Kips Bay Medical Provides FDA Update & Reports Fourth Quarter and Full Year 2012 Results

  Kips Bay Medical Provides FDA Update & Reports Fourth Quarter and Full Year
  2012 Results

Business Wire

MINNEAPOLIS -- March 28, 2013

Kips Bay Medical, Inc. (NASDAQ: KIPS) along with Manny Villafaña, its Founder,
Chairman and CEO, today provided an update on its progress with the U.S. FDA
and announced financial results for fourth quarter and year ended December 31,

FDA Update

Recent highlights:

  *Receipt of IDE approval with conditions from the U.S. FDA.
  *U.S. FDA approves enrollment expansion to 15 patients in the U.S.
  *First eSVS Mesh Implants in the U.S.
  *U.S. FDA removes conditions from IDE approval.

Kips Bay is currently conducting a feasibility trial in the United States and
Europe. This trial is a multi-center, randomized study of external saphenous
vein graft (“SVG”) support using the Company’s eSVS^® Mesh in CABG Surgery and
is titled the eMESH I clinical feasibility trial. The objective of this trial
is to demonstrate the initial safety and performance of the Company’s eSVS
Mesh for use as an external SVG support device during coronary artery bypass
procedures. Kips Bay Medical expects to enroll up to 120 patients at eight
European and four U.S. sites. Enrollments in the eMESH I trial commenced in
late August 2012 at the Bern University Hospital, Bern, Switzerland. The
primary safety endpoint is the rate of major adverse cardiac events (“MACE”)
within 30 days of the procedure. The eSVS Mesh performance will be evaluated
based upon the angiographic patency rate of the enrolled grafts, where patency
is defined as less than 50% stenosis, or blockage, of the SVG at six months
after surgery. As of March 1, 2013, six sites in Europe and the United States
have received ethics committee approval and are actively recruiting patients.
The Company expects to use the data from this study as the basis for the
filing of a request for an Investigational Device Exemption (“IDE”) to perform
a pivotal trial in the United States and Europe.

On November 8, 2012, Kips Bay announced that the U.S. Food and Drug
Administration (“FDA”) had approved with conditions our application for an IDE
to include four U.S. study sites in the eMESH I clinical feasibility trial of
the Company’s eSVS Mesh. In its approval, the FDA indicated that it was
allowing a staged enrollment within the United States starting with five
patients. In January 2013, the FDA expanded their approval to allow for 15
patients. The Company will provide six-month follow-up angiogram data for five
U.S. patients or, alternatively, a combination of 10 patients from inside and
outside the United States, for the FDA to review. If the FDA determines that
these angiograms are acceptable, the Company expects to receive the approval
from the FDA to enroll the remaining 35 U.S. patients initially requested by
the Company.

In February-March 2013, the first three U.S. patients were implanted with the
eSVS Mesh at the Northeast Georgia Medical Center in Gainesville, Georgia.
These implants were performed as part of the Kips Bay Medical eMESH I clinical
feasibility trial.

On March 7, 2013, in response to additional information the Company provided
to the FDA, the FDA notified the Company that it had satisfactorily addressed
the conditions indicated by the FDA in the Agency’s November 8, 2012 approval
noted above.

Intellectual Property Update

During 2012, the Company significantly improved its intellectual property
position. In the United States, three patents were issued bringing the
Company’s total issued U.S. patents to five. The Company currently has three
patent applications pending in the United States.

Internationally, the Company has four issued patents; one each issued in
Japan, Europe, Canada and South Africa. During 2012, the European patent was
validated by, and is enforceable in, all eight European countries selected by
the Company. Currently, the Company has seven patent applications pending in
countries outside the U.S.

The issued patents include claims directed towards, among other things, the
knitted, resilient and compliant structure of the Company’s eSVS Mesh which is
designed to provide structural support to inhibit vessel expansion and provide
the vein graft with physiological attributes similar to those of an artery,
and the surgical procedures relating to the delivery system design and implant
deployment method for the eSVS Mesh.

Financial Results

Net sales were $226,000 for the year ended December 31, 2012, down from
$252,000 for the same period in the prior year. The net loss in the year was
$5.5 million, or $0.34 per diluted share, compared to a net loss of $4.3
million, or $0.27 per diluted share, for the prior year. The Company achieved
a gross margin of 56.6% compared to 63.9% for the full year 2012 and 2011,

In the fourth quarter of 2012, net sales were $27,000, down from $94,000 in
the fourth quarter of 2011. Gross profit was $15,000 and $61,000 in the fourth
quarters of 2012 and 2011, respectively. Net loss in the fourth quarter of
2012 was $1.5 million, or $0.09 per diluted share, compared to a net loss of
$1.1 million, or $0.07 per diluted share, in the fourth quarter of 2011. The
decrease in net sales for the quarter and year-to-date periods was the result
of reduced demand from the Company’s distributors in southern Europe which are
most affected by national budget problems. The Company is not aware of any
specific or supplemental reimbursement for its eSVS Mesh and it expects sales
to continue at modest levels until additional clinical study data is

Balance Sheet and Cash Flow

Cash, cash equivalents and short-term investments increased to $10.4 million
at December 31, 2012 from $9.2 million at December 31, 2011. Total current
assets increased to $11.4 million at December 31, 2012, up from $10.2 million
at December 31, 2011. These increases were driven by the Company’s public
offering completed in December 2012, from which the Company realized net
proceeds of approximately $5.4 million, partially offset by cash used in
operations during 2012.

