Kips Bay Medical Provides FDA Update and Reports First Quarter 2013 Results

  Kips Bay Medical Provides FDA Update and Reports First Quarter 2013 Results

Business Wire

MINNEAPOLIS -- May 09, 2013

Kips Bay Medical, Inc. (NASDAQ: KIPS) today provides an FDA update and
announces financial results for its first quarter ended March 30, 2013.

FDA Update

Enrollments continue at a modest pace in the Kips Bay eMESH I clinical
feasibility trial. As of May 1, 2013, the number of sites actively recruiting
patients, in Europe and the United States, has increased to seven. An
additional three sites have received their required internal clinical
approvals and the Company is currently in the process of finalizing clinical
study contracts with these sites, which is the last step in the process prior
to enrolling 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.

In April 2013, the Mayo Clinic performed its first implant of an eSVS Mesh at
its facility in Rochester, Minnesota. The Mayo Clinic is the second site in
the United States to begin implanting the eSVS^® Mesh in the eMESH I clinical
feasibility trial.

The eMESH I clinical feasibility trial is a multi-center, randomized study of
external saphenous vein graft (“SVG”) support using the Company’s eSVS Mesh in
CABG Surgery. 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. The primary safety endpoint
is the rate of major adverse cardiac events (“MACE”) occurring 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.

Financial Results

Net sales in the first quarter of 2013 were $36,000, down from $53,000 in the
first quarter of 2012. Gross profit was $20,000 and $29,000 in the first
quarters of 2013 and 2012, respectively. Net loss in the first quarter of 2013
was $1.5 million, or $0.05 per diluted share, compared to our net loss of $1.3
million, or $0.08 per diluted share, in the first quarter of 2012. During the
first quarter of 2013, our gross margin increased to 55.6% from 54.7% in the
first quarter of 2012. The need for clinical data to support increased usage
and favorable reimbursement decisions continues to impact the Company’s
ability to generate sales. The decrease in net sales during the first quarter
of 2013 reflects the impact of continued budget pressures on hospitals in most
European countries.

Balance Sheet and Cash Flow

Cash, cash equivalents and short-term investments decreased to $8.9 million at
March 30, 2013 from $10.4 million at December 31, 2012. Total current assets
decreased to $10.1 million at March 30, 2013, from $11.4 million at December
31, 2012. These decreases were driven primarily by the use of cash to fund
operations during the quarter.

Current liabilities decreased from $788,000 as of December 31, 2012 to
$469,000 as of March 30, 2013. This decrease is attributable primarily to the
payment during the first quarter of costs accrued at year end related to our
December 2012 public offering and in part to normal variations in the timing
of the receipt and payment of vendor invoices at the end of the fiscal period.

Cash used in operations increased from $1.2 million in the first quarter of
2012 to $1.7 million in the first quarter of 2013. This increase in cash used
in operations reflects both an increase in the Company’s net loss in the first
quarter of 2013 and the payment of costs accrued at year end related to our
December 2012 public offering.

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 is dependent upon the pricing the Company is able
to negotiate with its distributors.

About Kips Bay Medical

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.

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)
(Dollars in thousands, except share and per share amounts)

                                        Three Months Ended
                                          March 30, 2013    March 31, 2012
                                                                
Net sales                                $ 36                 $ 53
Cost of sales                             (16         )       (24         )
Gross profit                               20                   29
                                                                
Operating expenses:
Research and development                   705                  483
Selling, general and administrative       774                822         
Total operating expenses                   (1,479      )        (1,305      )
                                                                
Other income:
Interest income                           3                  5           
Net loss                                 $ (1,456      )      $ (1,271      )
Basic and diluted net loss per share     $ (0.05       )      $ (0.08       )
Weighted average shares outstanding       26,746,243         16,245,579  
— basic and diluted
                                                                
Comprehensive loss                       $ (1,457      )      $ (1,270      )
                                                                


Kips Bay Medical, Inc.
Balance Sheets (unaudited)
(Dollars in thousands, except share and per share amounts)

                                     March 30, 2013    December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents             $ 4,416              $ 9,403
Short-term investments                  4,459                947
Accounts receivable                     44                   31
Inventories                             887                  915
Prepaid expenses and other             284                103         
current assets
Total current assets                    10,090               11,399
Property and equipment, net            447                457         
Total assets                          $ 10,537            $ 11,856      
                                                             
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable                      $ 196                $ 333
Accrued liabilities                    273                455         
Total current liabilities               469                  788
                                                             
Stockholders’ equity:
Undesignated stock, $0.01 par
value, 10,000,000 shares
authorized, no shares issued and        —                    —
outstanding as of March 30, 2013
and December 31, 2012,
respectively
Common stock, $0.01 par value,
40,000,000 shares authorized,
26,919,079 and 26,346,079 issued        269                  263
and outstanding as of March 30,
2013 and December 31, 2012
Additional paid-in capital              41,106               40,655
Accumulated other comprehensive         (1         )         —
loss
Accumulated deficit                    (31,306    )        (29,850     )
Total stockholders’ equity             10,068             11,068      
Total liabilities and                 $ 10,537            $ 11,856      
stockholders’ equity
                                                             


Kips Bay Medical, Inc.
Statements of Cash Flows (unaudited)
(Dollars in thousands)

                                        Three Months Ended
                                          March 30, 2013    March 31, 2012
Cash flows from operating
activities:
Net loss                                 $ (1,456    )        $ (1,271    )
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation expense                       12                   28
Stock-based compensation                   181                  180
Amortization of premium on                 15                   30
short-term investments
Other                                      —                    15
Changes in operating assets and
liabilities:
Accounts receivable                        (13       )          13
Inventories                                27                   (61       )
Prepaid expenses and other current         (180      )          (144      )
assets
Accounts payable                           (136      )          (26       )
Accrued liabilities                       (183      )         3         
Net cash used in operating                 (1,733    )          (1,233    )
activities
Cash flows from investing
activities:
Proceeds from sales and maturities         641                  1,777
of short-term investments
Purchases of short-term investments        (4,169    )          (3,970    )
Purchase of property and equipment        (2        )         (5        )
Net cash used in investing                 (3,530    )          (2,198    )
activities
Cash flows from financing
activities:
Proceeds from sale of common stock
in a public offering, net of related      276                —         
costs of $33
Net cash provided by financing             276                  —
activities
Net decrease in cash and cash              (4,987    )          (3,431    )
equivalents
Cash and cash equivalents at              9,403              6,211     
beginning of period
Cash and cash equivalents at end of      $ 4,416             $ 2,780     
period
                                                                

Contact:

Kips Bay Medical, Inc.
Manny Villafaña, 763-235-3540
Chairman and Chief Executive Officer
Manny.Villafana@KipsBayMedical.com
or
Scott Kellen, 763-235-3540
Chief Operating Officer and Chief Financial Officer
Scott.Kellen@KipsBayMedical.com