Sunshine Heart Announces Fourth Quarter and Full-Year 2013 Financial Results and Corporate Update

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| Source: Sunshine Heart, Inc.

EDEN PRAIRIE, Minn., March 11, 2014 (GLOBE NEWSWIRE) -- Sunshine Heart, Inc. (Nasdaq:SSH) today announced its financial results and provided a corporate update for the fourth quarter and full-year ended December 31, 2013.

Fourth Quarter Corporate Highlights:

  • Eight sites in total activated in the C-Pulse® COUNTER HFU.S. investigational pivotal study with a total of 24 additional sites committed to participate, raising the total number to 32. This is an increase of six additional centers committed sequentially in the fourth quarter. As reported in January 2014, one additional patient was enrolled for a total of three patients through year-end.
  • Eight sites in total activated in the C-Pulse OPTIONS HF EU post-market study. One additional implant was completed in the fourth quarter, raising the total number to eight patients through year-end as reported in January 2014.
  • Eight implants completed in OPTIONS HF EU post market study with zero re-hospitalizations due to worsening heart failure (also U.S. COUNTER HF study primary endpoint), zero neurologic events, zero bleeding events, zero clotting events, and zero deaths. Early data has demonstrated meaningful improvement in both six-minute hall walks and ejection fraction scores. Compliance rates are currently at 99%, higher than those seen in the previous U.S. feasibility study.
  • Acute and 21-day pump chronic animal studies successfully completed with fully-implantable C-Pulse device.
  • Approvals received from U.S. and Canadian regulatory authorities for our extended percutaneous interface lead designed to address exit site infection issues. EU regulatory review is complete and we are waiting for the certificate.
  • 65 patents issued with 27 additional patents pending (seven in the U.S.). Two new U.S. patents were issued in the fourth quarter.
  • Patient and physician awareness pilot campaigns developed and set to launch the first quarter of 2014.
  • Numerous clinical papers submitted for trade show presentation and/or publication in 2014.

Fourth Quarter and Full Year Financial Highlights:

  • SG&A expense totaled $2.8 million in the fourth quarter and $9.4 million for the full year period vs. $1.9 million and $6.9 million, respectively, in comparable periods of 2012.
  • R&D expense totaled $4.2 million in the fourth quarter and $13.5 million for the full year period vs. $2.2 million and $8.0 million, respectively, in comparable periods of 2012.
  • R&D tax credit refund of $1.2 million for the full year 2013 vs. refunds of $0.8 million for the full year 2012.
  • Loss per share of $(0.42) and $(1.71) in the fourth quarter and full year period 2013, respectively, vs. loss per share of $(0.44) and $(1.98) in comparable periods of 2012.
  • Cash used in operations was $17.4 million for the full year 2013 vs. $13.1 million for the full year 2012.
  • Cash and cash equivalents on hand at December 31, 2013 was $54.1 million vs. $14.2 million at year-end 2012.

FINANCIALS

Our year-end 2013 results include reimbursement revenue of $59,000 for the first implant of our C-Pulse System under our U.S. COUNTER HF study. Although our C-Pulse System is not approved for commercial sale in the U.S., the FDA has assigned the C-Pulse System to a Category B designation, making it eligible for reimbursement at certain U.S. sites during our clinical studies. As such, we are able to invoice hospitals and clinics that are eligible for reimbursement by Medicare, Medicaid or private insurance companies. Product costs incurred for our clinical studies are deemed to be development costs and, accordingly, are expensed to research and development as incurred. Upon commercialization, product costs will be capitalized in inventory and recorded to cost of sales as the inventory is sold.

Operating expenses in the fourth quarter of 2013 totaled $7.0 million, compared to $4.1 million in the fourth quarter of 2012. Operating expenses for the full year 2013 totaled $22.9 million, compared to $14.9 million in 2012. Equity compensation expense totaled $1.7 million and $3.8 million for the three months and year ended December 31, 2013, respectively, as compared to $0.5 million and $1.5 million, respectively, for the comparable periods of 2012.

Excluding equity compensation expense, non-GAAP operating expenses totaled $5.3 million and $19.1 million for the fourth quarter and year ended December 31, 2013, respectively, as compared to $3.6 million and $13.3 million for the comparable periods of 2012. The increase over the prior year periods was primarily attributable to increased clinical research and infrastructure expenses related to the U.S. pivotal and EU post-market studies and increased development expense associated with our fully-implantable device.

Included in the full year results are income tax benefits from the receipt of R&D tax credit refunds in Australia and Minnesota totaling $1.2 million in 2013 and $0.8 million in the comparable period of 2012.

