InspireMD: A Cure For The Broken Biotech Heart

Oct.16.13 | About: InspireMD, Inc. (NSPR)

Be still, sad heart! And cease repining;
Behind the clouds is the sun still shining;
Thy fate is the common fate of all,
Into each life some rain must fall

- Henry Wadsworth Longfellow

The heart is one of the most complicated organs of the human body and by far one of the most useful. Without the heart, no other organ in our body would function. The heart is solely responsible for pumping oxygenated blood to every single organ, tissue and cell in your body. We now live in an age where we are no longer concerned with starvation but instead morbid obesity (at least in the US). In the past, humans were hunters and gatherers. We were constantly on the move for our next meal and had to stay alert for predators. In this day and age we rarely ever have to drive more than 5-10 minutes to get to our closest fast food restaurant.

The obesity epidemic is continuing to grow in the United States at an alarming rate. As the obesity crisis continues to grow, so will the prevalence of cardiac disease.

If current trends in the growth of obesity continue, total healthcare costs attributed to obesity could reach $861 to $957 billion by 2030, which would account for 16% to 18% of US health expenditures.

InspireMD (NSPR) is an innovative medical device company focusing on the development and commercialization of its proprietary stent system technology, MGuard. The company intends to make its products the industry standard for stents and they, in my opinion, will become the standard of care for current stenting. InspireMD is pursuing applications of its stents in coronary, carotid and peripheral artery procedures.

MGuard provides embolic protection in stenting procedures by placing a micron mesh sleeve over a stent. NSPR currently is marketing their stent for use mainly in patients with acute coronary syndromes, notably acute myocardial infarction (heart attack and saphenous vein graft coronary interventions).

The human heart and the blood vessels involved:

According to the CDC:

  • Approximately 600,000 patients die of heart disease in the United States every year- this is 1 in every 4 deaths. Heart disease is the leading cause of death for both men and women.
  • Every year about 715,000 Americans have a heart attack. Of these, 525,000 are a first heart attack and 190,000 happen in patients who already had prior heart attack.
  • Coronary heart disease alone costs the United States $108.9 billion each year.

The human heart weighs less than 1 pound (2.2 kg) and is about the size of a closed fist. The heart and the cardiovascular system are responsible for circulating blood throughout the body.

The Coronary Vessels

The blood within the heart does not supply oxygen and other nutrients to the cells of the heart. The branch of the systemic circulation that supplies the heart is called the coronary circulation. The coronary circulation consists of:

  • Coronary arteries
  • Cardiac veins

Pathophysiology of Atherosclerosis

Atherosclerosis is a disease process characterized by progressive narrowing of the lumen (inside space of a tubular structure) of medium and large arteries (e.g. coronary arteries). The process results in the development of thick, hard atherosclerotic plaque. Atherosclerosis occurs to some extent in all middle-aged and older patients. Associated risk factors include age, family history of heart disease, cigarette smoking, obesity, hypertension, and diabetes.

Atherosclerosis has two major effects on blood vessels.

  • The disease disrupts the innermost lining of the blood vessels. This causes a loss of elasticity in the vessels and increases the formation of clots.
  • The plaque reduces the diameter of the vessel lumen. This decreases the blood flow to the tissues and cells.

Both of these effects result in an insufficient supply of nutrients and oxygen to the tissues. The severity of this insufficiency is related to the extent of narrowing (stenosis) of the blocked artery. Severity also depends on how long it took to develop. If the development happened over a long period of time, patient may have developed collateral circulation to compensate for the occlusion. In contrast, a sudden onset of occlusion in a coronary artery (following an acute thrombus) almost always results in ischemia (decreased oxygen supply), injury (tissue damage), and necrosis (complete and irreversible tissue death) to the area of the myocardium supplied by the affected artery.

Atherosclerosis

Myocardial Infarction

Acute myocardial infarction occurs with a sudden and total blockage or near blockage of blood flowing through an affected coronary artery to an area of heart muscle. This blockage results in ischemia, injury, and necrosis to the area of the myocardium distal to the occlusion. AMI is most often associated with atherosclerotic heart disease.

