Kips Bay Medical Provides Business Update and Reports Fourth Quarter and Full Year 2013 Results

Kips Bay Medical Provides Business Update and Reports Fourth Quarter and Full
Year 2013 Results

MINNEAPOLIS, March 12, 2014 (GLOBE NEWSWIRE) -- 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 fourth quarter and full year
ended December 31, 2013.

FDA Update

Enrollments and site activations continue in the Kips Bay eMESH I clinical
feasibility trial. As previously announced, The Royal Brompton Hospital,
located in London, England, an internationally recognized cardiac research
center, became the newest study site enrolling its first patient in October
2013. As of March 1, 2014, seven sites in Europe and four sites in the United
States have enrolled or are recruiting patients for the trial and one
additional international site has received its ethics committee approval and
is in the process of finalizing its clinical trial agreement in order to begin
enrolling which we expect to commence during the second quarter of 2014. One
study site has discontinued its participation in the trial as a result of the
transfer of the cardiac surgeon leading the trial at such site. As of March 1,
2014, 50 patients have been enrolled in the eMESH I clinical feasibility
trial. While the pace of enrollment in the trial is slower than expected, Kips
Bay continues to be encouraged by the support it receives from leading
institutions in Europe and the United States. 

As previously disclosed, Kips Bay is in the process of proposing to the U.S
Food and Drug Administration, or FDA, a combination of changes in the
application of the eSVS Mesh to the saphenous vein graft, or SVG, and to the
surgical implant technique for the eSVS Mesh treated graft.The proposed
changes are based upon the Company's consultations with medical advisors and
several of the cardiac surgeons participating in the eMESH I clinical
feasibility trial and the Company's initial review of early results from the
eMESH I trial.The changes are intended to reduce the variables in the study
and reduce the risk of early graft occlusion.In addition, Kips Bay believes
the changes may make it easier to implant the eSVS Mesh as well as reduce
costs.

The eMESH I clinical feasibility trial is a multi-center, randomized study of
external SVG support using the Company's eSVS Mesh in coronary artery bypass
grafting, or CABG, surgery.The objective of the eMESH I clinical feasibility
trial is to demonstrate to the FDA the initial safety and performance of the
Company's eSVS Mesh for use as an external SVG support device during CABG
surgery. If the feasibility 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 to perform a larger pivotal study which is
required to demonstrate clinical effectiveness and support a premarket
approval application filing with the FDA seeking approval to sell the eSVS
Mesh in the United States.

Operations Update

During fourth quarter of 2013, the Company engaged a new distributor in
Austria and completed the initial training for this distributor. Kips Bay
announced recently that the first commercial implant of the eSVS Mesh took
place in Austria at the Medical University of Vienna in Vienna, Austria in
January 2014.This accomplishment is a direct result of the Company's recent
expansion of its sales and marketing team, with two new sales directors, both
of whom brought to Kips Bay significant sales and marketing experience with
successfully building the sales of new medical device technologies for other
medical device companies.

In early 2013, Kips Bay completed an animal study to demonstrate the
capability of the eSVS Mesh to be used by surgeons when preparing sequential
grafts. Sequential grafts in bypass surgery are those grafts in which one
saphenous vein is connected to two or more target arteries.This study was
also used to demonstrate the compatibility of the eSVS Mesh with a synthetic
sealant which provides surgeons another option when utilizing the eSVS
Mesh.Kips Bay submitted this data to its European Notified Body, as part of a
request for an expansion of the product labeling for the eSVS Mesh to allow
the Company's sales personnel to promote both the use of the eSVS Mesh in
sequential bypass grafting and the use of a synthetic sealant. Both of these
requests were approved and, in November 2013, Kips Bay received an updated CE
Mark certificate.

During fourth quarter of 2013, Kips Bay filed a shelf registration statement
on Form S-3 with the U.S. Securities and Exchange Commission registering the
offer and issuance from time to time of $50.0 million in common stock,
preferred stock, debt securities, warrants and units, which registration
statement was declared effective as of December 20, 2013.

On January 29, 2014, Kips Bay completed an underwritten public offering of
6,035,000 shares of common stock at a purchase price of $0.70 per share,
resulting in net proceeds of approximately $3.6 million, after deducting the
underwriter's discount and commissions and offering expenses.The Company
intends to use the net proceeds from this offering for working capital and
general corporate purposes, including funding the process of seeking
regulatory approval to market the eSVS Mesh in the United States and abroad,
including continuing human clinical trials.

