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, including revenue growth. 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
history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty
regarding the adequacy of our liquidity to pursue our complete business objectives, and substantial doubt regarding our ability to
continue as a going concern; |
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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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an
inability to secure and maintain regulatory approvals for the sale of our products; |
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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 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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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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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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current
or future unfavorable economic and market conditions and adverse developments with respect to financial institutions and associated
liquidity risk. |
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.
Overview
We
are a medical device company focusing on the development and commercialization of our proprietary MicroNet™ stent platform for
the treatment of carotid artery disease and other vascular disease. A stent is an expandable “scaffold-like” device, usually
constructed of a metallic material, that is inserted into the lumen of the artery to create patency and revascularization of blood flow.
MicroNet, a micron mesh sleeve, is attached over a stent to provide embolic protection both during and after stenting procedures.
Our
CGuard™ carotid embolic prevention system (“CGuard EPS™”) combines MicroNet and a unique self-expandable nitinol
stent in a single device for use in carotid artery revascularization. Our CGuard EPS originally received CE mark approval under Medical
Device Directive 93/42/EEC (“MDD”) in the European Union (“EU”) in March 2013 and was fully launched in Europe
in September 2015. Subsequently, we launched CGuard EPS in over 30 countries and on February 3, 2021, we executed a distribution agreement
with Chinese partners for the purpose of expanding our presence in the Asian markets. Currently, we are seeking strategic partners for
a potential launch of CGuard EPS in Japan and other Asian countries.
Our
CE mark for CGuard EPS under the MDD expired on November 12, 2022 and we are in the final stages of technical documentation review by
the Notified Body auditor to meet the Medical Device Regulation (“MDR”) (MDR 2017/745) requirements (which replaced the MDD)
for recertification. In the meantime, on February 14, 2023, we received a derogation per Article 97 paragraph 1 of Regulation 2017/745
from the Agency for Medicines and Health Products (FAMHP) allowing us to continue marketing CGuard EPS in the EU until August 15, 2023
subject to certain procedural requirements. Subsequently, on March 20, 2023, Regulation (EU) 2023/607 was published allowing us to continue
marketing CGuard EPS in EU countries under the MDD directive until December 31, 2027. As a result of the foregoing, we may market and
sell CGuard EPS in the EU and certain other jurisdictions subject to certain procedural requirements while our MDR CE recertification
is pending. We continue to expedite the review process for recertification under the MDR.
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 Sten 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. The composite index will be compared to a performance goal based
on the observed rate of the two components of the primary endpoint from previous pivotal stent trials which are considered industry standard.
The performance goal will be considered met if the upper bound of the two-sided 95% confidence interval calculated from the observed
primary endpoint rate is < 11.6% and the p-value is less than 0.025.
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. There are 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 enrolment phase at
approximately 20 trial sites and expect it to be completed approximately at the end of the second quarter of 2023.
Additionally,
we intend to continue to invest in current and future potential new indications, products and manufacturing enhancements for CGuard EPS
that are expected to reduce cost of goods and/or provide the best-in-class performing delivery systems, such as CGuard Prime™for
transfemoral access. In furtherance of our strategy that focuses on establishing CGuard EPS as a viable alternative to vascular surgery,
we are developing a new transcarotid artery revascularization (TCAR) delivery system, SwitchGuard™, for transcarotid access and
neuro protection. In addition, we intend to explore new indications for CGuard EPS to leverage the advantages of stent design and mesh
protection, well suited in labels such as acute stroke with tandem lesions.
We
consider our 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 $1.3 billion in 2023 (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 and internal estimates). According
to this same report, and internal estimates, 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 $9.3 billion. Our mission
is to offer a comprehensive set of delivery solutions (TCAR and Transfemoral) in order to deliver best in class results through patient
outcomes by way of stent performance with CGuard EPS.
We
were organized in the State of Delaware on February 29, 2008.
Recent Developments
Private Placement
On
May 12, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which we agreed to sell
and issue in a private placement (the “Private Placement Offering) an aggregate of 10,266,270 shares (the “Private Placement
Shares”) of our common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 15,561,894 shares of
common stock and warrants to purchase up to an aggregate of 51,656,328 shares of common stock, consisting of Series H warrants to purchase
up to 12,914,086 shares of common stock (the “Series H Warrants”), Series I warrants to purchase up to 12,914,078 shares of
common stock (the “Series I Warrants”), Series J warrants to purchase up to 12,914,086 shares of Common Stock (the “Series
J Warrants”) and Series K warrants to purchase up to 12,914,086 shares of common stock (the “Series K Warrants” and
together with the Series H Warrants, Series I Warrants and Series J Warrants, the “Warrants”), at an offering price of $1.6327
per Private Placement Share and associated Warrants and an offering price of $1.6326 per Pre-Funded Warrant and associated Warrants.