Net loss in the fourth quarter and year ended December 31, 2013 was $7.1 million, or $0.42 per share; and $21.8 million, or $1.71 per share, respectively. This compares to losses of $4.1 million, or $0.44 per share; and $14.1 million, or $1.98 per share in the comparable periods in 2012. Excluding equity compensation expense, fourth quarter and full year net non-GAAP losses totaled $5.4 million, or $0.32 per share; and $17.9 million, or $1.41 per share, respectively. This compares to $3.6 million, or $0.39 per share; and $12.5 million, or $1.77 per share, in the comparable periods of 2012.

Cash used in operating activities totaled $17.4 million for the full year 2013 compared to $13.1 million for 2012, with the increase driven primarily by higher clinical and research expenses. We have received net proceeds of $57.6 million through the sale of common shares in 2013 and $20.8 million in the previous year. The Company ended 2013 with $54.1 million in cash and cash equivalents, compared to $14.2 million at December 31, 2012.

In addition to financial results for the fourth quarter and year ended December 31, 2013, Sunshine Heart also announced several corporate updates with regard to the ongoing clinical studies for C-Pulse and progress of internal product development.

CORPORATE UPDATE

As previously reported in January 2014, Sunshine Heart made significant site progress within its C-Pulse COUNTER HF U.S. pivotal study in 2013, finishing the year with three enrollments, eight activated centers, and 24 additional centers committed to participate. The Company is on track to reach its goal of 35 committed sites by the end of the first quarter 2014, with 32 committed as of March 11, 2014. At the end of 2013, the Company initiated the following changes designed to increase study awareness and enrollment:

-- Three therapy development specialists with clinical and sales customer relationship experience were hired to provide direct support to our U.S. centers;

-- Two additional representatives were hired in Germany to provide additional site support as well as develop new centers for the OPTIONS HF study;

-- A patient and physician pilot awareness campaign was developed and set to launch after site IRB approval at 6 U.S. centers. This will include the use of innovative web tools, TV, radio, newspaper media, social media, etc.;

-- A U.S. COUNTER HF national investigator meeting occurred in February 2014; and

-- A number of papers and presentations were submitted to various societies and journals that cover the following topics:

  • C-Pulse impact to the aorta
  • European up-to-date results for the OPTIONS HF study
  • C-Pulse mechanism of action
  • C-Pulse impact on coronary artery blood flow
  • largest single center experience with weaning of patients, and
  • resubmission of the pilot study manuscript (the Company expects publication in a major cardiovascular journal in second quarter of 2014)

We expect all of these topics to be either presented or published this year with many in the first half of 2014. As announced in January 2014, further enrollment guidance will be provided once a sufficient number of centers in the U.S. demonstrate a steady rate of enrollment. Other studies in process from LVAD companies have indicated longer than expected times to gain IRB approval, which is similar to our experience. The Company now estimates that the COUNTER HF study will conclude in the first half of 2016, which is approximately when we now expect our current capital to be exhausted. As this is an events-based designed study, any increase in the number of expected events could potentially reduce the number of patients needed.

Regarding the OPTIONS HF study, there will be a physician presentation at the upcoming ISHLT meeting in San Diego, taking place April 10 through 13, which will feature updated results from this study. The Company continues to focus on the markets in Germany, Italy and the U.K., with future expansion into Austria and Switzerland once the centers have approval to move forward in 2014. We expect Austria and Switzerland to be ready by the end of the second quarter. Results of the OPTIONS HF study are expected by the end of the second quarter of 2015.

With regard to reimbursement for the C-Pulse System, the Company continues to receive feedback from sites with qualifying LVAD programs that they have received regional CMS reimbursement approval for the C-Pulse System under established LVAD codes. Currently there are eight centers that have received regional CMS confirmation. To date, we are not aware of any centers that have been denied. In addition, the Agency for Healthcare Research and Quality, which spotlights emerging technologies in healthcare, included Sunshine Heart's C-Pulse System in the January 2014 Horizon Scan.

In the EU, the Company was notified that it had received a Status 4, which allows the Company to negotiate directly with insurance companies for reimbursement. We remain intent on securing a Status 1 rating. After additional review from reimbursement consultants in Germany, the best course of action remains in applying for an NUB again in 2015. Given that the Company's 2014 guidance did not include revenue from EU reimbursement, the recent decision will have no bearing on the Company's 2014 operating plan. We plan to apply again in October of this year with the goal of receiving an NUB in February of 2015. Similar to the U.S., steps have also been taken to have direct representation in Europe to provide clinical support for the OPTIONS HF study and any support for commercial purposes. In December, the Company filled a business development position to help further develop sites in Germany and added an additional field clinical support person. We plan to hire additional personnel in the first quarter of 2014 to address Italy and the U.K.

Sunshine Heart continues to expect current cash to fund the enrollment of both the OPTIONS HF and COUNTER HF studies, given the higher level of funds raised than initially targeted in the last U.S. public financing.