On February 4, 2014, following approval by the Company's stockholders at a
special meeting of stockholders, the Company's Certificate of Incorporation
was amended to increase the number of authorized shares of common stock from
40 million to 90 million.

Intellectual Property Update

Kips Bay continues to improve its intellectual property position.During 2013,
three additional international patents were issued to Kips Bay.This increased
the Company's issued international patents to seven; two each issued in Japan,
Canada and South Africa and one European patent, which is validated and
enforceable in eight European countries. Currently, the Company has five
patent applications pending in countries outside the United States and a total
of five issued patents and three pending patent applications in the United
States, including one for which the Company received a notice of allowance in
February 2014.

The Company's issued patents include claims directed towards, among other
things, the knitted, resilient and compliant structure of the 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 in the fourth quarter of 2013 were $41,000, up from $27,000 in the
fourth quarter of 2012. Gross profit was $20,000 and $15,000 in the fourth
quarters of 2013 and 2012, respectively.Net loss in the fourth quarter of
2013 was $1.5 million, or $0.06 per diluted share, compared to a net loss of
$1.5 million, or $0.09 per diluted share, in the fourth quarter of 2012.Net
sales for the full years of 2013 and 2012 were $130,000 and $226,000,
respectively, and the Company's gross margin decreased to 51.5% from 56.6%,
respectively.The net loss for the year ended December 31, 2013 was $6.1
million, or $0.23 per diluted share, compared to a net loss of $5.5 million,
or $0.34 per diluted share, for the year ended December 31, 2012.The increase
in net sales during the fourth quarter was driven by the first sales to a new
distributor for Austria.The decrease in sales for 2013, as compared with
2012, reflects 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 effects of economic difficulties in certain European
countries. Research and development expenses increased 17.5% to $773,000 in
the fourth quarter of 2013 from $658,000 in the fourth quarter of 2012. For
the full years, research and development expenses increased 23.8% to $3.1
million in 2013 from $2.5 million in 2012. These increases resulted from
increased costs incurred in conjunction with increases in the number of study
sites and patients enrolled in the Company's eMESH I clinical feasibility
trial during 2013.These increases were partially offset by reductions in
product testing costs related to additional test work required by the FDA
performed by the Company during 2012.

Balance Sheet and Cash Flow

Total cash, cash equivalents and short-term investments at December 31, 2013
were $5.0 million compared to $10.4 million at December 31, 2012.This
decrease is consistent with the Company's anticipated burn rate for 2013.
Total current assets decreased to $5.9 million at December 31, 2013 from $11.4
million at December 31, 2012. These decreases were driven primarily by the use
of cash to fund operations during 2013 and the payment in 2013 of
approximately $400,000 of costs related to the Company's December 2012 public
offering. In January 2014, Kips Bay completed a public offering of 6,035,000
shares of its common stock, the net proceeds of which increased the Company's
cash, cash equivalents and short-term investments by approximately $3.6
million.

Current liabilities decreased to $455,000 as of December 31, 2013 which is
down from $788,000 as of December 31, 2012 . This decrease was attributable
primarily to the payment of costs accrued at December 31, 2012 related to the
Company's December 2012 public offering, partially offset by increased costs
accrued during 2013 for the eMESH I feasibility trial.

Cash used in operations increased from $4.2 million for the year ended
December 31, 2012 to $5.5 million for the year ended December 31, 2013.This
increase was caused by a combination of the increased net loss for 2013 and
the payment in 2013 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
during 2014 compared to 2013 as the Company continues to pursue its
international sales and marketing activities.Research and development
expenses are also expected to increase during 2014 compared to 2013 as
clinical study related activities increase.The Company expects sales to
continue at modest levels until additional clinical study data is
available.The Company's ability to maintain and improve its margins is
primarily dependent upon the volume of sales and pricing of the eSVS Mesh as
negotiated between the Company and its international distributors.

Kips Bay believes its cash, cash equivalents and short-term investments as of
December 31, 2013, together with the proceeds from its January 2014 public
offering, will be sufficient to fund its planned operations for at least the
next 12 months. However, it may require, or depending upon capital market
conditions, it may elect to raise additional funds earlier in order to
continue its feasibility trial for the FDA, plan for its anticipated larger
pivotal study and conduct additional clinical trials to obtain regulatory
approvals for the eSVS Mesh.

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 to 120 patients at
10 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 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.

