Market Overview

Second Sight Reports Second Quarter 2018 Financial Results

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-- Achieves program milestones as Orion clinical and R&D activities
advance --

-- Received FDA approval to enroll 6th
patient at Baylor --

Second Sight Medical Products, Inc. (NASDAQ:EYES) ("Second Sight" or
"the Company"), a developer, manufacturer and marketer of implantable
visual prosthetics that are intended to create an artificial form of
useful vision to blind patients, today reported financial results for
the three and six months ended June 30, 2018.

Recent Corporate Highlights:

  • Implanted 17 Argus® II Retinal Prosthesis Systems (Argus
    II) worldwide in Q2 2018;
  • Reported net sales of $1.9 million in the second quarter of 2018;
  • Completed enrollment of first five subjects, ahead of schedule, with
    the Orion™ Cortical Visual Prosthesis System (Orion) at the Ronald
    Reagan UCLA Medical Center (UCLA) and the Baylor College of Medicine
    in Houston (Baylor) as part of Second Sight's early feasibility
    clinical study;
  • All five subjects have had their Orion systems activated, all subjects
    report seeing light from virtually all electrodes and stimulation
    parameters are within expected ranges;
  • Received U.S. Food and Drug Administration (FDA) approvals to enroll a
    6th feasibility subject at Baylor and to implement upgrades of the
    Orion software for feasibility subjects;
  • Completed R&D activities for Argus® 2s (Argus 2s), the
    Company's next-generation externals, and expect to begin clinical
    evaluation work during the 3rd quarter; and,
  • Received 2019 preliminary Medicare average outpatient payment rate of
    approximately $137,500 for Argus II and the associated surgical
    procedure proposed by CMS on July 25.

"I am pleased with the progress made during the past quarter with our
Orion clinical and R&D programs. The technology is performing as
expected and is generating spots of light via cortical stimulation with
all subjects. Moreover, the stimulation parameters are within our
expectations and we are now progressing with more complex testing
involving real-time video input. One subject is close to being cleared
for home use and we will start the critical artificial vision
rehabilitation process shortly thereafter. The focus in coming months
will be the collection of important clinical and performance data to
support the safety and efficacy of this breakthrough device," stated
Will McGuire, President and CEO of Second Sight.

"Our confidence in Orion and its market potential continues to grow, as
does our commitment to advance this revolutionary technology. As a
result, the Orion clinical and R&D programs will be our top priority.
With respect to our ongoing Argus commercial and clinical efforts, we
will prioritize activities that maximize our return on investment or
have strategic value. Finally, we are excited to start sharing details
of research we are conducting in areas such as eye-tracking and object
recognition that can be integrated with artificial vision to provide a
more interesting and useful experience for our users," concluded McGuire.

Second Quarter 2018 Financial Results

Net sales on a GAAP basis were $1.9 million for the second quarter of
2018 compared to $2.2 million in the second quarter of 2017. Revenue was
recognized for 17 units in the second quarter of 2018 as compared to 20
units in the prior year quarter. On a GAAP basis, revenue recognized per
implant was approximately $112,000 in both the second quarter of 2018
and 2017. We expect our average revenue recognized per implant unit for
the remainder of 2018 to be in a range of $100,000 to $120,000,
depending on the geographic mix of implants.

Gross profit was $1.1 million for both the second quarter of 2018 and
2017. The Company's overhead absorption rate for its unit costs are
subject to a high degree of variability based on its production volumes.

Research and development expenses, net of funding received from grants,
increased to $2.4 million during the second quarter of 2018 compared to
$1.9 million in the second quarter of 2017. The increase of $0.5 million
was primarily due to increased headcount, outside services, and costs
for internally produced prototypes for next generation products.

Clinical and regulatory expenses were $1.1 million during the second
quarter of 2018 compared to $0.7 million in the second quarter of 2017.
The increase of $0.4 million primarily related to costs associated with
the Orion feasibility study.

Selling and marketing expenses were $2.9 million during the second
quarter of 2018 compared to $2.4 million in the second quarter of 2017.
The increase of $0.5 million is attributable to increased market
development activities, including compensation expenses.

General and administrative expenses were $2.6 million in second quarter
of 2018 compared to $2.9 million in the second quarter of 2017. The
decrease of $0.3 million is primarily due to lower stock-based
compensation charges due to executive transitions.

Net loss for the second quarter of 2018 was $8.0 million, or a loss of
$0.12 per share, compared to a net loss of $6.8 million, or a net loss
of $0.12 per share, in the second quarter of 2017.

The non-GAAP net loss for the second quarter of 2018, excluding certain
non-cash items, was $7.1 million, or $0.11 per share, compared to a
non-GAAP net loss of $6.6 million, or $0.12 per share in the second
quarter of 2017.

