Financial Overview

Avinger's financial performance has been mixed in recent years. In 2023, the company reported annual revenue of $7.7 million, a decline from $8.3 million in 2022 and $10.1 million in 2021. The company's net loss for 2023 was $18.3 million, compared to net losses of $17.6 million in 2022 and $16.4 million in 2021. Operating cash flow was negative $14.4 million in 2023, and free cash flow was also negative $14.4 million.

The first quarter of 2024 saw revenues remain flat at $1.9 million, compared to the same period in 2023. Gross margin decreased to 18% from 34% in the prior-year quarter, primarily due to lower production activity and rising material costs. The net loss for the first quarter of 2024 was $5.5 million, compared to a net loss of $4.6 million in the first quarter of 2023.

Strategic Partnership with Zylox-Tonbridge

One of the key highlights for Avinger in the first quarter of 2024 was the announcement of a strategic partnership with Zylox-Tonbridge, a leading medical device company in the greater China region. Under the terms of the agreement, Zylox-Tonbridge will invest up to $15 million in Avinger through the purchase of preferred and common stock in two tranches. The first $7.5 million tranche was funded in March 2024, with the second $7.5 million tranche contingent on the successful registration of Zylox-Tonbridge as a manufacturer of Avinger's products with the U.S. Food and Drug Administration (FDA) and Avinger achieving $10 million in aggregate revenue over four consecutive quarters.

In addition to the equity investment, Zylox-Tonbridge has been granted exclusive rights to distribute and manufacture Avinger's proprietary image-guided devices in the greater China region, including mainland China, Hong Kong, Macao, and Taiwan. Avinger will support Zylox-Tonbridge in the regulatory process as they prepare for registration of the Avinger products in China. Following regulatory clearance, Avinger will sell products to Zylox-Tonbridge for their initial product launch until Zylox-Tonbridge has established its own manufacturing capability and gained regulatory authorization for manufacturing Avinger products for the China markets. Sales of Avinger products in the Zylox-Tonbridge territory will be royalty-bearing to Avinger.

This strategic partnership is a significant development for Avinger, as it provides a pathway to the vast and growing Chinese market, strengthens the company's balance sheet, and creates the opportunity to potentially improve its gross margin and cost structure over time by sourcing finished products from Zylox-Tonbridge.

Coronary Product Development

In addition to the Zylox-Tonbridge partnership, Avinger has made exciting progress in the development of its first coronary product, an image-guided chronic total occlusion (CTO) crossing system. Following an extensive design and development process, the company has completed Phase 2 design selection and advanced its development program to Phase 3, which includes the required verification and validation testing. Pending successful completion of these tests, Avinger anticipates filing an Investigational Device Exemption (IDE) submission with the FDA in the third quarter of 2024 to allow for the initiation of a clinical study.

Avinger's coronary CTO crossing device is designed to leverage the company's proprietary image-guided technology to provide physicians with a superior, simplified, and more predictable solution for crossing coronary CTOs. The device features a low-profile, 4 French catheter design that combines real-time optical coherence tomography (OCT) guidance with precise control and steerability, which the company believes will significantly reduce procedure times and improve crossing success rates while limiting radiation exposure and contrast media usage.

The company is confident that its coronary CTO crossing device will present a highly compelling economic value proposition, as reducing crossing time, contrast media usage, and the need for certain accessory devices would result in significant cost savings for the hospital system. Additionally, the device would access existing high-value reimbursement codes for CTO crossing and coronary OCT diagnostic imaging, making it an attractive option for both clinical and business perspectives.

Peripheral Business Developments

While the strategic partnership and coronary product development initiatives have been the primary focus, Avinger has also continued to make progress with its peripheral business. The company's new sales representatives and clinical specialists have completed their onboarding and are gaining clinical proficiency with Avinger's devices, building their sales pipelines and advancing new accounts and users through the sales process.

Avinger's new Tigereye ST CTO crossing device, launched in the second half of 2023, continues to increase market penetration and support the growth of the company's CTO business. Additionally, the company is gaining valuable clinical experience with its new Pantheris LV large vessel atherectomy device as it prepares for commercial expansion later this year.

Liquidity

Avinger's liquidity position has been a concern, with the company reporting cash and cash equivalents of $7.2 million as of March 31, 2024. However, the recent strategic partnership with Zylox-Tonbridge and the associated $7.5 million equity investment have strengthened the company's balance sheet.

Furthermore, Avinger has also restructured its debt with CRG Partners, the primary holder of the company's debt and preferred equity. In March 2024, CRG exchanged its $61 million Series A preferred stock for new Series A-1 preferred stock with a value of $10 million. The new Series A-1 preferred stock is convertible at a conversion price of $3.66 per share and carries no liquidation preference or dividend preference. Additionally, CRG extended the principal payments on Avinger's debt from the first quarter of 2024 to the first quarter of 2027, with interest payments occurring during this time.

These debt restructuring efforts, combined with the Zylox-Tonbridge partnership, have provided Avinger with additional financial flexibility and runway to execute its strategic initiatives.

Risks and Challenges

Despite the promising developments, Avinger continues to face several risks and challenges. The company's ability to maintain compliance with the Nasdaq listing requirements remains a concern, as it has previously received notices regarding non-compliance with the minimum bid price and stockholders' equity requirements. While the company has taken steps to regain compliance, there is no guarantee that it will be successful in doing so.

Additionally, Avinger operates in a highly competitive medical device market, and its success is dependent on its ability to develop and commercialize innovative products that can gain market acceptance. The company's reliance on a limited number of large customers also poses a risk, as the loss of a significant customer could have a material adverse impact on its financial performance.

Furthermore, the company's liquidity position, while improved, remains a concern, and it may need to raise additional capital through equity or debt financing to fund its operations and product development initiatives. The macroeconomic environment and volatility in the capital markets could make it challenging for Avinger to secure additional financing on favorable terms.

Conclusion

Avinger's strategic partnership with Zylox-Tonbridge and its progress in the development of its first coronary product represent significant milestones for the company. The partnership provides a pathway to the vast Chinese market and the potential to improve the company's gross margin and cost structure, while the coronary CTO crossing device could redefine a large and underserved market.

However, Avinger continues to face challenges, including maintaining compliance with Nasdaq listing requirements, navigating a competitive medical device market, and securing sufficient funding to execute its strategic initiatives. The company's ability to successfully navigate these obstacles and capitalize on its recent developments will be crucial in determining its long-term success.

Investors should closely monitor Avinger's progress in executing its strategic plan, expanding its product portfolio, and maintaining a strong financial position. While the company's future remains uncertain, the recent developments suggest that Avinger is taking the necessary steps to position itself for potential growth and value creation.