Kips Bay Medical Provides Business Update and Reports Third Quarter 2013 Results

  Kips Bay Medical Provides Business Update and Reports Third Quarter 2013
  Results

Business Wire

MINNEAPOLIS -- November 7, 2013

Kips Bay Medical, Inc. (NASDAQ: KIPS), a medical device company focused on
manufacturing and commercializing its external saphenous vein support
technology, eSVS^® Mesh, for use in coronary artery bypass grafting surgery,
today provided a business update and announced financial results for its third
quarter ended September 28, 2013.

Clinical and Operations Update

Kips Bay continues to be well received at cardiovascular surgical meetings
around the world. During the third quarter, the Company attended and
participated in three major European medical congresses. Manny Villafaña, Kips
Bay’s Founder, Chairman and Chief Executive Officer, was invited to serve as a
faculty member for the 23^rd World Congress of the World Society of
Cardio-Thoracic Surgeons (WSCTS) congress in Croatia. Kips Bay convened a
dinner symposium at the 27^th Annual Meeting of the European Association of
Cardio-Thoracic Surgeons (EACTS) in Austria. The Company also participated in
the 10th International Congress On Coronary Artery Disease in Italy. Kips Bay
is pleased with both the number and quality of presentations being made by
doctors, using its eSVS^® Mesh, at symposia such as these and remains
encouraged by the general quality of the preliminary data contained in the
single center experiences being presented.

Management believes that early clinical experiences presented by various
cardiac surgeons and the Company’s focus on expanded training for the cardiac
surgery support team in those accounts where the Company has already
established a presence and a surgical champion, is the best way to drive
adoption for the eSVS Mesh while the Company continues to pursue U.S.
regulatory approval.

As previously announced, Kips Bay expanded and strengthened its sales and
marketing team during the third quarter by hiring Chris Borg as Director of
International Sales and Ray Holloway as Director of Sales and Marketing. Both
of these individuals bring to Kips Bay significant sales and marketing
experience with other similar medical device companies, including successfully
building the sales of new medical device technologies.

FDA Update

Enrollments and site activations continue in the Kips Bay eMESH I clinical
feasibility trial. The Royal Brompton Hospital, London, England, an
internationally recognized cardiac research center, became the newest study
site enrolling its first patient in October. As of November 1, 2013, eight
sites in Europe and four sites in the United States have enrolled or are
recruiting patients for the trial. Kips Bay is also in the process of adding
up to two additional international sites going forward. As of November 1,
2013, 43 patients have been enrolled in the eMESH I clinical feasibility
trial, up from 29 patients as of the date of the Company’s second quarter
earnings press release. Based upon initial discussions with the U.S. Food and
Drug Administration (FDA), the Company has implemented a modification to the
study protocol allowing the enrollment of patients with only one qualifying
graft. The intent of this modification is to increase enrollments in the
trial. During the third quarter, the first two European sites received their
internal approvals and began enrolling patients with one qualifying graft. The
Company hopes to obtain approval of this modification for the remaining
European sites and from the FDA before year-end.

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
coronary artery bypass grafting (CABG) surgery for the FDA. The objective of
the eMESH I clinical feasibility trial is to demonstrate the initial safety
and performance of the Company’s eSVS Mesh for use as an external SVG support
device during CABG surgery. If this trial is successful, the Company intends
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 larger pivotal study
which is required to demonstrate clinical effectiveness and support a
premarket approval application (PMA) filing with the FDA seeking approval to
sell the eSVS Mesh in the United States.

Financial Results

Net sales in the third quarter of 2013 were $13,000, down from $89,000 in the
third quarter of 2012. Gross profit was $6,000 and $52,000 in the third
quarters of 2013 and 2012, respectively. Net loss in the third quarter of 2013
was $1.6 million, or $0.06 per diluted share, compared to a net loss of $1.4
million, or $0.08 per diluted share, in the third quarter of 2012. Net sales
for the first nine months of 2013 and 2012 were $89,000 and $200,000,
respectively, and the Company’s gross margin decreased to 52.8% from 56.5%,
respectively. The net loss for the first nine months of 2013 was $4.5 million,
or $0.17 per diluted share, compared to a net loss of $4.1 million, or $0.25
per diluted share, for the first nine months of 2012. These decreases in net
sales during the third quarter and for the nine months ended September 28,
2013 reflect the negative impact of limited reimbursements and/or budgets
available to hospitals, the limited amount of clinical data on the performance
of the eSVS Mesh and the continuing effects of economic difficulties in
certain European countries. Research and development expenses increased 24.3%
from $676,000 in the third quarter of 2012 to $840,000 in the third quarter of
2013. Research and development expenses increased 26.1% from $1.8 million in
the nine months ended September 29, 2012 to $2.3 million in the nine months
ended September 28, 2013. These increases were driven primarily by increased
enrollments and number of study sites in the eMESH I feasibility trial.

