AVGR : Avinger Stock Analysis and Research Report

2017-11-10 - by Asif, Contributing Analyst

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Avinger is a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral artery disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to areas away from the heart, particularly the pelvis and legs. The company's mission is to dramatically improve the treatment of vascular disease through the introduction of products based on its Lumivascular platform, the only intravascular image-guided system available in this market. The company manufacture and sell a suite of products in the United States and select international markets. The company's current products include its Lightbox imaging console, as well as its Wildcat, Kittycat 2, and the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO, and Pantheris, its image-guided atherectomy device which is designed to allow physicians to precisely remove arterial plaque in PAD patients. The company received 510(k) clearance from the U.S. Food and Drug Administration, or FDA, for commercialization of Pantheris in October 2015, the company received an additional 510(k) clearance for an enhanced version of Pantheris in March 2016 and commenced sales of Pantheris in the U.S. and select European countries promptly thereafter.

During the first quarter of 2015, the company completed enrollment of patients in VISION, a clinical trial designed to support its August 2015 510(k) filing with the FDA for its Pantheris atherectomy device. VISION was designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging and successfully achieved all primary and secondary safety and efficacy endpoints. The company believe the data from VISION allows it to demonstrate that avoiding damage to healthy arterial structures, and in particular disruption of the external elastic lamina, which is the membrane between the outermost layers of the artery, reduces the likelihood of restenosis, or re-narrowing, of the diseased artery. Although the original VISION study protocol was not designed to follow patients beyond six months, Avinger has worked with 18 of the VISION sites to re-solicit consent from previous clinical trial patients in order for them to evaluate patient outcomes through 12 and 24 months following initial treatment. Data collection for the remaining patients from participating sites was completed in May 2017, and the company released the final 12 and 24-month results for a total of 89 patients in July 2017. The company commenced commercialization of Pantheris as part of its Lumivascular platform in the United States and in select international markets in March 2016, after obtaining the required marketing authorizations. During the third quarter of 2017, the company expect to begin enrolling patients in INSIGHT, a clinical trial designed to support a filing with the FDA to expand the indication for its Pantheris atherectomy device to include instent restenosis.

The company focus its direct sales force, marketing efforts and promotional activities on interventional cardiologists, vascular surgeons and interventional radiologists. The company also work on developing strong relationships with physicians and hospitals that Avinger has identified as key opinion leaders. Although its sales and marketing efforts are directed at these physicians because they are the primary users of its technology, the company consider the hospitals and medical centers where the procedure is performed to be its customers, as they typically are responsible for purchasing its products. Avinger is designing future products to be compatible with its Lumivascular platform, which the company expect to enhance the value proposition for hospitals to invest in its technology. The company also believe that Pantheris will qualify for existing reimbursement codes currently utilized by other atherectomy products, further facilitating adoption of its products.

Prior to the introduction of its Lumivascular platform its non-imaging catheter products were manufactured by third parties. All of its products are now manufactured in-house at its facilities in Redwood City, California using components and sub-assemblies manufactured both in-house and by outside vendors. The company assemble all of its products at its manufacturing facility, but certain critical processes such as coating and sterilization are done by outside vendors. The company expect its current manufacturing facility will be sufficient through at least 2018.

In addition to commercialization of Pantheris in the United States and select international markets in March 2016, the company began commercializing its initial non-Lumivascular platform products in 2009 and introduced its Lumivascular platform products in the United States in late 2012. The company generated revenues of $6.0 million in the six months ended June 30, 2017 and $9.2 million in the six months ended June 30, 2016. During the six months ended June 30, 2017 and 2016, its net loss was $28.1 million and $29.7 million, respectively. Avinger has not been profitable since inception, and as of June 30, 2017, its accumulated deficit was $280.7 million. Since inception, Avinger has financed its operations primarily through private placements of its preferred securities and, to a lesser extent, debt financing arrangements. In January 2015, the company completed an initial public offering, or IPO, of 5.0 million shares. As a result of its IPO, which closed in February 2015, the company received net proceeds of approximately $56.9 million, after underwriting discounts and commissions of approximately $4.5 million and other expenses associated with its IPO of approximately $3.6 million.