As of June 30, 2018, Second Sight had $7.5 million in cash and cash
equivalents.

For a full reconciliation of non-GAAP financial measures to the most
comparable GAAP financial measures, please refer to the tables included
with this press release.

Updated 2018 Key Objectives

  • Complete Orion feasibility trial enrollment and prepare for the
    initiation of the next phases of clinical testing;
  • Gain additional visibility to Orion's commercialization path,
    including pivotal trial and post-market requirements via the FDA's
    Breakthrough Device program;
  • Submit regulatory filings for Argus 2s next-generation externals and
    execute a commercial launch before year-end; and,
  • Prioritize Argus activities that maximize our return on investment or
    have strategic value.

Conference Call

As previously announced, Second Sight management will host its second
quarter 2018 conference call as follows:

   
Date Tuesday, August 7, 2018
 
Time 4:30 PM EDT
 
Telephone  

U.S.:

(800) 701-9749
 
International: (303) 223-4393
 
Webcast (live and archive)

www.secondsight.com
under the 'Investor Relations' section.

 

A replay of the conference call will be available for two weeks after
the call's completion by dialing (800) 633-8284 (U.S.) or (402) 977-9140
(International). The conference ID for the replay is 21893222. The
archived webcast will be available for 30 days via the aforementioned
URL.

About Second Sight

Second Sight Medical Products, Inc. develops, manufactures and markets
implantable visual prosthetics that are intended to deliver useful
artificial vision to blind individuals. Second Sight has developed, and
now manufactures and markets, the Argus® II Retinal
Prosthesis System. Development of new hardware and software intended to
improve the quality of the vision produced by the Argus system is
ongoing. Second Sight is also developing the Orion™ Visual Cortical
Prosthesis to potentially restore some vision to individuals who are
blind due to many causes other than preventable or treatable conditions.
Second Sight's U.S. headquarters are in Los Angeles, California, and
European headquarters are in Lausanne, Switzerland. For more
information, please visit www.secondsight.com.

About the Argus II Retinal Prosthesis System

Second Sight's Argus II System provides electrical stimulation that
bypasses defunct retinal cells and stimulates remaining viable cells
inducing visual perception in individuals with severe to profound
retinitis pigmentosa (RP). The Argus II works by converting images
captured by a miniature video camera mounted on the patient's glasses
into a series of small electrical pulses, which are transmitted
wirelessly to an array of electrodes implanted on the surface of the
retina. These pulses stimulate the retina's remaining cells, intending
to result in the perception of patterns of light in the brain. The
patient must learn to interpret these visual patterns, having the
potential to regain some visual function. The Argus II was the second
artificial retina to receive widespread commercial approval, and is
offered at approved centers in Canada, France, Germany, Iran, Italy,
Russia, Saudi Arabia, Singapore, South Korea, Spain, Taiwan, Turkey, the
United Kingdom, and the United States. Further information on the
long-term benefits and risks can be found in the peer reviewed paper at: http://www.sciencedirect.com/science/article/pii/S0161642016305796

About the Orion Visual Cortical Prosthesis System

Like the Argus II, the Orion converts images captured by a miniature
video camera mounted on the patient's glasses into a series of small
electrical pulses. The Orion is designed to transmit these electrical
pulses wirelessly to an array of electrodes implanted on the surface of
the visual cortex, intended to result in the perception of patterns of
light. By bypassing the retina and optic nerve and directly stimulating
the visual cortex, a cortical prosthesis system has the potential to
restore useful vision to many more patients than the Argus II, including
patients completely blinded due to many reasons, including glaucoma,
diabetic retinopathy, or forms of cancer and trauma. The Company is
currently conducting a feasibility study in the U.S. at two centers: the
Ronald Reagan UCLA Medical Center and Baylor College of Medicine in
Houston. No clinical data is yet available for the Orion.

Safe Harbor

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange and Exchange Act of 1934, as
amended, which are intended to be covered by the "safe harbor" created
by those sections. All statements in this release that are not based on
historical fact are "forward looking statements." These statements may
be identified by words such as "estimates," "anticipates," "projects,"
"plans," "goal," or "planned," "seeks," "may," "will," "expects,"
"intends," "believes," "should," and similar expressions, or the
negative versions thereof, and which also may be identified by their
context. All statements that address operating performance or events or
developments that Second Sight expects or anticipates will occur in the
future, such as stated objectives or goals, or that are not otherwise
historical facts, are forward-looking statements. While management has
based any forward-looking statements included in this release on its
current expectations, the information on which such expectations were
based may change. Forward-looking statements involve inherent risks and
uncertainties, which could cause actual results to differ materially
from those in the forward-looking statements as a result of various
factors, including those risks and uncertainties described in the Risk
Factors and in Management's Discussion and Analysis of Financial
Condition and Results of Operations sections of our Annual Report, on
Form 10-K, filed on March 20, 2018, and our other reports filed from
time to time with the Securities and Exchange Commission. We urge you to
consider those risks and uncertainties in evaluating our forward-looking
statements. We caution readers not to place undue reliance upon any such
forward-looking statements, which speak only as of the date made. Except
as otherwise required by the federal securities laws, we disclaim any
obligation or undertaking to publicly release any updates or revisions
to any forward-looking statement contained herein (or elsewhere) to
reflect any change in our expectations with regard thereto, or any
change in events, conditions, or circumstances on which any such
statement is based.