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; future sales, sales,
general and administrative expenses and research and development expenses;
burn rate and need for additional capital, 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; its ability to attract and retain
scientific, regulatory, and sales and marketing support personnel and its
ability to obtain additional financing. 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.

Contact:

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


Kips Bay Medical, Inc.
Statements of Comprehensive Loss (unaudited)
(In thousands, except share and per share amounts)

                 Three Months Ended           Year Ended            
                 December 31,          Percent December 31,          Percent
                 2013       2012       Change 2013       2012       Change
Net sales         $ 41       $ 27       51.9%   $ 130     $ 226      (42.5)%
Cost of sales     (21)       (12)       75.0   (63)      (98)       (35.7)
Gross profit      20         15         33.3   67        128        (47.7)
                                                                
Operating                                                        
expenses:
Research and      773        658        17.5   3,075     2,483     23.8
development
Selling, general
and               784        847        (7.4)  3,068     3,167    (3.1)
administrative
Total operating   1,557      1,505      3.5    6,143     5,650     8.7
expenses
                                                                
Other income:                                                    
Interest income   3          2          50.0   16        15        6.7
                                                                
Net loss          $ (1,534) $ (1,488) 3.1    $ (6,060) $ (5,507) 10.0
Basic and diluted
net loss per      $ (0.06)   $ (0.09)   33.3    $ (0.23)   $ (0.34)   (32.4)
share
Weighted average
shares            26,979,079 16,674,631 61.8    26,916,060 16,402,363 64.1
outstanding—basic
and diluted
                                                                
Comprehensive     $ (1,533)  $ (1,488)  3.0%    $ (6,060)  $ (5,504)  10.1%
loss



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

                                          December 31, 2013 December 31, 2012
ASSETS                                                      
Current assets:                                             
Cash and cash equivalents                  $ 2,316          $ 9,403
Short-term investments                     2,684            947
Accounts receivable                        28               31
Inventories                                793              915
Prepaid expenses and other current assets  88               103
Total current assets                       5,909            11,399
Property and equipment, net                400              457
Total assets                               $ 6,309          $ 11,856
                                                           
LIABILITIES AND STOCKHOLDERS' EQUITY                        
Current liabilities:                                        
Accounts payable                           $ 141            $ 333
Accrued liabilities                        314              455
Total current liabilities                  455              788
                                                           
Stockholders' equity:                                       
Undesignated stock, $0.01par value,
10,000,000shares authorized, no shares    —                —
issued and outstanding as of December 31,
2013 and December31, 2012, respectively
Common stock, $0.01par value,
40,000,000shares authorized, 26,979,079   270              263
and 26,346,079 issued and outstanding as
of December 31, 2013 and December31, 2012
Additional paid-in capital                 41,494           40,655
Accumulated other comprehensive loss       —                —
Accumulated deficit                        (35,910)         (29,850)
Total stockholders' equity                 5,854            11,068
Total liabilities and stockholders' equity $ 6,309          $ 11,856



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

                                                      YearEnded December 31,
                                                      2013         2012
Cash flows from operating activities:                              
Net loss                                               $ (6,060)   $ (5,507)
Adjustments to reconcile net loss to net cash used in              
operating activities:
Depreciation expense                                   55          109
Stock-based compensation                               570         588
Amortization of premium on short-term investments      74          79
Other                                                  17          17
Changes in operating assets and liabilities:                       
Accounts receivable                                    3           9
Inventories                                            122         (23)
Prepaid expenses and other current assets              15          (3)
Accounts payable                                       (192)       248
Accrued liabilities                                    (141)       280
Net cash used in operating activities                  (5,537)     (4,203)
Cash flows from investing activities:                              
Proceeds from sales and maturities of short-term       3,814       6,459
investments
Purchases of short-term investments                    (5,625)     (4,526)
Purchase of property and equipment                     (17)        (117)
Proceeds from the sale of property and equipment       2           2
Net cash (used in) provided by investing activities    (1,826)     1,818
Cash flows from financing activities:                              
Proceeds from sale of common stock in a public         276         —
offering, net of related costs of $33
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 stock  —           135
purchase agreement, net of related costs of $4
Proceeds from the exercise of employee stock options   —           1
Net cash provided by financing activities              276         5,577
Net (decrease) increase in cash and cash equivalents   (7,087)     3,192
Cash and cash equivalents at beginning of period       9,403       6,211
Cash and cash equivalents at end of period             $ 2,316     $ 9,403
 
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