InspireMD Inc (NYSEMKT:NSPR) took a real hit early March when the company announced the pricing of a public offering that would see it raise up to $7.5 million by issuing a pretty convoluted concoction of convertible preferred stock and warrants. Having traded in and around the $2.5-$3 range for the majority of the first quarter, Inspire lost more than 60% of its market capitalization on the release, and fell below the magic $1 mark – an important level from a listing perspective and one for which the dipping below of could have serious implications for the company going forward.
These sorts of responses are part and parcel of the microcap space, and more so in this sector than any other. However, there’s often an opportunity to pick up an allocation to a company at a discount, based on an oversell response, even when factoring in the dilution.
The yard stick for us on this sort of exposure is this: is the capital going to bridge the company to an important value-adding catalyst, or is it just going to get swallowed up in operational outlay. If the former, then there’s generally opportunity to be had. If the latter, generally not.
So on to what side of the fence does this one fall?
Before we answer, let’s briefly introduce the company. It’s one we’ve highlighted a few times in the past, so readers looking for a bit of history should check out our previous coverage, here. As a quick introduction, it’s a medical device company based out of Israel (but with offices in the US and Europe) with a portfolio of products, all based on a proprietary technology called MicroNet. It’s basically an alternative construction of a traditional stent, which removes some of the blockage risk associated with the current standard of care devices in the space. There’s plenty of evidence supporting its superiority to current SOC, and the various iterations of the product (CGuard (Carotid), MGuard (Coronary), NGuard (Neurovascular) and PVGuard (Peripheral) have addressable markets that total to something like a potential $4.5 billion in annual revenues.
The CGuard device is really the focus right now, and if the capital from the issue is going to bring about value appreciation, it’s going to be from this iteration of the tech.
So let’s look at what’s happened with CGuard recently, and what the company might use the cash to do with the device. In the past month, management has put out four releases relating to the sales progress of the device in Russia, Hong Kong and Europe (note, this one isn’t approved in the US yet).
The European release detailed the transition from single to multiple distributors in the region, while the Hong Kong and Russian releases announced the first-time signing of distribution partners in the respective markets. These are decent developments, and they fall under the CE mark approval status the company picked up in Europe, so they are relatively cost effective expansion regions.
They aren’t going to change the game for InspireMD, however.
What is going to change the game is a US approval, and this is our inflection catalyst as described above as being the value driver that will negate the dilution. If the company can use this cash to get the ball rolling on a US approval, we think there’s justification for an exposure.
So, can it?
Well management just put out this presentation, and the presentation details the filing strategy for CGuard in the US. To summarize, Inspire expects to submit for investigational device exemption (IDE) during 2018. If it gets this exemption, it basically means it can start implanting the device and use the implants as clinical data to support 510 (k). With submission in 2018, Inspire isn’t realistically looking at a marketing authorization before 2019, but for us the initiation of the regulatory process is enough to start adding value. If the current cash balance, then, combined with its already approved asset income, can bride to early to mid 2018 (we’re assuming filing first or second quarter) then this latest dip might be an opportunity.
So, again, can it?
In short, probably. The company is burning around $1.5-$2 million a quarter. Cash at the end of 2016 was $7.5 million. Add to this the circa $7 million netted from the raise, and subtract the $2 million burned during the first quarter, and we’re probably looking at an on hand balance of a little over $12.5 million. At current burn, that should be enough to carry it through to mid-late 2018.
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Disclosure: We have no position in NSPR and have not been compensated for this article.