We reported last quarter that five of the initial 20 patients in our U.S. feasibility study have been weaned by participating physicians in the study. We are pleased to note again, that none of the patients weaned thus far have been reconnected due to worsening heart failure and have remained off certain pre-operative drugs that were previously needed for their heart failure condition. Sunshine Heart continues to instruct centers that it does not plan to allow patients to be weaned in its ongoing studies as doing so could impact the primary endpoint of the respective studies.

In conjunction with its ongoing clinical studies, Sunshine Heart continues to make steady progress within its internal R&D. Following the approval of an enhanced driver and longer percutaneous drive line in the U.S., all future patients will be implanted with these new technologies. As expected, the Company also received approval for the new driver in the EU in the fourth quarter of 2013. The updated driver is intended to improve physician ease of use, reduce nuisance alarms, and improve signal clarity, ultimately enhancing overall device reliability. With regard to the fully-implantable C-Pulse system, both acute and chronic animal studies have been successfully completed as of year-end 2013 with a second chronic animal initiated in the first quarter of 2014.

QUARTERLY CONFERENCE CALL

The Company will host a conference call and webcast at 9:00 a.m. Eastern time today to discuss its financial results and provide an update on its ongoing clinical studies.

To access the live webcast, please visit the Investors page of the Sunshine Heart website at http://ir.sunshineheart.com. Alternatively, you may access the live conference call by dialing (877) 303-9826 (U.S.) or (224) 357-2194 (international) and using conference ID 3021959. An audio archive of the webcast will be available following the call at http://ir.sunshineheart.com.

SUNSHINE HEART, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
 
  Three months ended Year ended
  December 31, December 31,
  2013 2012 2013 2012
Net sales $ -- $ -- $ 59 $ --
         
Operating expenses:        
Selling, general and administrative 2,814 1,862 9,426 6,866
Research and development 4,181 2,248 13,504 8,003
Total operating expenses 6,995 4,110 22,930 14,869
Loss from operations (6,995) (4,110) (22,871) (14,869)
Other income (expense), net (109) 3 (100) 33
Loss before income taxes (7,104) (4,107) (22,971) (14,836)
Income tax benefit -- 41 1,213 771
Net loss $ (7,104) $ (4,066) $ (21,758) $ (14,065)
         
Basic and diluted loss per share $ (0.42) $ (0.44) $ (1.71) $ (1.98)
         
Weighted average shares outstanding – basic and diluted 16,831 9,275 12,723 7,099
         
Total Comprehensive loss $ (6,992) $ (4,067) $ (21,736) $ (14,012)
 
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
     
  December 31,
2013
December 31,
2012
     
Current assets    
Cash and cash equivalents $ 54,136 $ 14,224
Accounts receivable 59 --
Other current assets 448 333
Total current assets 54,643 14,557
Property, plant and equipment, net 587 479
TOTAL ASSETS $ 55,230 $ 15,036
     
Current liabilities    
Accounts payable $ 2,188 $ 1,156
Accrued salaries, wages, and other compensation 1,315 931
Total current liabilities 3,503 2,087
Total liabilities 3,503 2,087
     
Commitments and contingencies -- --
     
Stockholders' equity    
Series A junior participating preferred stock as of December 31, 2013 and December 31, 2012, par value $0.0001 per share; authorized 30,000 shares -- --
Preferred stock as of December 31, 2013 and December 31, 2012, par value $0.0001 per share; authorized 39,970,000 shares -- --
Common stock as of December 31, 2013 and December 31, 2012, par value
 $0.0001 per share; authorized 100,000,000 shares: issued and outstanding 16,825,284 and 9,282,724 shares, respectively
2 1
Additional paid‑in capital 151,530 91,017
Accumulated other comprehensive income:    
Foreign currency translation adjustment 1,207 1,185
Accumulated deficit (101,012)  (79,254)
Total stockholders' equity 51,727 12,949
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,230 $ 15,036
 
Condensed Consolidated Statements of Cash Flows
(In thousands) 
 
  Year ended
December 31,
  2013 2012
Net loss $ (21,758) $ (14,065)
Adjustments to reconcile net loss to cash flows used in operating activities:    
Depreciation 185 138
Abandonment of fixed assets -- 63
Stock based compensation expense, net 2,953 1,248
Amortization of warrants for service agreements 239 280
Changes in assets and liabilities    
Accounts receivable (59) --
Other current assets (22) 13
Accounts payable and accrued expenses 1,100 (760)
Net cash used in operations (17,362) (13,083)
Cash flows used in investing activities:    
Purchases of property and equipment (293) (158)
Net cash used in investing activities (293) (158)
Cash flows provided by financing activities:    
Net proceeds from the sale of common stock 57,566 20,837
Net cash provided by financing activities 57,566 20,837
Effect of exchange rate changes on cash 1 65
Net increase in cash and cash equivalents 39,912 7,661
Cash and cash equivalents - beginning of period 14,224 6,563
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 54,136 $ 14,224

