
Accounting Policies
A
critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires
management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i) “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note 2 of the Notes to the Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year ended December 31, 2021. There have not been any material changes
to such critical accounting policies since December 31, 2021.
The
currency of the primary economic environment in which our operations are conducted is the U.S. dollar (“$” or “dollar”).
Contingencies
We
and our subsidiaries are involved in legal proceedings that arise from time to time in the ordinary course of business. We record accruals
for these types of contingencies to the extent that we conclude the occurrence of such contingencies is probable and that the related
liabilities are estimable. When accruing these costs, we recognize an accrual in the amount within a range of loss that is the best estimate
within the range. When no amount within the range is a better estimate than any other amount, we accrue for the minimum amount within
the range. Legal costs are expensed as incurred.
Results
of Operations
Three
months ended March 31, 2022 compared to the three months ended March 31, 2021
Revenues.
For the three months ended March 31, 2022, revenue increased by $177,000, or 17.6%, to $1,183,000, from $1,006,000 during the three months
ended March 31, 2021. This increase was predominantly driven by a 19.8% increase in sales volume of CGuard EPS from $969,000 during the three months ended March 31, 2021, to $1,161,000 during the three months
ended March 31, 2022. This sales increase was mainly due to growth in existing and new markets and the removal of restrictions on non-emergency
procedures, as compared to the three months ended March 31, 2021, when procedures with CGuard EPS were still somewhat postponed
as hospitals shifted resources to patients affected by COVID-19. In addition, the sales increased due to sales in the United States related
to stents used in our C-Guardians FDA study which occurred in the three months ended March 31, 2022, but not in the corresponding period
in 2020. The increase in sales of CGuard EPS was partially offset by a lack of sales to Russia, Belarus and the Ukraine in the three
months ended March 31, 2022 due to the regional conflict and related currency restrictions.
With
respect to geographical regions, the increase in revenue was primarily attributable to a $59,000 increase in revenue from North America
due to sales in the United States related to stents used in our FDA clinical trial, a $51,000 increase in revenue from Latin America,
a $31,000 increase in revenue from Asia, and a $31,000 increase in revenue from other regions such Australia, Middle East and Europe
mainly due to growth in existing and new markets and the removal of restrictions on non-emergency procedures, as compared to the three
months ended March 31, 2021, when procedures with CGuard EPS were still somewhat postponed as hospitals shifted resources to patients
affected by COVID-19. The increase in sales of CGuard EPS was partially offset by a lack of sales to Russia, Belarus and the Ukraine
in the three months ended March 31, 2022 due to the regional conflict and related currency restrictions.
Gross
Profit. For the three months ended March 31, 2022, gross profit (revenue less cost of revenues) increased by $16,000, or 15.2%,
to $122,000, from $106,000 during the three months ended March 31, 2021. This increase in gross profit resulted from a $30,000
decrease in write-offs which were driven mainly by component supply issues partially offset by a $14,000 in miscellaneous expenses.
Gross margin (gross profits as a percentage of revenue) decreased to 10.3% during the three months ended March 31, 2022 from 10.5% during
the three months ended March 31, 2021, driven by the factors mentioned above.
Research
and Development Expenses. For the three months ended March 31, 2022, research and development expenses increased by $841,000, or
100.2%, to $1,680,000, from $839,000 during the three months ended March 31, 2021. This increase resulted primarily from an increase
of $910,000 in expenses related to the commencement of the C-Guardians FDA study, $75,000 in compensation expenses offset by a decrease
of $131,000 in development expenses related to CGuard EPS accessory solutions and $13,000 in miscellaneous expenses.
Selling
and Marketing Expenses. For the three months ended March 31, 2022, selling and marketing expenses increased by $38,000, or 5.4%,
to $746,000, from $708,000 during the three months ended March 31, 2021. This increase resulted primarily from an increase in share-based
compensation expenses of $49,000 due to the expense recognition of grants made during the fourth quarter of 2021.
