Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Apollo Endosurgery, Inc. (1251769) 10-Q published on Oct 26, 2017 at 4:26 pm
Reporting Period: Sep 29, 2017
In the U.S., Endo-bariatric product sales, excluding U.S. Orbera starter kit sales were $3.2 million for the three months ended September 30, 2017 versus $2.8 million for the three months ended September 30, 2016, an increase of 14.0%, and $10.1 million for the nine months ended September 30, 2017 versus $8.1 million for the nine months ended September 30, 2016, an increase of 25.1%. As previously announced by the Company in August 2017, the FDA issued a letter to Health Care Professionals relating to potential risks with liquid-filled intragastric balloons. U.S. Endo-bariatric product sales increased at a slower rate in the third quarter compared to the first half of 2017, due to lower demand for Orbera in the aftermath of the FDA’s letter. Overstitch sales growth remained consistent with its year to date trend.
In markets outside the United States (OUS), Endo-bariatric product sales were $6.0 million for the three months ended September 30, 2017 versus $4.5 million for the three months ended September 30, 2016, an increase of 35.3%, and $15.3 million for the nine months ended September 30, 2017 versus $12.5 million for the nine months ended September 30, 2016, an increase of 21.9% primarily due to higher OverStitch sales in our direct markets. Direct market sales were 72.9% and 70.4% of total OUS sales for the three and nine months ended September 30, 2017, respectively, compared to 53.2% and 66.9%, for the same periods in 2016, respectively.
Other Expense. Other expense primarily consists of realized and unrealized foreign exchange gains and losses. The decrease in other expense of $1.1 million and $1.6 million for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016 was primarily caused by the movement in exchange rates on short-term intercompany loans denominated in U.S. dollars payable by Apollo’s foreign subsidiaries. Realized foreign exchange losses were less than $0.1 million and $0.2 million for the three and nine months ended September 30, 2017, respectively, and $0.5 million and $0.3 million for the three and nine months ended September 30, 2016, respectively.
We have experienced operating losses since inception and occasional debt covenant violations and have an accumulated deficit of $169.7 million as of September 30, 2017. To date, we have funded our operating losses and acquisitions through equity offerings and the issuance of debt instruments. Our ability to fund future operations will depend upon our level of future operating cash flow and our ability to access additional funding through either equity offerings, issuances of debt instruments or both.
As previously disclosed in our Quarterly Report on Form 10-Q, for the three month period ended June 30, 2017, in March 2017, we were informed by the Department of Justice that we were a subject in a federal False Claims Act investigation concerning whether there had been a violation of the False Claims Act, 31 U.S.C. § 3729 et. seq. related to the marketing of the Lap-Band System, including the web-based physician locator provided on our website Lap-Band.com, which we believe relates to the period before and after our acquisition in December 2013 of the obesity intervention division of Allergan, Inc. We have, and continue to cooperate fully with the investigation, and on August 21, 2017, we were notified by the Department of Justice that we were no longer a subject in such investigation.
Our marketed products are subject to Medical Device Reporting, or MDR, obligations, which require that it report to the FDA any incident in which our products may have caused or contributed to a death or serious injury, or in which our products malfunctioned and, if the malfunction were to recur, it could likely cause or contribute to a death or serious injury. Adverse Events related to our products reported from any region in the world must be assessed for MDR reportability if the subject device is approved in the U.S. at the time the event occurred as part of Apollo’s Global Product Surveillance Program. As of August 5, 2015 (date of the Orbera system PMA approval), any Adverse Event related to the Orbera system reported from any region in the world must be assessed for MDR reportability to the FDA. As part of this assessment Apollo conducts a complaint investigation of each reported Adverse Event. In the event that an investigation is inconclusive (i.e., the investigation cannot confirm whether or not an Apollo product was a cause of an Adverse Event), Apollo’s policy and practice is to default in favor of reporting events to the FDA. If Adverse Event reports are not filed timely, regulators may impose sanctions and sales of our products may suffer, and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business.