Cambridge Heart, Inc. (Cambridge Heart) has reported total revenues of $4.2 million for the year-end 2008, down 58%, compared with the total revenues of $10.1 million in the previous year-end. It also reported net loss attributable to common shareholders of $10 million, or $0.16 loss per share, for the year-end 2008, compared with the net loss attributable to common shareholders of $9.2 million, or $0.14 loss per share, in the previous year-end.
Revenue – sequentially, revenue for the fourth quarter was $1,012,000, compared to $1,122,000 in the third quarter of 2008. Domestic sales and placements of the Heartwave II systems were 19 for the fourth quarter, and included 6 placements under the company’s technology placement program. This compares to 23 units sold in the third quarter of 2008.
Distribution Strategy – As previously stated, the company believes that its direct sales and marketing efforts should be augmented by third party distribution relationships in order to accelerate the adoption of its Alternans technology and more fully realize the market opportunity. The company is currently in negotiations with potential distribution partners and will provide an update upon the conclusion of these activities.
Cost Restructuring – In order to position the company to operate more efficiently in the face of challenging economic conditions and to focus its resources to take advantage of strategic opportunities, the company has implemented an expense reduction initiative. This initiative, in conjunction with previous measures, includes a 33% reduction in headcount from 46 FTE’s in the fourth quarter of 2008, and is expected to result in cash savings of around $500,000 per quarter. The reduction in headcount, which affects all of the company’s operational areas, includes a restructuring of the direct sales organization to improve cost effectiveness.
Clinical Study Update – Five articles supporting the use of Microvolt T-Wave Alternans (MTWA) testing were published in a supplement to the March 2009 issue of the Heart Rhythm journal. Featured in the supplement is a comprehensive meta-analysis of 6,000 patients confirming the value of MTWA as a non-invasive marker of risk for sudden cardiac arrest (SCA). The meta-analysis authors concluded that 1) patients who test positive for MTWA are 14 times more likely to die from SCA than a MTWA negative patient, 2) patients who test negative for MTWA are at extremely low risk (0.3% annually) for SCA, 3) MTWA testing can assist physicians in guiding ICD therapy to appropriate patients, and overcome patient and referring physician reluctance to accept this ICD therapy, and 4) ICD shocks are an unreliable surrogate endpoint for SCA in clinical trials and may skew risk stratification studies.
Cambridge Heart CEO Ali Haghighi-Mood said, “The relatively flat sequential revenue result in the fourth quarter underscores our need to access broader and more established distribution channels. This strategy will position us to accelerate the adoption and utilization of our technology.” In addition, Haghighi-Mood also stated, “The corporate restructuring that has been implemented allows us to best utilize our resources, and will result in immediate and significant cash savings.”
Financial Results for the three and twelve-month periods ended December 31, 2008
Total revenue for the three months ended December 31, 2008 was $1,012,000, a decrease of 54% from total revenue of $2,191,000 reported during the same period of 2007. On a sequential basis, total revenue decreased $110,000 or 10%, from total revenue of $1,122,000 for the quarter ended September 30, 2008. The decrease in revenue compared to the 2007 period was the result of a number of factors, including challenges with the St. Jude Medical co-marketing relationship, and the subsequent rebuilding of our own direct sales pipelines. The sequential decrease in revenue, in large part, reflects the continued worsening of the macro economic conditions.
Cost of sales for the fourth quarter of 2008 was $1,497,000 compared to $779,000 in the same period in 2007, and included a $921,000 charge to reserve for potentially excess inventory. The reserve is based on the uncertainty that we will realize the full value of the inventory over the next twelve months. The inventory increased in order to satisfy our contractual obligations under the Co-Marketing Agreement with St. Jude Medical. Excluding this reserve for excess inventory, the gross margin, as a percent of revenue, for the fourth 2008-quarter was 43% compared to 64% in 2007. The decrease in gross margin from the prior year is primarily attributable to lower sales volume relative to our fixed manufacturing costs.
Selling, general and administrative expenses for the fourth quarter of 2008 were $2,375,000, a decrease of $1,128,000, or 32%, compared to $3,504,000 in the fourth quarter of 2007. The decrease in SG&A expense is primarily due to lower variable sales costs, and reduced marketing costs compared to the prior year, which included certain marketing expenses in connection with the Co-Marketing Agreement with St. Jude Medical. General and administrative expenses also decreased compared to the prior year, primarily as a result of lower business insurance expense and consulting costs.
The operating loss for the fourth quarter of 2008 was $3,009,000, compared to an operating loss of $2,224,000 for the same period last year. Included in the operating loss for the fourth quarter of 2008 was $588,000 of non-cash stock-based compensation expense, and the $921,000 reserve for potentially excess inventory. Excluding the inventory reserve, the operating loss for the fourth quarter of 2008 was $2,089,000. The net loss for the quarter was $2,981,000, or $0.05 per share, compared to a net loss of $2,048,000, or $0.03 per share, in the comparable 2007 period.
For the twelve months ended December 31, 2008, total revenue was $4,239,000, a decrease of $5,868,000, or 58%, compared to total revenue of $10,106,000 for the same period in 2007. Year-to-date gross margin as a percent of revenue was 25% compared to 65% last year. Excluding the reserve for potentially excess inventory, the gross margin for 2008 was 47%. Selling, general and administrative expenses for the twelve-month period in 2008 were $10,862,000 compared to $15,903,000 in 2007. The operating loss for 2008 of $10,344,000, which included the $921,000 inventory reserve, increased $449,000 compared to an operating loss of $9,895,000 for the same period in the prior year. The operating loss for the 2008 twelve-month period included $2,541,000 in non-cash stock based compensation expense. The net loss for the twelve-months ended December 31, 2008 was $10,030,000, or $0.16 per share, compared to a net loss of $9,210,000, or $0.14 per share, during the same period in 2007.
The company ended the fourth quarter with cash and cash equivalents of $6,207,000. The cash used by operations was $1,780,000 and $5,685,000, respectively, for the three and twelve months ended December 31, 2008.
The company currently has a total of 69.2 million shares of common stock and common stock equivalents issued and outstanding, including the effect of converting the Series A preferred stock purchased by investors in 2003 and Series C preferred stock purchased by St. Jude Medical in March 2007. In addition, there are options and warrants outstanding to purchase 8.2 million common equivalent shares, bringing the fully diluted share count to 77.4 million common equivalent shares.
Cambridge Heart is a US-based company engaged in the research and development of products for the non-invasive diagnosis of cardiac disease.