On November 8, 2018 Apollo Endosurgery, Inc. ("Apollo") (Nasdaq: APEN), a global leader in less invasive medical devices for bariatric and gastrointestinal procedures, reported financial results for the third quarter ended September 30, 2018 (Press release, Lpath, NOV 8, 2018, View Source [SID1234531161]).
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Third Quarter 2018 Highlights
• ESS contributed 37% of total sales in the quarter
• U.S. ESS sales increased 24% year-over-year in the quarter and 34% in the first nine months of 2018
• Worldwide ESS sales increased 40% in the first nine months of 2018
• Completed two gross margin improvement projects projected to contribute $2 million annually starting in 2019
Todd Newton, CEO of Apollo, commented, "ESS sales contributed 37% of overall revenue in the third quarter, showing solid progress despite a challenging comparable period in certain OUS markets in the prior year. We also achieved good IGB sales growth in the markets where Orbera365, our 12-month product is available. And finally, we are pleased to announce the completion of our two gross margin improvement projects that will add an estimated $2 million annually to our Endo gross margin beginning in 2019."
Third Quarter 2018 Results
Total revenues in the third quarter of 2018 were $14.1 million, compared to $16.5 million in the third quarter 2017, a decrease of 15%. Foreign currency fluctuations decreased total revenues $0.3 million for the three months ended September 30, 2018.
U.S. Endoscopic Suturing System ("ESS") product sales increased 24% to $2.5 million due to continuing new user adoption and greater product utilization in existing accounts. Outside the U.S. ("OUS") ESS product sales decreased 6%, to $2.7 million, due to lower third quarter 2018 sales in Australia and Brazil. Brazil ESS sales, in the third quarter of the prior year, included large initial orders with the launch of OverStitch in that country following regulatory approval in July 2017. In Australia, the third quarter of the prior year experienced elevated levels of ESS sales as providers used a gastroplasty code for ESG reimbursement before the Australian government warned against use of this code for obesity-related treatments at the end of 2017. These circumstances offset continued ESS growth during the third quarter in remaining OUS markets. In total, ESS product sales increased 6% to $5.2 million in the third quarter 2018 compared to $4.9 million in the third quarter 2017.
Total Intragastric balloon ("IGB") product sales decreased 8% to $4.1 million in the third quarter 2018 compared to $4.4 million in the third quarter 2017. OUS IGB product sales decreased 8%, to $2.9 million as higher unit sales and average selling prices of Orbera365 in Europe were offset by weaker six-month balloon sales in Brazil. In the U.S., IGB product sales decreased $0.1 million, or 7% to $1.2 million due to decreased consumer demand following the June 2018 FDA letter to Health Care Professionals ("HCPs").
Total Surgical product sales decreased $2.4 million, or 34% in the third quarter 2018 compared to the third quarter 2017 due to reductions in gastric banding procedures being performed worldwide.
Gross margin for the third quarter 2018 was 55%, compared to 64% for the third quarter 2017, resulting from a greater proportion of our overall product sales coming from our ESS products, which realize a lower gross margin than our other products. We have now completed two additional gross margin improvement projects related to the cinch component of OverStitch and the IGB delivery system, which on a combined basis will improve gross margin by approximately $2 million annually beginning in 2019.
Total operating expenses increased $1.0 million to $15.8 million in the third quarter 2018, compared to the third quarter 2017. The increase was due to higher research and development expenses in the third quarter primarily attributable to clinical study activities associated with our Endobariatric products, new product development activities, and margin improvement project activities.
Net loss for the third quarter 2018 was $9.8 million compared to $4.9 million for the third quarter 2017. The increased net loss was primarily due to lower gross profit and higher research and development expenses.
Cash, cash equivalents and restricted cash were $29.5 million as of September 30, 2018, which includes principal payments of $2.5 million on our credit facility during the quarter.
Conference Call
Apollo will host a conference call on November 8, 2018 at 3:30 p.m. Central Time / 4:30 p.m. Eastern Time to discuss Apollo’s operating results for the third quarter ended September 30, 2018.
To participate in the conference call dial (866) 393-4306 for domestic callers and (734) 385-2616 for international callers. The conference ID number is 3448713. A live webcast of the conference call will be made available on the "Events and Presentations" section of our Investor Relations website: www.ir.apolloendo.com.
A replay of the webcast will be made available on Apollo’s website, www.apolloendo.com following the event.