Balance Sheet and Cash Flow

Total cash, cash equivalents and short-term investments at September 28, 2013
were $6.2 million compared to $10.4 million at December 31, 2012, consistent
with the Company’s anticipated burn rate for 2013. Total current assets
decreased to $7.2 million at September 28, 2013 from $11.4 million at December
31, 2012. These decreases were driven primarily by the use of cash to fund
operations during the first nine months of 2013, and the payment of
approximately $400,000 of costs related to the Company’s December 2012 public
offering of common stock.

Current liabilities decreased from $788,000 as of December 31, 2012 to
$393,000 as of September 28, 2013. This decrease is attributable primarily to
the payment of costs accrued at year end related to the Company’s December
2012 public offering of common stock, partially offset by increased costs
accrued for the eMESH I feasibility trial.

Cash used in operations increased from $3.6 million in the first nine months
of 2012 to $4.3 million in the first nine months of 2013 primarily as a result
of the increase in net loss during the current year period and the payment of
$400,000 of costs related to the Company’s December 2012 public offering.

Looking Ahead

Sales, general and administrative expenses are expected to increase slightly
as the Company continues to pursue its international sales and marketing
activities. Research and development expenses are expected to increase as
clinical study related activities increase. The Company’s ability to maintain
and improve margins is primarily dependent upon the volume of sales and
pricing of the eSVS Mesh as negotiated between the Company and its
international distributors.

About the eSVS Mesh

The eSVS Mesh is designed to be fitted like a sleeve on the outside of
saphenous vein grafts to strengthen SVGs used in coronary artery bypass graft
surgery. By strengthening the SVG and preventing the damaging 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. To strengthen an SVG,
the eSVS Mesh is manufactured from nitinol wire which gives the eSVS Mesh
considerable strength, while remaining highly flexible and kink-resistant.
Kips Bay is currently conducting a feasibility trial for the FDA, the
objective of which is to demonstrate the initial safety and performance of the
eSVS Mesh. Kips Bay expects to enroll 80 - 120 patients at ten international
and four U.S. sites and further 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 larger pivotal study which is required to demonstrate
clinical effectiveness and support a request for approval to sell the eSVS
Mesh in the United States. Additional information about the eSVS Mesh and the
Company’s feasibility trial are available at the Company’s website at
www.KipsBayMedical.com and in the Company’s most recent annual report on Form
10-K filed with the U.S. Securities and Exchange Commission.

About Kips Bay Medical

Kips Bay Medical, Inc. is a medical device company focused on manufacturing
and commercializing its external saphenous vein support technology, the eSVS
Mesh, for use in coronary artery bypass grafting surgery. Kips Bay originally
acquired the eSVS Mesh technology from Medtronic, Inc. in 2007. Additional
information about Kips Bay is available at the Company’s website at
www.KipsBayMedical.com.

Conference Call

Kips Bay will host a conference call today at 9:00 a.m. Eastern Time / 8:00
a.m. Central Time to discuss its operating and financial results for the third
quarter ended September 28, 2013. The conference call will be available to
interested parties through a live audio webcast available through the
Company’s website at www.KipsBayMedical.com (click on the link in the
Investors section). Those without internet access or those participants who
wish to take part in the question-and-answer portion of the call may join the
call from within the U.S. by dialing 888-680-0869; outside the U.S. dial
617-213-4854. The access code for all callers is 92663557.

A telephone replay will be available beginning at 1:00 p.m. Central Time on
November 7, 2013 and ending at 11:59 p.m. on November 14, 2013 by dialing
888-286-8010 for domestic participants and 617-801-6888 for international
participants. The replay access code for all callers is 61256603. For those
who are not available to listen to the live webcast, the call will be archived
for at least one year on Kips Bay’s website.

Forward-Looking Statements Safe Harbor

Statements contained in this release that relate to future events are
forward-looking statements under the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are based on current expectations of
future events and often can be identified by words such as “continues”,
“expects,” “intends,” “should,” “will,” “may,” “believes,” “could,” “hopes,”
“objective,” “looking ahead,” “future,” other words of similar meaning or the
use of future dates. Examples of forward-looking statements in this release
include Kips Bay’s expectations regarding enrollments, site activations and
other aspects of its eMESH I clinical feasibility trial; expected sales,
general and administrative expenses and research and development expenses; and
the safety, performance and benefits of the eSVS Mesh. Forward-looking
statements by their nature address matters that are, to different degrees,
uncertain. Uncertainties and risks may cause Kips Bay’s actual results to be
materially different than those expressed in or implied by Kips Bay’s
forward-looking statements. For Kips Bay, such uncertainties and risks
include, among others, the status of the eMESH I clinical feasibility trial,
including enrollment, completion and the results; Kips Bay’s future operating
results and financial performance; market size and market acceptance of the
eSVS Mesh technology; the ability of Kips Bay and its distributors to
commercialize and sell the eSVS Mesh in Europe; its ability to obtain coverage
and reimbursement from third-party payors for the eSVS Mesh technology and the
extent of such coverage; the development of its distribution and marketing
capabilities; and its ability to attract and retain scientific, regulatory,
and sales and marketing support personnel. More detailed information on these
and other factors that could affect Kips Bay’s actual results are described in
Kips Bay’s filings with the Securities and Exchange Commission, including its
most recent annual report on Form 10-K and subsequent quarterly reports on
Form 10-Q. Kips Bay undertakes no obligation to update its forward-looking
statements.