Current liabilities increased from $260,000 as of December 31, 2011 to
$788,000 as of December 31, 2012. This increase resulted from a combination of
factors which include the accrual of certain expenses related to the Company’s
December 2012 public offering, increased costs related to the performance of
clinical trials and from the timing of expense payments at the end of 2012 as
compared with the end of 2011.

Cash used in operations decreased from $8.1 million in 2011 to $4.2 million in
2012. This decrease resulted primarily from the payment of a $5.0 million
dollar milestone obligation to Medtronic, Inc. in June 2011, which did not
recur in 2012, partially offset by an increased net loss in 2012.

Looking Ahead

Sales, general and administrative expenses will remain at or near current
levels as the Company continues to pursue its sales and marketing activities.
Research and development expenses are expected to increase slightly as the
Company’s clinical study related activities increase. The Company’s ability to
maintain and improve margins will be dependent upon both the pricing
negotiated with distributors and future production levels required to support
commercial sales and clinical trials.

“In pursuing our feasibility study, we have met and worked with some
tremendously talented and dedicated cardiac surgeons at a number of preeminent
cardiac surgery centers in Europe this past year,” said Manny Villafaña, Kips
Bay Medical Chairman and Chief Executive Officer. “But it’s particularly
gratifying to finally be working with U.S. cardiac surgeons to study our eSVS
Mesh. In the upcoming year, we will focus on completing the enrollment in our
feasibility study.”

About the eSVS Mesh

The eSVS Mesh is a highly flexible, semi-compliant, kink-resistant,
tubular-shaped device, knitted from nitinol (nickel/titanium) wire. The eSVS
Mesh is designed to be fitted like a sleeve on the outside of saphenous vein
grafts (“SVG”) to strengthen SVGs used in coronary artery bypass graft
(“CABG”) surgery. By strengthening the SVG and preventing expansion of the
vein graft, the Company hopes to reduce or prevent the resulting injury which
can lead to SVG failure and potentially costly and complicated
re-interventions for patients undergoing CABG surgery.

Kips Bay originally acquired the eSVS Mesh technology from Medtronic, Inc. in
2007. Kips Bay received CE Mark approval in May 2010 and began marketing and
commenced shipments of the eSVS Mesh in select European markets in June 2010
and in the United Arab Emirates in October 2010. Since the receipt of its CE
Mark, Kips Bay estimates that there have been in excess of 450 implants of the
eSVS Mesh.

About Kips Bay Medical

Kips Bay Medical, Inc., founded in 2007 and headquartered in Minneapolis,
Minnesota, is a medical device company focused on manufacturing and
commercializing its external saphenous vein support technology, or eSVS MESH
for use in coronary artery bypass grafting surgery. The eSVS MESH is a nitinol
mesh sleeve that, when placed over a saphenous vein graft during CABG surgery,
is designed to improve the structural characteristics and long-term
performance of the saphenous vein graft. Additional information about Kips Bay
Medical, Inc. can be found at

Safe Harbor

Certain statements in this news release are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and are
provided under the protection of the safe harbor for forward-looking
statements provided by that Act. For example, statements in this press release
regarding (i) the benefits of our eSVS mesh in reducing or preventing injury
to an SVG; (ii) the number of patients expected to be enrolled in the eMESH I
trial ; (iii) expectations with regard to the FDA review and approval process
for the Company’s eMESH I trial; (iv) expectations regarding sales, general
and administrative expenses, research and development expenses and margins;
(v) the ability to negotiate prices with distributors and meet future
production levels in order to maintain and improve margins; and (vi)
satisfying the FDA’s requirements and moving forward with the regulatory
approval process in the U.S. are examples of forward-looking statements.
Forward-looking statements involve risks and uncertainties which could cause
results to differ materially from those projected, including but not limited
to, the potential for the FDA’s refusal to grant, or delays in granting, IDE
approvals; lack of growth, or declines, in CABG procedures; unanticipated
negative results in clinical trials and other factors detailed from time to
time in our SEC filings, including our most recent annual report on Form 10-K
filed on March 28, 2013 and subsequent periodic reports. We encourage you to
consider all of these risks, uncertainties and other factors carefully in
evaluating the forward-looking statements contained in this release. The
forward-looking statements made in this release are made only as of the date
of this release, and we undertake no obligation to update them to reflect
subsequent events or circumstances.

