Conformis, Inc. (NASDAQ:CFMS), an orthopedic arthroplasty medical
technology company, today announced proactive steps it is taking
and planning to mitigate the negative financial and operational
impacts of the coronavirus (COVID-19) pandemic.
“Our core product areas of knee and hip surgery
are being impacted in unprecedented ways by COVID-19,” said Mark
Augusti, President and Chief Executive Officer. “As the virus
spreads around the world and our customers – the hospitals and
their professionals who do incredible work – battle against the
virus, demand for arthroplasty has dropped significantly.
When combined with patients’ desire to self-isolate, we have seen a
significant reduction in elective surgeries, including an almost
complete shutdown of elective arthroplasty in many major cities
across Europe and the United States. We are working tirelessly to
take care of our Conformis team, our customers, and our
patients. The situation is changing by the day and there is
still tremendous uncertainty, but we feel it is important to share
an update on some of what we have seen to date and describe key
actions we have taken to mitigate the impact of COVID-19.
While at this time we cannot predict how long this crisis will
last, we know that eventually it will end. And when it does, we aim
to be prepared to serve our customers and patients as we have in
the past. We have the expertise and what we believe is a unique and
efficient delivery model for knee and hip arthroplasty.
Because our delivery model does not rely on limited numbers of
instrument sets like many of our competitors’ models do, we also
believe that this delivery model will be ideal for surgeons looking
to work efficiently through the backlog of cases that will only
build as the pandemic continues to delay elective surgeries.”
Business Performance Update
As a result of the various macroeconomic factors
at play as a result of the COVID-19 pandemic, we are withdrawing
the 2020 revenue guidance we announced on March 2, 2020. This
is disappointing because 2020 had gotten off to a solid
start. While these estimates are no longer accurate or
reliable, as of March 12, 2020, our best leading estimates
indicated that for Q1 2020 our global product revenue could have
been approximately 3% lower than revenue in Q1 2019, an improvement
from the 10% decline vs prior year in Q4 2019. Additionally,
leading indicators for Q2 2020 projected a return to positive
growth with global product revenue growth estimated to increase to
8% vs prior year. While these estimates were inherently uncertain,
had they been realized, this would have been a stepwise improvement
in our commercial performance, and these results would have been
ahead of our previously communicated product revenue growth
expectations. These estimates were based in part on positive
feedback and uptake we had been seeing in our new hip franchise,
but even more due to our Identity knee launch. The Identity product
team delivered a great product concept and launch. The timing is
unfortunate.
Currently we are experiencing a significant drop
off in orders as elective cases are deferred. It is too early to
estimate the total slope of the decline and the duration. Barring a
complete national ban on elective surgery, we do not expect it to
come to a compete standstill. We are actively monitoring our
incoming orders and plan to continue production.
We have also announced a furlough of
approximately 80 employees and substantially all of our temporary
workforce effective as of today. In preparing to implement
this furlough, we reviewed the role of every Conformis employee and
identified functions that are essential and non-essential to
support the business over the next eight weeks at reduced
production and sales levels. As this crisis passes and orders trend
up, we expect to recall employees as needed.
Conformis continues to work with its customers
to navigate through this crisis. While there have been historically
high levels of cancelled scheduled surgeries, we do expect these
cases to eventually move forward. We are planning for our products
to be available when they are rescheduled.
Mitigation Plans
Conformis has undertaken a series of decisive
actions aimed at the following goals:
- Protect our employees and their families
- Protect our production capability
- Protect and support our patients and customers
- Communicate, communicate, communicate
The Company has taken and continues to take
numerous proactive steps to mitigate the negative financial and
operational impacts of COVID-19. In an effort to keep our
focus on shareholder value, business contingency plans have been
implemented and will continue to be adjusted in response to the
global situation. We created a COVID-19 response team to
monitor and develop plans and policies to address the COVID-19
threat. We also created a separate, commercially-focused COVID-19
team to proactively seek and capture intelligence from our hospital
and physician customers. At our facilities, we have initiated
increased frequency of cleaning, we are cross training employees,
and we have restricted vendor and visitor access. We ensured that
our remote networking capability was in operational readiness for
increased capacity as we allowed employees who were able to work
remotely and were concerned about coming to the office to work from
home. We worked with our medical benefits provider to ensure we had
appropriate coverage and we worked closely with our employees to
understand and help address the impacts of school closings on their
ability to work.
We immediately conducted a review of our supply
chain and our partners, which revealed fairly low risk – with the
only concerns related to the supply of mask and gown consumables
used in our clean room processes. Importantly, we did order
additional 3D printing powder to ensure we had additional supply on
hand.
In addition, we have taken steps to reduce all
operational expenses across the income statement, including sales,
marketing, quality, clinical, regulatory and all general and
administrative expense. Non-essential programs have been eliminated
or deferred where possible.
Balance Sheet Update
In the current environment, a major priority is
preserving liquidity. In addition to the furlough that we
have implemented, we have eliminated, reduced, or are deferring
significant non-essential expense. In addition, we are working with
suppliers to help match future revenue and expense.
