Title

Presentation

Operator: Good morning, and welcome to the InspireMD Fourth Quarter and Full Year 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: Thank you, operator, and good morning, everyone. Thank you for joining us for the InspireMD fourth quarter and full year 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 factor described in InspireMD’s most recently filed periodic reports on Form 10-K and 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, March 30, 2023. Except as required by law, InspireMD disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Marvin Slosman, CEO of InspireMD. Please go ahead, Marvin.

Marvin Slosman : Thank you, Chuck. And thanks to everyone for joining the call. I want to start this morning with a regulatory note as our revenue results for the fourth quarter were impacted by the cessation of CGuard shipments due to a temporary expiration of our CE Mark on November 12, 2022. This was due to well-documented significant delays by the European regulatory bodies in the processing of applications and audits under the new Medical Device Regulation, or MDR, recertification process. By way of background, the MDR replaced the Medical Device Directive, or MDD, which had historically governed the approval and marketing of medical devices in the EU until May 2021. The MDR deadline for transition to updated certification has taken more than three years with multiple revisions, delays and requirement changes, putting the entire medical device industry serving the EU markets at risk.

This complexity, combined with the constantly changing requirements and deadlines has forced the market into a very precarious situation. Our position from the beginning was to follow the new guidelines of MDR as a prudent measure of long-term compliance mandated for all new product introductions requiring this certification. We have worked tirelessly with our notified body to complete the process throughout this uncertainty. Due to the chronic delays of scheduling our final audit prior to the expiration of our MDD certification on November 12, 2022, we temporarily lost our ability to sell in the EU markets on that date. In anticipation, we proactively worked with our distributor partners to provide as much available inventory as possible to avoid shortages while continuing to complete the MDR process to reestablish sales.

Despite our best efforts, our fourth quarter revenue reflects a shortfall of shipments following the certificate expiration. Therefore, our fourth quarter CGuard revenue totaled $1,026,000 with a carryforward of approximately $250,000 in backlog, not shipped after the loss of the CE Mark. Had we been able to operate without this interruption, we would have recorded approximately $1.3 million in revenue. However, I’m pleased to report that earlier this month, we were able to reinstate our CE Mark and shift to all EU countries and other jurisdictions under our previous MDD certificate as a temporary measure as we work through the final steps in our MDR certification, which we believe to be imminent. We resumed shipments effective March 18. And although late in the quarter, we are taking every step to refill channels and ensure as a priority, the availability of the CGuard stent platform for life-saving patient care without interruption.

Managing this turbulent transition has been challenging, but we anticipate we will be one of the first companies to receive the MDR certification very soon. And for the long term, this will serve us well as a foundation of continuing to drive market growth in the EU. We currently enjoy greater than 25% market share in over half of our served markets with some territories exceeding 80%. Our continued efforts on the ground, together with this near-term launch of two new stent delivery systems, including a new transcarotid and advanced next-generation transfemoral platform will enable share growth and accelerate the conversion of surgeries to endovascular standard-of-care with the CGuard stent system. And turning now to our U.S. regulatory activities, our C-Guardians U.S. IDE trial continues at a remarkable pace of enrollment with 20 active trial sites.

We anticipate completing enrollment next quarter. Achieving this enrollment milestone will enable next steps in the submission and approval process as we get closer to the potential launch of CGuard in the U.S. market. As we continue to invest in preparation of the U.S. market launch, we have added a seasoned commercial executive in the vascular space, Shane Gleason to the leadership team who will lead our go-to-market preparation as GM of the Americas and Global Marketing Strategy. In terms of product pipeline, focus on our CGuard EPS stent platform remains the foundation of our business, and we believe the importance of the implant to patient outcomes remains the single most important variable beyond the selected delivery option. In order to fully realize the potential of CGuard however, we’ve developed two new delivery systems to drive utilization across the broadest vascular specialist community.

We continue to advance development, regulatory approval and launch plans for 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, we believe our transcarotid kit will enable TCAR with the best stent solution for those choosing to utilize this method of neuroprotection. We continue to work tirelessly toward our goal of changing the paradigm of how carotid disease is managed and strokes are prevented. With CGuard EPS, we believe we can offer the best patient outcomes with the broadest 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.

With that, I’ll turn the call over to Craig for the review of our first quarter financials. Craig?

Craig Shore : Thank you, Marvin. For the fourth quarter of 2022, total revenue was $1,026,000 compared to $1,380,000 during the fourth quarter of 2021. This represents a decrease of 25.7%. This decrease was predominantly driven by a 20.6% decrease in sales of CGuard EPS to $1,026,000 in the fourth quarter of 2022 from $1,291,000 in the same period one year ago. As Marvin mentioned, this sales decrease was caused by reduced shipments due to the temporary expiration of our CE Mark certification for the second half of the fourth quarter, resulting from the ongoing transition to the MDR regulatory framework from MDD previously. This was partially offset by an increase in U.S. sales related to stents used in our C-Guardians U.S. clinical trial.

We ended the quarter with a backlog of approximately $250,000 due to the temporary expiration of our CE Mark. Had we been able to ship without this temporary interruption, as Marvin said, our revenue would have been approximately $1.3 million. Gross profit for the fourth quarter of 2022 decreased by $96,000 or 32.7% to $198,000 compared to a gross profit of $294,000 for the fourth quarter of 2021. This decrease resulted from the lower revenue due to the temporary loss of the CE Mark, offset by a decrease in miscellaneous expenses. Gross margin decreased to 19.3% during the three months ended December 31, 2022, from 21.3% during the three months ended December 31, 2021. Total operating expenses for the fourth quarter of 2022 were $5,134,000, an increase of $909,000 or 21.5% compared to $4,225,000 for the fourth quarter of 2021.