USE OF NON-GAAP MEASURES

Management uses non-GAAP measures to establish operational goals and cash flows, and believes that non-GAAP measures may assist investors in analyzing the underlying trends in the Company's business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for or as superior to, financial reporting measures prepared in accordance with GAAP. In this press release, the Company has reported non-GAAP measures of operating expenses, net loss and loss per share excluding equity compensation expense, which exclude equity expenses related to stock options, service warrants, restricted stock units and common stock awards, and reconcile to GAAP operating expense, GAAP net loss and GAAP loss per share as follows:

SUNSHINE HEART, INC.
Reconciliation of non-GAAP amounts to GAAP
(Unaudited)
(In thousands, except per share amounts)
 
  Three months ended
December 31,
Year ended
December 31,
  2013 2012 2013 2012
GAAP operating expenses $ 6,995 $ 4,110 $ 22,930 $ 14,869
Equity compensation costs (1,706) (461) (3,843) (1,528)
Non-GAAP operating expenses $ 5,289 $ 3,649 $ 19,087 $ 13,341
         
GAAP net loss $ (7,104) $ (4,066) $ (21,758) $ (14,065)
Equity compensation costs 1,706 461 3,843 1,528
Non-GAAP net loss $ (5,398) $ (3,605) $ (17,915) $ (12,537)
         
GAAP Basic and diluted loss per share $ (0.42) $ (0.44) $ (1.71) $ (1.98)
Non-GAAP Basic and diluted loss per share $ (0.32) $ (0.39) $ (1.41) $ (1.77)
         
Weighted average shares outstanding – basic and diluted 16,831 9,275 12,723 7,099

About the C-Pulse® Heart Assist System

The C-Pulse Heart Assist System, or C-Pulse System, an investigational device in the United States, Canada and countries that do not recognize the CE mark approval, utilizes the scientific principles of intra-aortic balloon counterpulsation applied in an extra-aortic approach to assist the left ventricle by reducing the workload required to pump blood throughout the body, while increasing blood flow to the coronary arteries. Combined, these potential benefits may help sustain the patient's current condition or, in some cases, reverse the heart failure process, thereby potentially preventing the need for later-stage heart failure devices, such as left ventricular assist devices (LVADs), artificial hearts or transplants. It may also provide relief from the symptoms of Class III and ambulatory Class IV heart failure and improve quality of life and cardiac function. Based on the results from our feasibility study, we also believe that some patients treated with our C-Pulse System will be able to stop using the device due to sustained improvement in their condition as a result of the therapy.

Caution: Investigational device, limited by Federal (or United States) Law to Investigational use.

About Sunshine® Heart

Sunshine Heart, Inc. (Nasdaq:SSH) is an early-stage medical device company focused on developing, manufacturing and commercializing the C-Pulse System for treatment of Class III and ambulatory Class IV heart failure. Sunshine Heart has completed an approved U.S. Food and Drug Administration (FDA) feasibility clinical study of the C-Pulse System and presented the results in November 2011. In March 2012, the FDA notified the Company that it could move forward with an investigational device exemption (IDE) application. Sunshine Heart received unconditional approval from the FDA in November 2012 to initiate its pivotal study. In July 2012, Sunshine Heart received CE Mark approval for its C-Pulse System in Europe. Sunshine Heart is a Delaware corporation headquartered in Minneapolis with wholly owned subsidiaries in Australia and Ireland. The Company has been listed on the NASDAQ Capital Market since February 2012.

Forward-Looking Statements

Certain statements in this release are forward-looking statements that are based on management's beliefs, assumptions, expectations, and information currently available to management. All statements that address future operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements, including, without limitation, our expectations with respect to future clinical study activities and results including patient enrollment in studies. These forward-looking statements are subject to numerous risks and uncertainties, including, without limitation, the possibility that our clinical studies do not meet their enrollment goals, meet their endpoints or otherwise fail, that regulatory authorities do not accept our application or approve the marketing of the C-Pulse System, the possibility that we may be unable to raise the funds necessary for the development and commercialization of our products, that we may not be able to commercialize our products successfully in the EU and the other risk factors described under the caption "Risk Factors" and elsewhere in our filings with the SEC. You should not place undue reliance on forward-looking statements because they speak only as of the date when made and may turn out to be inaccurate. We do not assume any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events could differ materially from those disclosed in the forward-looking statements.

For further information, please contact:

Investor:
Laura Forman
Blueprint Life Science Group
T: +1-415-375-3340

Jeff Mathiesen
Chief Financial Officer
Sunshine Heart, Inc.
T: +1-952-345-4200

Media:
David Schull
Russo Partners
T: +1-212-845-4271

Andreas Marathis
Russo Partners
T: +1-212-845-4235