AMI typically begins with the formulation of an atherosclerotic plaque involving the intimal (innermost) layer of the coronary artery. The plaque disrupts the smooth arterial lining and results in an uneven surface. This creates turbulent blood flow through the coronary artery/arteries. The plaque may rupture. If the rupture does occur, the injured tissue is then exposed to circulating platelets. This results in the formation of a thrombus that occludes the artery. As the thrombus becomes bigger, it further reduces the blood flow to the coronary vessel.

MGuard provides embolic protection in stenting procedures by placing a micron mesh sleeve over a stent. NSPR currently is marketing their stent for use mainly in patients with acute coronary syndromes, notably acute myocardial infarction and saphenous vein graft coronary interventions (bypass surgery).

Current stent technology targets the stable angina patient. Stable angina is classified as chest pain from poor blood flow through the coronary blood vessels.

Unstable angina patients (patients suffering from an acute myocardial infarction) represent a complex clinical problem not addressed by current stent technology.

InspireMD's MGuard reduces mortality rate (measure of the frequency of death), reduces myocardial damage associated with AMI.

Current standard of care:

Minor heart attack treated with a Bare Metal Stent (NYSE:BMS) or Drug Eluting Stent (NYSEARCA:DES)

Causes:

Potential for debris (plague) to flow downstream, occluding small arteries "distal embolization"

Leading to:

Cardiac mortality and morbidity

InspireMD MGuard stent

The true genius of the MGuard device is that it combines the stent and embolic protection in a single device. Due to this unique approach, MGuard:

  • Reduces risk for embolization by capturing potentially harmful debris, such as plaque, against the artery wall.
  • These micro-particles then slowly re-enter the artery in a non-harmful way over approximately 30 days.
  • The MicroNet on the stent acts as a safety net by providing greater surface area coverage to prevent large debris flow in smaller arteries.
  • The proprietary circular knitted mesh wraps around the stent to protect the patient from debris flowing downstream.
  • MicroNet is made of a single fiber from a biocompatible polymer, which is widely used in medical implantation's today. This material is also very flexible and it does not promote thrombosis (local coagulation or clotting of the blood in a part of the circulatory system)

As you can clearly see from the figures above, that a potential standard of care treatment in the coronary (STEMI/AMI) market is going to be highly profitable.

When a patient suffers from occlusion of the coronary artery, there are two main choices. Either place a stent or bypass surgery. Stent placement is by far the safest choice. However, when placing stents, cardiologist risk dislodging plaque, which could cause thrombus formation or can travel down further and occlude the smaller coronary arteries causing tissue death. The two main types of stents used in the United States, the bare metal and the drug eluting stent do not prevent the unstable plaque from heading downstream and causing blockage and tissue death. InspireMD has the solution to this problem and that is why I believe it is set to become the standard of care in this patient population.

MASTER Trial Highlights

MGuard achieved primary end point

  • Superiority in (NYSE:ST) resolution- 57.8% vs 44.7%

Reduction in mortality (death) rate at 6-months:

  • Occurred in 1/217 (0.5%) patients with MGuard
  • Occurred in 6/216 (2.8%) patients with (BMS) or (DES) type stents

Reduced Infarct size

  • 17.1gm (MGuard) vs 22.3gm ((BMS/DES))

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Publications

InspireMD stent technology has been peer reviewed and published in multiple cardiology journals.

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InspireMD - Some facts to keep in mind