We currently have a $20,000,000 term loan
outstanding and an undrawn revolving line of credit with Innovatus
Life Sciences Lending Fund I, LP as collateral agent and as lender
and other lenders under an existing credit facility. At this
time, we do not anticipate drawing on the revolving line of credit
under the credit facility. Given the current economic conditions
and the closure of elective surgeries across the globe, we may not
be able to meet our positive quarterly revenue covenant.
In the event we are unable to meet any quarterly
revenue covenant, the terms of the credit facility provide a
mechanism to adjust the revenue covenants to bring us back into
compliance. We are initiating discussions with Innovatus with the
goal of adjusting the revenue covenants as provided for under the
credit facility.
New Product Timeline
Impacts
Fortunately, the furloughs announced today have
not impacted our core new product development talent. However, due
to travel prohibitions, surgeon schedule impacts, and concerns
regarding a potential increase in uncertainty around regulatory
approval timings, we cannot provide a meaningful update to our new
product launch schedule at this time. If conditions allow, we plan
to host an investor day this summer to provide a more detailed
update about our new product development plans. Though this
pandemic has had a horrible financial, psychological and physical
toll on our society, we see interesting opportunities for Conformis
depending on how elective surgeries come back online. For instance,
we see a potential scenario where capital expenditures by hospitals
are constrained, operational efficiency is at a premium and ASC
arthroplasty procedures accelerate.
No employee resources required for our Stryker
development and supply partnership have been furloughed. We expect
to successfully achieve each milestone in connection with this
partnership.
2020 Outlook and Commentary
Given the current environment to date, the
actions we have disclosed today and the continued business
uncertainty, we are formally withdrawing our 3–6% product revenue
growth target for 2020. Further, Conformis also withdraws any
other aspects of its outlook and assumptions for 2020 as provided
in its press releases of January 14, 2020 and March 2, 2020, and on
its earnings call of March 2, 2020.
Conference Call
Conformis plans to hold a webcast today at 5:00
p.m. Eastern Time. Management will provide a business update and
discuss actions to mitigate COVID-19 impact. The webcast will
be hosted by Mark Augusti, President and Chief Executive Officer,
and Bob Howe, Chief Financial Officer. The webcast will be
live at https://edge.media-server.com/mmc/p/uhj9btri and at the
investor relations section of the company's website
at ir.conformis.com.
To attend by telephone, please use the
information below for dial-in access. When prompted on
dial-in, please utilize conference ID: 7761344.
Participant conference numbers: (877)
809-6331 (U.S./Canada) and (615) 247-0224 (International).
Please dial in at least 10 minutes before the
call to ensure timely participation.
About Conformis, Inc.
Conformis is a medical technology company that
uses its proprietary iFit Image-to-Implant technology platform to
develop, manufacture, and sell joint replacement implants and
instruments that are individually sized and shaped, which we refer
to as personalized, individualized, or sometimes as customized, to
fit each patient’s unique anatomy. Conformis offers a broad
line of sterile, personalized knee and hip implants and single-use
instruments delivered to hospitals. In clinical studies, the
Conformis iTotal CR knee replacement system demonstrated superior
clinical outcomes, including better function and greater patient
satisfaction, compared to traditional, off-the-shelf
implants. Conformis owns or exclusively in-licenses issued
patents and pending patent applications that cover personalized
implants and patient-specific instrumentation for all major
joints.
For more information,
visit www.conformis.com. To receive future releases in
e-mail alerts, sign up at ir.conformis.com.
Cautionary Statement Regarding
Forward-Looking Statements
Statements in this press release about our
future expectations, plans and prospects, including statements
about the anticipated impact of the novel coronavirus pandemic and
the actions we are taking and planning in response, the anticipated
timing of our product launches, our ability to continue production,
our reliability of supply chain, our ability to meet obligations
under loan agreements, the duration of decreased demand, our
ability to recall employees, whether or when demand for procedures
will increase, the anticipated achievement of Stryker milestones,
and our financial position and results, total revenue, product
revenue, gross margin, operations, as well as other statements
containing the words "anticipate," "believe," "continue," "could,"
"estimate," "expect," "intend," "may," "might," "plan,"
"potential," "predict," "project," "should," "target," "will," or
"would" and similar expressions, constitute forward-looking
statements within the meaning of the safe harbor provisions of The
Private Securities Litigation Reform Act of 1995. We may not
actually achieve the forecasts disclosed in our forward-looking
statements, and you should not place undue reliance on our
forward-looking statements. Actual financial results could differ
materially from the projections disclosed in the forward-looking
statements we make as a result of a variety of risks and
uncertainties, including risks related to the novel coronavirus
pandemic and the response to the pandemic; whether our cash
resources will be sufficient to fund our continuing operations for
the periods anticipated; risks related to our estimates and
expectations regarding our revenue, gross margin, expenses, revenue
growth and other results of operations; and the other risks and
uncertainties described in the "Risk Factors" sections of our
public filings with the Securities and Exchange Commission. In
addition, the forward-looking statements included in this press
release represent our views as of the date hereof. We anticipate
that subsequent events and developments may cause our views to
change. However, while we may elect to update these forward-looking
statements at some point in the future, we specifically disclaim
any obligation to do so. These forward-looking statements should
not be relied upon as representing our views as of any date
subsequent to the date hereof.
CONTACT:
Investor contact
ir@conformis.com
(781) 374-5598
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