This increase was primarily due to increases in expenses related to the C-Guardians FDA study as we move towards end of enrollment, sales and marketing expenses and regulatory expenses. Net loss for the fourth quarter of 2022 totaled $4,845,000 or $0.60 per basic and diluted share compared to a net loss of $4,097,000 or $0.53 per basic and diluted share for the same period in 2021. As of December 31, 2022, cash, cash equivalents and short-term bank deposits were $17.8 million compared to $34 million as of December 31, 2021. That concludes the financial review. Marvin?

Marvin Slosman : I’d like to thank everyone for taking the time today to join the call and for your ongoing support. I’m extremely proud of how our team has responded to the regulatory challenges pertaining to our CE Mark certification, and I look forward to the assumption of the market penetration as we continue to gain share in our approved markets, while in parallel, progressing in our C-Guardians U.S. clinical trial. We’ll now open for questions.

Operator: Our first question is from the line of Ben Haynor with Alliance Global Partners.

Benjamin Haynor : First off for me, I appreciate the color on the MDD and MDR that you experienced in Q4 and Q1 and, I guess, ongoing. But can you give us a little bit of color on kind of how that impacts Q1, given as one day left in the quarter, and you had the $250,000 backlog. I mean is the way to think about it that European revenues may be something less than kind of the $250,000 backlog during Q1?

Marvin Slosman : Hi, Ben. Thanks for the call. We did our best to make sure that we prepared properly for the — either the MDR approval or being able to clawback the MDD, which we were successful at. So I think on balance, as an organization, we tried to make sure that we were set for either of those to occur. So in terms of the first quarter, we’ve tried to minimize any impact market-wise on being able to take those steps in advance. So even though it has been late in the quarter, the preparation up to that point, I think will serve us well in terms of being able to address those open market orders and being able to get back on track. So I think the preparation was certainly in order.

Benjamin Haynor : Okay. That make sense. And then you mentioned in the press release the increased demand for CGuard. Can you share a little bit more about that? Where you’re seeing — I mean seeing any particular areas of strength? I mean I know that MDR, MDD certainly has an impact, but it sounds like you’re seeing increased demand regardless. Can you share more there?

Marvin Slosman : Yes. Great question, Ben. So it’s interesting because from the very beginning, our stent focus driven by the best clinical data supporting the CGuard stent has always been the foundation of our effort. And so as we went through this regulatory process, I think we always assumed that there was high demand for CGuard out there. But most importantly, the feedback from our distributors and more importantly, our customers was hopeful that they would not run short of being able to continue to support patient care with the best stent out there. And so our planning in that process and making sure that we kept our channels sufficiently filled was a great indication with constant communication that there is this consistent and ongoing demand for CGuard that it’s not just about having a carotid stent available.

It was specific to CGuard. So we felt really good about that process and now that we’ve been able to cross this hurdle to refill channels, we will obviously be able to satisfy those needs. On balance, our continued goal and objective is to make CGuard the first-line stent selected for carotid revascularization and we continue every day to have that reinforcement that we’re gaining on that, both through our distributors as well as our customers in Europe. And of course, our enrollment in the U.S. trial, I think, has been a proxy to the support of the stent as well in terms of the accelerated enrollment to the trial.

Benjamin Haynor : Okay. Great. That’s helpful. And then I know vesting in approval timelines is a bit of a risky proposition. But just thinking about SwitchGuard and CGuard Prime Transfemoral, the new delivery systems, do you have any thoughts on the when those might go into the regulatory bodies and the timelines there?

Marvin Slosman : Yes. It’s — for both Europe and the U.S., we have a very clear strategy and timeline related to our regulatory objective. The devices are complete, and we’re in the regulatory framework as you mentioned. And so we’re hoping that if those go according to plan, that will remain consistent with the dates that we’ve outlined prior in terms of availability into the market. But we are into that regulatory roadmap as we speak. So I think we’ve crossed over the development hurdle and are well into making sure that we clear the next steps here to get market availability as soon as we can for both Europe and, of course, the U.S. market.

Benjamin Haynor : Okay. And then on kind of maybe the new indication or new product front, I noticed in the 10-K, you mentioned MGuard EPS for acute stroke with tandem lesions. Can you tell us a little bit more there?

Marvin Slosman : Yes. I think a great opportunity for the CGuard stent because of the properties of having the MicroNet mesh as well as the design of our stent. We know that in about 25% of acute stroke cases, the carotids are involved. So we refer to that as tandem lesions. And so we’re looking at that as an indication opportunity that’s well suited for our stent and continue to work that in a parallel path to our approval under the current IDE as it we believe is best suited in that neuro application. And right now, there are no labels, specific labels or indications for tandem lesions stenting. So we continue to advance that process and are really encouraged by the stent’s ability to perform in that acute setting. Much more to come on that in the next few calls.

Benjamin Haynor : Okay. I’ll be on the lookout there. And then lastly for me. I appreciate the updates on C-Guardians. I was just curious what you’re seeing out of CREST-2? Any updates there?

Marvin Slosman : Yes. We’ve started enrollments with the CGuard and CREST-2 administratively. As you can imagine, there’s a lot that goes into making sure that all of the hospital systems are set and the stent is available and everything is done from a paperwork perspective. But having put that in the rearview mirror, we’re now beginning the enrollment process and are encouraged that we’ll see more and more enrollments with the CGuard. So we’re looking forward to an accelerated process there with CREST-2 as well.

Operator: Thank you. As there are no further questions at this time, I would like to turn the floor back over to Marvin Slosman for closing comments.

Marvin Slosman : Thank you. Again, we appreciate everybody attending the call, and we look forward to the balance of 2023 and a great reporting and continuing to progress in our advancement of CGuard stent system. Thank you for the call today.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.