In September 2015, the company entered into a Term Loan Agreement, or Loan Agreement, with CRG Partners III L.P. and certain of its affiliated funds, collectively CRG, under which the company may borrow up to $50.0 million on or before March 29, 2017. The company borrowed $30.0 million on September 22, 2015 and an additional $10.0 million on June 15, 2016 under the Loan Agreement. Contingent on achievement of certain revenue milestones, among other conditions, the company would have been eligible to borrow an additional $10.0 million, on or prior to March 29, 2017; however, the company did not achieve the level of revenues required to borrow the final $10.0 million. Contemporaneously with the execution of the Loan Agreement, the company entered into a Securities Purchase Agreement with CRG, pursuant to which CRG purchased 348,262 shares of common stock on September 22, 2015 at a price of $14.357 per share, which represents the 10-day average of closing prices of its common stock ending on September 21, 2015. Pursuant to the Securities Purchase Agreement, the company filed a registration statement covering the resale of the shares sold to CRG and must comply with certain affirmative covenants during the time that such registration statement remains in effect. The company used the proceeds from the CRG borrowing and securities purchase to retire its outstanding principal and accrued interest with PDL Biopharma, or PDL, and to retire the principal and accrued interest underlying its outstanding promissory notes, or the notes.

On February 3, 2016, the company filed a universal shelf registration statement to offer up to $150.0 million of its securities and entered into an “at-the-market” program pursuant to a Sales Agreement with Cowen and Company, or Cowen, through which the company may, from time to time, issue and sell shares of common stock having an aggregate offering value of up to $50.0 million. The shelf registration statement also covers the resale of the shares sold to CRG. The registration statement was declared effective by the SEC on March 8, 2016. During the year ended December 31, 2016, the company sold 1,095,378 shares of common stock under the “at-the-market” program at an average price of $4.87 and raised net proceeds of $5.2 million, after payment of $160,000 in commissions and fees to Cowen. During the six months ended June 30, 2017, the company sold no shares of common stock under the “at-the-market” program. In addition, in August 2016, the company completed a follow-on public offering of 9,857,800 shares of its common stock for net proceeds of approximately $31.5 million after deducting underwriting discounts and commissions of approximately $2.4 million and other expenses of approximately $0.6 million. The 9,857,800 shares include the exercise in full by the underwriters of their option to purchase an additional 1,285,800 shares of its common stock.

In April 2017, the company undertook an organizational realignment which included a reduction in force, lowering its total headcount by approximately 33% compared to December 31, 2016. The organizational realignment is designed to focus its commercial efforts on driving catheter utilization in its strongest markets, around its most productive sales professionals. The company's field sales personnel headcount was reduced to 32, down from 60 people as of December 31, 2016. This workforce reduction is designed to reduce operating expenses while continuing to support major product development and clinical initiatives. The strategic reduction in the field sales force is designed to maintain robust engagement with higher volume users of its Lumivascular technology and position it to increase utilization of its catheters within its installed base of accounts in 2018 following the launch of its next generation products.

Avinger is developing two next-generation versions of its Pantheris atherectomy device, Pantheris 3.0 and a lower profile Pantheris, that the company believe represent significant improvements over its existing product. Pantheris 3.0 includes new features and design improvements to the handle, shaft, balloon and nose cone that the company believe will improve usability and reliability, while the lower profile Pantheris has a smaller diameter and longer length that the company believe will optimize it for use in smaller vessels and below-the-knee applications. The company plan to make 510(k) submissions for Pantheris 3.0 in the fourth quarter of 2017 and Pantheris BTK in the first quarter of 2018.

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