  • The company was founded on February 29, 2008 and is headquartered in Tel Aviv, Israel.
  • Market cap of $98.36 million (as of 10/05/13), 2.85/share.
  • 34.3 million shares outstanding
  • NSPR has a 52-week high of 10.16 and a 52-week low of 1.80.
  • As of 09/13/2013 has a 0.22% short interest (57,567)
  • As of 06/30/2013, the company has 18.27% institutional stock ownership. Orbimed advisors reported 3,395,000 shares.
  • In the last 12 months, there has been 17 open market buys by insiders. Insider ownership is 10% as reported on 06/30/2013.
  • On April 16, 2013, the company diluted shares in a classic biotech fashion to raise funds. NSPR sold 12.5 million shares of its common stock at $2.00 per share. The company received $22.6 million, after deducting underwriting discounts and commissions and other offering-related costs. Following the offering the company does not have any indebtedness for borrowed money outstanding.
  • InspireMD currently sells its proprietary stent system technology, MGuard, in 30 countries worldwide.
  • InspireMD has 37 patents - 6 granted (1 USA), 31 pending.
  • The intellectual property protects key attributes of micronet technology which include anchoring, drug delivery, macro structure and fiber width.
  • Pivotal 12-month clinical data to be released Oct 30th, 2013 for the MASTER trial. NSPR achieved primary endpoint with sustained mortality benefit at 30 days and 6 months
  • 12 month MASTER data will provide clinical platform to accelerate sales activities in key international markets.
  • Multiple clinical trials including the ((MAGICAL)) and ((iMOS)) studies. Multiple published clinical trials showing the efficacy of MGuard in reducing major adverse cardiac events.
  • Alan Milinazzo is President and CEO. Mr. Milinazzo has worked for Orhtofix (NASDAQ:OFIX), Medtronic (NYSE:MDT), and Boston Scientific (NYSE:BSX).
  • Mr. Michael Berman is also part of the team and serving in the capacity of Director. Mr. Berman has an impressive track record. Mr. Berman was the president of the cardiology business of BSX and currently serves on a total of the board of 9 total companies.
  • James Barry who was VP, corporate research and advanced technology development at BSX is also a member of the Board.
  • This list of other amazing leaders the company has brought on board includes Sol Barer, Campbell Rodgers, Craig Shore, Eli Bar and Chaim Lotan.

Financials

· Revenue for the twelve months ended June 30, 2013, is approximately $4.9 million, a decrease of 0.5 million (8.9%) from the same period in 2012.

· According to the company, the $0.5 million decrease in sales volume was largely due to the fact that the company is in the process of replacing certain third party distributors with direct sales channels. The company believes that this transition to direct selling will ultimately lead to greater sales.

· Gross profit increased 3.6%, approximately $0.1 million, to approximately $2.6 million from $2.5 million during the same period in 2012.

· Gross margin increased from 46.7% in the 12 month ended June 30, 2012 to 53.2% in the twelve months ended June 30, 2012.

· Research and development expenses increased 4.2% or approximately $0.2 million, to approximately $4.2 million, from approximately $4.0 million during the same period in 2012.

· Selling and marketing expenses increased 66.3% or approximately $1.4 million, to approximately $3.6 million, from approximately $2.2 million during the same period in 2012.

· The company believes, with the recent dilution, they have sufficient cash to continue operations into 2015 but may "raise additional funds in 2015 to continue financing" their operations.

· As of June 30, 2103, NSPR had cash and cash equivalents of approximately $14.8 million.

· As of June 30, 2013, NSPR's assets exceeded their liabilities by a multiple of 4.68.

· NSPR repaid $8,787,234 in cash.

Risks

InspireMD is a micro cap biotechnology company and comes with risks associated with that status. The company has chosen to personally market and sell its product in several key markets worldwide. This will cost more in initial overhead to hire sales, marketing and distribution employees. Also, the company may need to raise additional capital to continue funding its clinical trials. The company has $14.8 million worth of cash on hand and if sales do not pick up drastically, the company will be forced dilute within the next year. As you can see above in the section marked financials, the company has had a marked increase in R&D and sales/marketing costs. Please invest cautiously and according to your risk appetite.

Conclusion

I believe that InspireMD is a company with huge potential. At the current share price of $2.95 per share, it is highly undervalued in my opinion. InspireMD will be presenting 12 month data from their (MASTER) trial on October 30, 2013. MGuard achieved primary endpoint with sustained mortality benefit at 30 days and 6 months. This is a significant catalyst for the company and it will validate the superiority of MGuard in yet another clinical trial. Please do your own due diligence, this article is only intended to bring light to an undervalued and unknown company. In the most likely scenario that I left something out, please don't hesitate to comment and ask. Thank you.

Disclosure: I am long NSPR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I do not intend to sell my position within the next 72 hours.