The
Pre-Funded Warrants will be immediately exercisable at an exercise price of $0.0001 per share and will not expire until exercised in full.
The Warrants will be immediately exercisable upon issuance at an exercise price of $1.3827 per share, subject to adjustment as set forth
therein. The Warrants have a term of the earlier of (i) five years from the date of issuance and (ii) (A) in the case of the Series H
Warrants, 20 trading days following the Company’s public release of primary and secondary end points related to one year follow
up study results from the Company’s C-Guardians pivotal trial, (B) in the case of the Series I Warrants, 20 trading days following
the Company’s announcement of receipt of Premarket Approval from the Food and Drug Administration (“FDA”) for the CGuard
Prime Carotid Stent System (135 cm), (C) in the case of the Series J Warrants, 20 trading days following the Company’s announcement
of receipt of FDA approval for the SwitchGuard and CGuard Prime 80 and (D) in the case on the Series K Warrants, 20 trading days following
the end of the fourth fiscal quarter after the fiscal quarter in which the first commercial sales of the CGuard Carotid Stent System in
the United States begins. The Warrants may be exercised on a cashless basis if there is no effective registration statement registering
the shares underlying the warrants.
In
connection with the Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”).
Pursuant to the Registration Rights Agreement, we are required to file a resale registration statement (the “Registration Statement”)
with the SEC to register for resale the Private Placement Shares and the shares of common stock issuable upon exercise of the Pre-Funded
Warrants and Warrants, within 20 days of the signing date of the Purchase Agreement (the “Signing Date”), and to have such
Registration Statement declared effective within 45 days after the Signing Date in the event the Registration Statement is not reviewed
by the SEC, or 90 days of the Signing Date in the event the Registration Statement is reviewed by the SEC. We will be obligated to pay
certain liquidated damages if we fail to file the Registration Statement when required, fails to cause the Registration Statement to be
declared effective by the SEC when required, of if we fail to maintain the effectiveness of the Registration Statement.
Aggregate
gross proceeds to us in respect of the Private Placement Offering are expected to be approximately $42.2 million, before deducting fees
payable to the placement agent and other offering expenses. If the Warrants are exercised in cash in full this would result in an additional
$71.4 million of proceeds.
We
agreed to pay LifeSci Capital LLC, a placement fee equal to 5.6% of the aggregate gross proceeds from the closing of the Private Placement
Offering and a non-accountable expense allowance of $25,000. In addition, we have agreed to pay Piper Sandler & Co. a financial advisory
fee of $1.5 million and AGP/Alliance Global Partners a financial advisory fee of $250,000.
The
Private Placement Offering is expected to close on or about May 15, 2023, subject to satisfaction of customary closing conditions.
Critical
Accounting Policies
A
critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires
management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i) “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note 2 of the Notes to the Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year ended December 31, 2022. There have not been any material changes
to such critical accounting policies since December 31, 2022.
The
currency of the primary economic environment in which our operations are conducted is the U.S. dollar (“$” 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, 2023, compared to the three months ended March 31, 2022
Revenues.
For the three months ended March 31, 2023, revenue increased by $56,000, or 4.7%, to $1,239,000, from $1,183,000 during the three months
ended March 31, 2022. This increase was predominantly driven by a 6.7% increase in sales of CGuard EPS from $1,161,000 during the three
months ended March 31, 2022, to $1,239,000 during the three months ended March 31, 2023. During the second half of the quarter, our CE
mark was reinstated under the MDD directive allowing us to resume sales and shipments to the EU countries and we spent the remainder
of the quarter shipping product in order to reduce the backlog of orders that accumulated over the past few months. We believe the quarter
over quarter increase in revenue is not representative of the real market demand for CGuard EPS, due to our inability to ship product
for the first half of the quarter. We continue to expedite the review process for recertification under the MDR.
With
respect to geographical regions, the increase in revenue was primarily attributable to a $177,000 increase in Europe, for reasons mentioned
in the paragraph above, and a $13,000 increase from the Middle East. This increase was offset by a $87,000 decrease in Latin America
and $52,000 decrease in revenue from other regions such as Australia and Asia due to the timing of shipments to our distributers.
Gross
Profit. For the three months ended March 31, 2023, gross profit (revenue less cost of revenues) increased by $251,000, or 205.6%,
to $373,000, from $122,000 during the three months ended March 31, 2022. This increase in gross profit resulted from a decrease in write-offs
of $184,000 and a $71,000 increase in revenues (as mentioned above), less the associated related material and labor. Gross margin (gross
profits as a percentage of revenue) increased to 30.1% during the three months ended March 31, 2023 from 10.3% during the three months
ended March 31, 2022, driven by the factors mentioned above.
