GI Dynamics : Appendix 4C Quarterly Report Quarter ended 30 June 2014

Appendix 4C Quarterly Report Quarter ended 30 June 2014

GI Dynamics to Hold Briefing Call and Webcast on

Financial Results for Second Quarter 2014 on

Monday, 4 August 2014 at 6 p.m. U.S. EDT 

/ Tuesday, 5 August 2014 at 8 a.m. AEST

LEXINGTON, Massachusetts, United States and SYDNEY, Australia - 31 July 2014 - GI Dynamics, Inc. (ASX: GID) (GI Dynamics or the Company), a medical device company developing innovative treatments for type 2 diabetes and obesity, is pleased to provide its financial results for the quarter ended 30 June 2014 (Quarter). The Appendix 4C, which has been prepared in U.S. dollars under U.S. GAAP, is attached and the results disclosed in the Appendix 4C are unaudited.

"The second quarter showed continued progress in both self-pay and reimbursed markets," stated Stuart A. Randle, chief executive officer of GI Dynamics. "We produced year-over-year growth in overall revenues and sequential growth in key geographies where we have built good momentum, namely Germany and Australia. These revenue trends further reinforce the benefit of a more focused deployment of resources in select markets that we believe is critical to mid-term and long-term revenue growth."

Business Review & Highlights

Throughout the Quarter, GI Dynamics continued to execute on its global business strategy for EndoBarrier®Therapy in both self-pay and reimbursed markets, with primary attention to driving sales in Australia, expanding reimbursement in Germany, and increasing enrollment in the ENDO Trial in the U.S. The Company's recent achievements and important milestones are detailed below.

Commercial Activities

• Revenues: Revenue increased to US$0.8 million for the Quarter compared to US$0.3 million for the same period last year, an increase of US$0.5 million with sequential revenue growth over the first quarter of 2014 of 77% and 60% in Australia and Germany, respectively. Revenues declined by US$0.1 million versus the quarter ended 31 March 2014, primarily from a reduction in revenues in the Middle East, in part from an initial stocking order in the quarter ended 31 March 2014 from a distributor.

• New Centres: Increased the global commercial footprint of centres offering EndoBarrier Therapy to a total of 60 centres as of 30 June 2014.  During the Quarter, the Company expanded the availability of EndoBarrier Therapy in Australia through two additional centres - South Eastern Gastroenterology in Sydney and the Surgical Weight Loss Centre in Queensland. The total number of centres in Australia as of the end of June 2014 was six and more than 75 patients have been treated in the first six months of the year.

• German Consensus Paper: In June, three leading scientific and professional societies in Germany - the German Diabetes Gesellschaft, the German Society for General and Visceral Surgery, and the German Society for Gastroenterology - published a position paper for recommended usage of EndoBarrier (duodenal-jejunal bypass sleeve or DJBS). In the paper, the societies recommend consideration of the DJBS as a treatment alternative for adult patients with type 2 diabetes who are obese and cannot reach their individual therapy goals over a period of three to six months with conventional therapy. This consensus paper further strengthens the position of EndoBarrier in clinical practice for treating obese patients with type 2 diabetes, and the Company believes it should be supportive in efforts to secure reimbursement in Germany.

Reimbursement: Progress is also being made on reimbursement, which is critical to realizing substantial, future revenue growth. 

• Australia: The Company is seeking reimbursement through a submission to the Medical Services Advisory Committee (MSAC), which advises the Australian Minister for Health and Ageing on evidence relating to the safety, effectiveness and cost-effectiveness of new medical technologies and procedures. The MSAC process involves many steps and the Company is hopeful for a decision in 2015. 
• France: GI Dynamics announced that the first patients have been enrolled in a large, randomized, multi-center, clinical utility study of EndoBarrier Therapy (ENDOMETAB), paid for by the French Ministry of Social Affairs and Health. The study is designed to evaluate the impact and cost of 12 months of treatment with EndoBarrier Therapy compared to 12 months of conventional treatment. ENDOMETAB is part of the soutien aux techniques innovantes coûteuses (STIC) program, which provides government funding for innovative medical technologies that have an established clinical profile, but where additional information concerning clinical utility and potential reimbursement status is sought. This study paves the way for future commercial expansion in France and the data may be valuable for reimbursement efforts in other European markets.