Reconciliation to Non-GAAP Financial Measures

In addition to reporting all financial information required in
accordance with generally accepted accounting principles (GAAP), the
Company is also reporting non-GAAP net loss and non-GAAP net loss per
share which are non-GAAP financial measures. Non-GAAP net loss and
non-GAAP net loss per share are not measurements of financial
performance under GAAP and should not be used in isolation or as a
substitute or alternative to net income, operating income or any other
performance measure derived in accordance with GAAP, or as a substitute
or alternative to cash flow from operating activities, or a measure of
the Company's liquidity. In addition, the Company's definition of
non-GAAP net loss and non-GAAP net loss per share may not be comparable
to similarly titled non-GAAP financial measures reported by other
companies. Non-GAAP net loss and non-GAAP net loss per share, as defined
by the Company, represent net loss adjusted for non-cash stock-based
compensation and changes in the reserve for excess inventory. Management
believes that these non-GAAP financial measures provide useful
supplemental information regarding the performance of the Company's
business operations and facilitates comparisons to the Company's
historical operating results. For a full reconciliation of non-GAAP
financial measures to the most comparable GAAP financial measures,
please refer to the tables included with this press release.

Financial Tables Follow

 
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
           
Condensed Consolidated Balance Sheets
(in thousands)
 
 
June 30, December 31,
2018 2017
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,476 $ 7,839
Accounts receivable, net 718 1,831
Inventories, net 3,567 2,700
Prepaid expenses and other current assets 599 795
 
Total current assets 12,360 13,165
 
Property and equipment, net 1,191 1,299
Deposits and other assets 66 33
 
Total assets $ 13,617 $ 14,497
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,220 $ 752
Accrued expenses 2,071 2,425
Accrued compensation expenses 2,448 2,611
Accrued clinical trial expenses 1,074 779
Contract liablilties 260 48
 
Total current liabilities 7,073 6,615
 
Commitments and contingencies

 

 

 
Stockholders' equity 6,544 7,882
 
Total liabilities and stockholders' equity $ 13,617 $ 14,497
 
 
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
             
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
2018   2017 2018   2017
 
Net sales $ 1,907 $ 2,236 $ 2,883 $ 3,245
Cost of sales 836 1,127 1,504 2,254
Gross profit 1,071 1,109 1,379 991
 
Operating expenses:
Research and development, net of grants $ 2,422 1,949 $ 4,895 3,796
Clinical and regulatory 1,126 684 2,475 1,298
Selling and marketing 2,879 2,447 5,891 4,682
General and administrative 2,632 2,901 5,875 5,642
Total operating expenses 9,059 7,981 19,136 15,418
 
Loss from operations (7,988) (6,872) (17,757) (14,427)
 
Interest and other income, net 27 29 43 36
 
Net loss $ (7,961) $ (6,843) $(17,714) $(14,391)
 
Net loss per common share – basic and diluted $ (0.12) $ (0.12) $ (0.29) $ (0.28)
 
Weighted average shares outstanding – basic and diluted 64,418 56,513 61,750 51,380
 
 
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
               
Reconciliation of Non-GAAP Information to Most Comparable GAAP
Measures
(in thousands, except per share data)
(unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2018   2017 2018   2017
 
 
Net loss $ (7,961) $ (6,843) $ (17,714) $ (14,391)
 
Add back non-cash charges:
Stock-based compensation 671 1,000 2,021 2,046
Excess inventory reserve 170 (743) 61 (1,456)
Non GAAP net loss $ (7,120) $ (6,586) $ (15,632) $ (13,801)
 
Net loss per share $ (0.12) $ (0.12) $ (0.29) $ (0.28)
 
Add back non-cash charges:
Stock-based compensation

0.01

0.01

0.04 0.04
Excess inventory reserve 0.00 (0.01) 0.00 (0.03)
Non GAAP net loss per share $ (0.11) $ (0.12) $ (0.25) $ (0.27)
 

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