Kips Bay Medical, Inc.
Statements of Comprehensive Income (unaudited)
(In thousands, except share and per share amounts)
                    Three Months Ended                                 Year Ended
                    December 31,                          Percent      December 31,                          Percent
                    2012             2011               Change       2012             2011               Change
Net sales           $ 27               $ 94               (71.3 )%     $ 226              $ 252              (10.3 )%
Cost of sales        (12        )      (33        )     (63.6 )       (98        )      (91        )     7.7   
Gross profit          15                 61               (75.4 )        128                161              (20.5 )
Research and          658                371              77.4           2,483              1,675            48.2
Selling, general
and                  847              803             5.5          3,167            2,755           15.0  
Total operating       1,505              1,174            28.2           5,650              4,430            27.5
Other income
Interest income      2                4               (50.0 )       15               19              (21.1 )
Loss before
provision for         (1,488     )       (1,109     )     34.2           (5,507     )       (4,250     )     29.6
income tax
Provision for
income tax           —                —                            —                —               —     
Net loss            $ (1,488     )     $ (1,109     )     34.2  %      $ (5,507     )     $ (4,250     )     29.6  %
Net loss per
share—basic and     $ (0.09      )     $ (0.07      )     28.6  %      $ (0.34      )     $ (0.27      )     25.9  %
Weighted average
shares               16,674,631       16,112,943      3.5   %       16,402,363       15,557,969      5.4   %
and diluted
Comprehensive       $ (1,488     )     $ (1,109     )     34.2  %      $ (5,504     )     $ (4,253     )     29.4  %

Kips Bay Medical, Inc.                             
Balance Sheets (unaudited)
(In thousands, except share and per share amounts)
                                                     December 31,
                                                     2012         2011
Current assets:
Cash and cash equivalents                            $ 9,403       $ 6,211
Short-term investments                                 947           2,957
Accounts receivable, net of allowance for doubtful
accounts of $0 and $14 as of December 31, 2012 and     31            40
2011, respectively
Inventories                                            915          892
Prepaid expenses and other current assets             103        100     
Total current assets                                   11,399       10,200
Property and equipment, net                           457         467     
Total assets                                         $ 11,856     $ 10,667  
Current liabilities:
Accounts payable                                     $ 333         $ 85
Accrued liabilities                                   455         175     
Total current liabilities                              788           260
Stockholders’ equity:
Undesignated stock, $0.01 par value, 10,000,000
shares authorized, no shares issued and                —             —
outstanding as of December 31, 2012 and December
31, 2011, respectively
Common stock, $0.01 par value, 40,000,000 shares
authorized, 26,346,079 and 16,245,579 issued and       263           162
outstanding as of December 31, 2012 and December
31, 2011, respectively
Additional paid-in capital                             40,655        34,591
Accumulated other comprehensive loss                   —             (3      )
Accumulated deficit                                   (29,850 )    (24,343 )
Total stockholders’ equity                            11,068      10,407  
Total liabilities and stockholders’ equity           $ 11,856     $ 10,667  

Kips Bay Medical, Inc.                               
Statements of Cash Flows (unaudited)
(In thousands)
                                                       Year Ended December 31,
                                                       2012        2011
Cash flows from operating activities:
Net loss                                               $ (5,507 )   $ (4,250 )
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation expense                                     109          111
Stock-based compensation                                 588          492
Amortization of premium on short-term investments        79           132
Other                                                    17           —
Non-cash interest income                                 —            (16    )
Changes in operating assets and liabilities:
Accounts receivable                                      9            16
Inventories                                              (23    )     (286   )
Prepaid expenses and other current assets                (3     )     1,160
Accounts payable                                         248          (95    )
Accrued liabilities                                      280          (368   )
Accrued milestone and royalties                         —          (5,001 )
Net cash used in operating activities                    (4,203 )     (8,105 )
Cash flows from investing activities:
Proceeds from sales and maturities of short-term         6,459        4,029
Purchases of short-term investments                      (4,526 )     (6,869 )
Purchase of property and equipment                       (117   )     (112   )
Proceeds from sale of property and equipment            2          —      
Net cash (used in) provided by investing activities      1,818        (2,952 )
Cash flows from financing activities:
Proceeds from sale of common stock in a public           5,441        —
offering, net of issuance costs of $1,059
Proceeds from sale of common stock under common          135          —
stock purchase agreement, net of related costs of $4
Proceeds from sale of common stock in IPO, net of        —            13,632
issuance costs of $2,868
Proceeds from the exercise of employee stock options    1          88     
Net cash provided by financing activities                5,577        13,720
Net increase in cash and cash equivalents                3,192        2,663
Cash and cash equivalents at beginning of period        6,211      3,548  
Cash and cash equivalents at end of period             $ 9,403     $ 6,211  


Kips Bay Medical, Inc.
Manny Villafaña, Chairman and Chief Executive Officer, 763-235-3540
Scott Kellen, Chief Financial Officer, 763-235-3540
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