U.S. Pivotal Trial: As of 30 June 2014, 22 of a possible 25 clinical sites across the U.S. have initiated patient recruitment in the ENDO Trial, GI Dynamics' pivotal clinical trial evaluating the efficacy and safety of EndoBarrier in the treatment of people with type 2 diabetes and obesity. As of 30 June 2014, a total of 168 patients have been enrolled in the study out of a total of 500 patients required for the study.  During the most recent quarter, 69 patients were enrolled as compared to 31 patients in the quarter ended 31 March 2014.  Completion of enrollment in the trial is estimated to be late 1H 2015.

Medical Meetings and Congresses: Data regarding EndoBarrier Therapy continues to be featured at major medical meetings, which is important for reaching potential treating and referring physicians and increasing awareness of the results achieved by patients treated with EndoBarrier.

• In May, new data from a retrospective analysis of 100 patients in Australia were presented during a poster session at the American Association of Clinical Endocrinologists (AACE) 23rd Annual Scientific & Clinical Congress. The data show that EndoBarrierTherapy enabled a rapid reduction in, and elimination of, insulin therapy by patients with type 2 diabetes and obesity.
• Also in May, new data were presented during an oral presentation at Digestive Disease Week 2014 (DDW) titled, "Duodenal-jejunal Bypass Liner Increases Fasting and Postprandial Serum Levels of Bile Acids in Patients with Severe Obesity." These data findings, which were from a study initiated with GlaxoSmithKline, suggest that there may be a similar mechanism of action associated with EndoBarrier in the treatment of obesity and diabetes to that observed with gastric bypass.
• In June, data were presented during three poster sessions at The American Diabetes Association's (ADA) 74th Scientific Sessions further demonstrating the acute effects of EndoBarrier Therapy on glycemic control, its ability to reduce reliance on diabetes medications, including insulin, as well as findings that help explain its potential mechanism of action.

Corporate Activities

• Financing: On 9 May 2014, GI Dynamics completed a private placement of approximately 66 million fully paid CHESS Depositary Interests (CDIs) at an issue price of A$0.52 per CDI to sophisticated, professional and accredited investors in Australia, Hong Kong and the United Kingdom and certain other jurisdictions to raise net proceeds of US$30.8 million.

• U.S. Reporting Company: A Form 10 was filed with the U.S. Securities and Exchange Commission (SEC) in April and became effective on 29 June 2014.  The Company is a U.S. reporting company and subject to SEC filing requirements, which include an annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Our Form 10-Q for the period ended 30 June 2014, is expected to be filed on or before 14 August 2014. There is currently no U.S. market for GI Dynamics' common stock. The Company expects to apply for a listing on NASDAQ by the end of the year, subject to review and approval by NASDAQ. The Company expects to maintain its listing on the ASX for the foreseeable future.

Financial Review

The Company's key financial results for the Quarter and six months ended 30 June 2014, on an unaudited basis, include the following:

• Revenue increased to US$0.8 million for the Quarter compared to US$0.3 million for the same period last year, an increase of US$0.5 million.  For the six-month period revenue increased to US$1.7 million compared to US$0.7 million for the same period last year, an increase of US$1.0 million.  The increase in the Company's revenue in the Quarter compared to the same quarter last year was a result of an increase in sales in Europe, South America and Australia.  The increase in the Company's revenue for the six-month period compared to the same period last year was a result of an increase in sales in Europe, South America, Australia and the Middle East. 
  • As earlier disclosed, revenue for the Quarter decreased by US$0.1 million compared to the quarter ended 31 March 2014. This decrease in revenue was primarily attributable to a decrease in sales in the Middle East.
  • As will be reported in the Company's Form 10-Q for the period ended 30 June 2014, revenue by geographic region was as follows (in US$000s):
  • Germany and Australia continue to demonstrate sequential growth.  EndoBarrier revenues in Germany increased from US$0.2 million in the first quarter of 2014 to US$0.3 million in the current Quarter, which is primarily based on local reimbursement.  In our self-pay market of Australia, revenue increased from US$0.1 million in the first quarter of 2014 to US$0.2 million in the current Quarter.
  • The Company had deferred revenue of US$0.7 million at 30 June 2014 compared to deferred revenue of US$0.8 million at 31 March 2014.
  • Cost of revenue for the Quarter was US$0.6 million compared to US$0.5 million for the same period last year. Cost of revenue for the six-month period was US$1.5 million compared to US$1.1 million for the same period last year.  The increase in cost of revenue and the improvement in gross margin for the Quarter and six-month period primarily reflects increased sales volume and increased utilization of manufacturing capacity compared to the same periods last year.
  • Operating expenses increased to US$12.9 million for the Quarter compared to US$8.4 million for the same period last year, an increase of US$4.5 million. Operating expenses increased to US$23.0 million for the six-month period compared to US$16.9 million, an increase of US$6.1 million.  The increase for the Quarter and six month period are primarily a result of increased expenses associated with the ENDO Trial.
    • Research and development expenses were US$7.5 million for the Quarter compared to US$3.5 million for the same period last year, an increase of US$4.0 million. Research and development expenses were US$12.9 million for the six-month period compared to US$6.7 million for the same period last year. The increase in research and development expenses for the Quarter and six-month periods was almost entirely a result of increased expenses associated with the ENDO Trial.
    • Sales and marketing expenses were US$3.1 million for the Quarter compared to US$2.7 million for the same period last year, an increase of US$0.4 million. Sales and marketing expenses were US$5.6 million for the six-month period compared to US$5.2 million, an increase of US$0.4 million. The increase in sales and marketing expenses for the Quarter and six-month period were primarily a result of the costs associated with the departure of the Company's chief commercial officer.
    • General and administrative expenses were US$2.3 million for the Quarter, which is consistent with the same period last year. General and administrative expenses were US$4.6 million for the six-month period compared to US$5.1 million, a decrease of US$0.5 million.  The decrease was primarily a result of a non-recurring stock-based compensation charge in the six months ended 30 June 2013.
• Other income (expense) for the Quarter was US$0.4 million compared to a loss of US$1.0 million for the same period last year, an increase of US$1.4 million. Other income (expense) for the six-month period was US$0.8 million compared to an expense of US$1.0 million for the same period last year, an increase of US$1.8 million. The increases in the Quarter and six-month periods compared to the same periods last year were primarily associated with the depreciation of the Australian dollar versus the U.S. dollar during the second quarter of last year.
• As a result, the Company recorded a net loss of US$12.3 million for the Quarter compared to US$9.6 million for the same period last year, an increase of US$2.7 million and a net loss of US$22.0 million for the six-month period compared to US$18.3 million for the same period last year, an increase of US$3.7 million.
• The Company had cash and cash equivalents of US$71.7 million at 30 June 2014 compared to US$49.5 million as of 31 March 2014, an increase of US$22.2 million. In the Quarter, the Company used US$8.6 million to fund its operations while it raised US$30.8 million from its private placement.

Mr. Randle added, "As we have noted from the beginning, national reimbursement is expected to be a key driver of revenue growth and market expansion. While broad-based reimbursement is an important catalyst, and we work toward achieving that in key markets like Germany, our organization remains focused on accelerating adoption in select self-pay markets, including Australia. The journey to realizing the full market potential for EndoBarrier remains a marathon, not a sprint. We are pleased to see revenue growth in our priority markets and plan to continue to focus our energies where we can reach our target patients and deliver the greatest return for shareholders."

****************CONFERENCE CALL & WEBCAST INFORMATION****************

GI Dynamics, Inc. (ASX: GID) will hold a conference call to discuss the company's financial results for the quarter ended 30 June 2014, and its business outlook. Stuart Randle, president and chief executive officer, will host the call with Robert Crane, chief financial officer.

Monday, 4 August 2014 at 6 p.m. U.S. EDT / Tuesday, 5 August 2014 at 8 a.m. AEST

LIVE U.S. CALL-IN: 1 (888) 771-4371

LIVE AUSTRALIA CALL-IN: 1 (800) 507-265

LIVE INTERNATIONAL CALL-IN: 1 (847) 585-4405

A REPLAY OF THE WEBCAST WILL BE AVAILABLE ON THE COMPANY'S WEBSITE

FOR 30 DAYS FROM THE DATE OF THIS CALL: investor.gidynamics.com