Research
and Development Expenses. For the three months ended March 31, 2023, research and development expenses increased by $163,000, or
9.7%, to $1,843,000, from $1,680,000 during the three months ended March 31, 2022. This increase resulted primarily from an increase
of $170,000 in expenses related to the CGuard Prime regulatory and approval process and an increase of $88,000 in miscellaneous expenses
offset, in part, by a decrease of $95,000 in expenses related to the C-Guardians FDA study.
Selling
and Marketing Expenses. For the three months ended March 31, 2023, selling and marketing expenses increased by $42,000, or 5.6%,
to $788,000, from $746,000 during the three months ended March 31, 2022. This increase resulted primarily from an increase in compensation
expenses of $49,000 offset, in part, by a decrease of $7,000 in miscellaneous expenses.
General
and Administrative Expenses. For the three months ended March 31, 2023, general and administrative expenses decreased by $59,000,
or 2.7%, to $2,123,000, from $2,182,000 during the three months ended March 31, 2022. This decrease resulted primarily from a decrease
in share-based compensation-related expenses of $310,000 as no new grants were made from the fourth quarter of 2021 through March 31,
2023 offset, in part, by an increase in regulatory expenses of $171,000 related to MDR registration process and an increase of $80,000
in miscellaneous expenses.
Financial
Income. For the three months ended March 31, 2023, financial income increased by $120,000, to $125,000, from $5,000 during the three
months ended March 31, 2022. The increase in financial income primarily resulted from a $88,000
increase in interest income from short-term bank deposits.
Tax
Expenses. For the three months ended March 31, 2023, there was no change in our tax expenses as compared to the three months ended
March 31, 2022.
Net
Loss. Our net loss decreased by $225,000, or 5.0%, to $4,256,000, for the three months ended March 31, 2023, from $4,481,000 during
the three months ended March 31, 2022. The decrease in net loss resulted primarily from an increase of $251,000 in gross profit and an
increase of $120,000 in financial income partially offset by an increase of $146,000 in operating expenses.
Liquidity
and Capital Resources
We
had an accumulated deficit as of March 31, 2023 of $206 million, as well as a net loss of $4,256,000 and negative operating cash flows.
We expect to continue incurring losses and negative cash flows from operations until our product, CGuard EPS, reaches commercial profitability.
As a result of these expected losses and negative cash flows from operations, along with our current cash position, we believe we have
sufficient resources to fund operations until the end of September 2023. Therefore, there is substantial doubt about our ability to continue
as a going concern.
Our
plans include continued commercialization of our products and raising capital through sale of additional equity securities, debt or capital
inflows from strategic partnerships. There are no assurances, however, that we will be successful in obtaining the level of financing
needed for our operations. If we are unsuccessful in commercializing our products or raising capital, we may need to reduce activities,
curtail or cease operations.
On May 12, 2023, we entered into
a securities purchase agreement for the issuance and sale of our securities in a private placement. Aggregate gross proceeds to us in
respect of the private placement is expected to be approximately $42.2 million, before deducting fees payable to the placement agent and
other offering expenses payable us and before exercising any warrants. The offering is expected to close on or about May 15, 2023, subject
to the satisfaction of customary closing conditions.
Three
months ended March 31, 2023 compared to the three months ended March 31, 2022
General.
At March 31, 2023, we had cash and cash equivalents of $4,228,000 and short-term bank deposits of $8,657,000 as compared to $4,632,000
and short-term bank deposits of $13,171,000 as of December 31, 2022. 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, 2023, net cash used in our operating activities increased by $697,000, or 16.9%, to $4,831,000, from
$4,134,000 during the same period in 2022. The primary reason for the increase in cash used in our operating activities was an increase
of $449,000 in compensation costs paid during the three months ended March 31, 2023 from $2,679,000 in the three months ended March 31,
2022 to $3,128,000 during the same period in 2023 and a decrease of $366,000 in payments received from customers, to $925,000 during
the three months ended March 31, 2023 from $1,291,000 during the same period in 2022 ,offset in part by a decrease of $118,000 in payments
for third party related expenses and for professional services
Cash
provided in our investing activities was $4,449,000 during the three months ended March 31, 2023, compared to cash used of $65,000 during
the three months ended March 31, 2022. The primary reasons for the increase in cash provided by our investing activities is a withdrawal
of short-term deposits, net of investments of $4,500,000 of short-term deposits, offset by a decrease of $12,000 in payments made for
purchase of property, plant and equipment to $25,000 during the three months ended March 31, 2023.
There
was no cash provided by financing activities for the three months ended March 31, 2023 and for the three months ended March 31, 2022.
As
of March 31, 2023, our current assets exceeded our current liabilities by a multiple of 3.8. Current assets decreased by $4,623,000 during
the period and current liabilities decreased by $687,000 during the period. As a result, our working capital decreased by $3,936,000
to $12,320,000 as of March 31, 2023.
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. 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, 2023, there were no material changes to our contractual obligations and commitments.