Kips Bay Medical, Inc.
Statements of Comprehensive Loss (unaudited)
(Dollars in thousands, except per share amounts)
                                                                                                      
                      Three Months Ended                                 Nine Months Ended
                        September        September        Percent        September        September        Percent
                        28,                29,                             28,                29,
                        2013               2012             Change         2013               2012             Change
                                                                                                               
Net sales             $ 13               $ 89               (85.4 %)     $ 89               $ 200              (55.5 )%
Cost of sales          (7         )      (37        )     (81.1 )       (42        )      (87        )     (51.7 )
Gross profit            6                  52               (88.5 )        47                 113              (58.4 )
Operating
expenses:
Research and            840                676              24.3           2,302              1,825            26.1
development
Selling, general
and                    736              745             (1.2  )       2,283            2,320           (1.6  )
administrative
Total operating         1,576              1,421            10.9           4,585              4,145            10.6
expenses
Other income:
Interest income        4                4               —            12               13              (7.7  )
Net loss              $ (1,566     )     $ (1,365     )     14.7        $ (4,526     )     $ (4,019     )     12.6  
Basic and diluted
net loss per          $ (0.06      )     $ (0.08      )     25.0        $ (0.17      )     $ (0.25      )     32.0  
share
Weighted average
shares                 26,979,079       16,345,579      65.1         26,888,695       16,310,967      64.9  
outstanding—basic
and diluted
                                                                                                               
Comprehensive         $ (1,563     )     $ (1,364     )     14.6  %      $ (4,526     )     $ (4,016     )     12.7  %
loss
                                                                                                               

Kips Bay Medical, Inc.
Balance Sheets (unaudited)
(Dollars in thousands, except per share amounts)
                                                        
                                      September 28, 2013     December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents             $    1,955             $   9,403
Short-term investments                     4,277                 947
Accounts receivable                        13                    31
Inventories                                820                   915
Prepaid expenses and other                163                 103       
current assets
Total current assets                       7,228                 11,399
Property and equipment, net               414                 457       
Total assets                          $    7,642            $   11,856    
                                                                 
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable                      $    24                $   333
Accrued liabilities                       369                 455       
Total current liabilities                  393                   788
                                                                 
Stockholders’ equity:
Undesignated stock, $0.01 par
value, 10,000,000 shares
authorized, no shares issued and           —                     —
outstanding as of June 29, 2013
and December 31, 2012,
respectively
Common stock, $0.01 par value,
40,000,000 shares authorized,
26,979,079 and 26,346,079 issued           270                   263
and outstanding as of June 29,
2013 and December 31, 2012
Additional paid-in capital                 41,355                40,655
Accumulated other comprehensive            —                     —
loss
Accumulated deficit                       (34,376   )          (29,850   )
Total stockholders’ equity                7,249               11,068    
Total liabilities and                 $    7,642            $   11,856    
stockholders’ equity
                                                                           

Kips Bay Medical, Inc.
Statements of Cash Flows (unaudited)
(Dollars in thousands)
                                            
                                               Nine Months Ended
                                               September 28,   September 29,
                                               2013              2012
Cash flows from operating activities:
Net loss                                       $  (4,526  )      $  (4,019  )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense                              41                82
Stock-based compensation                          431               457
Amortization of premium on short-term             62                68
investments
Other                                             17                16
Changes in operating assets and
liabilities:
Accounts receivable                               18                (14     )
Inventories                                       95                (58     )
Prepaid expenses and other current assets         (60     )         (256    )
Accounts payable                                  (309    )         93
Accrued liabilities                              (86     )        74      
Net cash used in operating activities             (4,317  )         (3,557  )
Cash flows from investing activities:
Proceeds from sales and maturities of             2,233             4,544
short-term investments
Purchases of short-term investments               (5,625  )         (4,525  )
Purchase of property and equipment                (17     )         (83     )
Proceeds from the sale of property and           —               2       
equipment
Net cash used in investing activities             (3,407  )         (62     )
Cash flows from financing activities:
Proceeds from sale of common stock in a
public offering, net of related costs of          276               —
$33
Proceeds from sale of common stock under
common stock purchase agreement, net of          —               135     
related costs of $4
Net cash provided by financing activities         276               135
Net decrease in cash and cash equivalents         (7,448  )         (3,484  )
Cash and cash equivalents at beginning of        9,403           6,211   
period
Cash and cash equivalents at end of period     $  1,955         $  2,727   
                                                                            

Contact:

Kips Bay Medical, Inc.
Manny Villafaña, +1-763-235-3540
Chairman and Chief Executive Officer
Manny.Villafana@KipsBayMedical.com
or
Scott Kellen, +1-763-235-3540
Chief Operating Officer and Chief Financial Officer
Scott.Kellen@KipsBayMedical.com