General
and Administrative Expenses. For the three months ended March 31, 2022, general and administrative expenses increased by $309,000,
or 16.5%, to $2,182,000, from $1,873,000 during the three months ended March 31, 2021. This increase resulted primarily from an increase
in compensation expenses of $250,000, mainly due to an increase of approximately $218,000 of share-based compensation-related expenses
due to the expense recognition of grants made during the fourth quarter of 2021 and an increase in salary expenses
and related accruals of $32,000, and an increase in directors’ and officers’ liability insurance expenses of $59,000, due
to increased premiums caused by recent trends in the overall insurance industry.
Financial
Income. For the three months ended March 31, 2022, financial income decreased by $66,000, or 93.0%, to $5,000, from $71,000 during
the three months ended March 31, 2021. The decrease in financial income primarily resulted from a decrease of $87,000 in financial income
related to changes in exchange rates offset in part by a $28,000 increase in interest income from short-term bank deposits.
Tax
Expenses. For the three months ended March 31, 2022, there was no change in our tax expenses as compared to the three months ended
March 31, 2021.
Net
Loss. Our net loss increased by $1,238,000, or 38.2%, to $4,481,000, for the three months ended March 31, 2022,
from $3,243,000 during the three months ended March 31, 2021. The increase in net loss resulted primarily from an increase of $1,188,000
in operating expenses partially offset by an increase of $16,000 in gross profit.
Liquidity
and Capital Resources
As
of March 31, 2022, we have the ability to fund our planned operations for at least the next 12 months from issuance date of the financial
statement. However, we expect to continue incurring losses and negative cash flows from operations until our products (primarily CGuard™
EPS) reach commercial profitability. Therefore, in order to fund our operations until such time that we can generate substantial revenues,
we may need to raise additional funds.
Three
months ended March 31, 2022 compared to the three months ended March 31, 2021
General.
At March 31, 2022, we had cash and cash equivalents of $7,798,000 as compared to $12,004,000 as of December 31, 2021. We have historically
met our cash needs through a combination of issuing new shares, borrowing activities and product sales. Our cash requirements are generally
for research and development, marketing and sales activities, finance and administrative costs, capital expenditures and general working
capital.
For
the three months ended March 31, 2022, net cash used in our operating activities increased by $511,000, or 14.0%, to $4,152,000, from
$3,641,000 during the same period in 2021. The primary reason for the increase in cash used in our operating activities was an increase
of $678,000 in payments for third party related expenses and for professional services primarily due to the C-Guardians FDA study, an
increase of $365,000 in compensation costs paid during the three months ended March 31, 2022 from $2,314,000 in the three months ended
March 31, 2021 to $2,679,000 during the same period in 2022, offset by an increase of $532,000 in payments received from customers, to
$1,291,000 during the three months ended March 31, 2022 from $759,000 during the same period in 2021.
Cash
used in our investing activities increased by $23,000 or $96%, to $47,000 during the three months ended March 31, 2022, compared
to $24,000 during the three months ended March 31, 2021. The primary reasons for the increase in cash used by our investing activities
were an increase of $12,000 in funds related to employee rights upon retirement and $11,000 in payments made for purchase of property,
plant and equipment to $37,000 during the three months ended March 31, 2022.
There
was no cash provided by financing activities for the three months ended March 31, 2022. Cash provided by financing activities for the
three months ended March 31, 2021 was $35,068,000, the principal sources of which were our February 2021 public offering of common stock
and warrants, exercise of Series F and Series G warrants, proceeds from our former ATM facility as well as proceeds from the issuance
of shares to a Chinese distributor.
As
of March 31, 2022, our current assets exceeded our current liabilities by a multiple of 8.8. Current assets decreased by $4,462,000
during the period and current liabilities decreased by $656,000 during the period. As a result, our working capital decreased by
$3,806,000 to $28,941,000 as of March 31, 2022.
Off
Balance Sheet Arrangements
We
have no off-balance sheet transactions, arrangements, obligations (including contingent obligations) or other relationships with unconsolidated
entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
Factors
That May Affect Future Operations
We
believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including
the cyclical nature of the ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases
of our clinical trials and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment, the impact
of the COVID-19 pandemic and the ongoing conflict in the Ukraine. Our operating results could also be impacted by a weakening of
the Euro and strengthening of the NIS, both against the U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer
demand, such as individual country reimbursement policies pertaining to our products.
Contractual
Obligations and Commitments
During
the three months ended March 31, 2022, there were no material changes to our contractual obligations and commitments.