Small cap Endologix Inc. lost about one-third of its valuation after it pushed back the U.S. regulatory timeline for its Nellix Endovascular Aneurysm Sealing System. The Irvine, Calif.-based company said that it needs to conduct a confirmatory clinical study for a second generation device.

That trial will start enrolling during the fourth quarter, with a target for PMA approval in 2020.

The company had previously expected a PMA approval for the Nellix EVAS system during the second quarter of next year. Nellix EVAS is a system to treat infrarenal abdominal aortic aneurysms (AAA); it is novel in that it works by sealing off the entire aneurysmal sac.

WHAT'S NEXT?

The aortic disorders focused med-tech firm said it has sufficient cash to sustain it through that clinical and regulatory process. The regulatory delay does kick out its efforts to reach cash flow positive to mid-2019 from the prior expectation of mid-2018.

"We expect to collaborate with the FDA over the coming months on the confirmatory clinical study protocol and anticipate beginning patient enrollment in the fourth quarter of this year. Based on estimated timelines for enrollment, data collection, the submission and a panel meeting, we are forecasting a potential U.S. approval in the year 2020," said Endologix President Robert Mitchell on a conference call regarding the developments.

"Although the timing for potential approval is later than our original plans, we still feel the probability of success is higher essentially while the FDA agreed that the two-year results with the refined IFU (instructions for use) are encouraging. They still want prospective evidence and prefer the Gen-two device," he added. "We certainly could have pushed for an advisory panel meeting with the Gen-one device, but the continued risk and uncertainty is not worth it in our view. Instead, we believe the confirmatory study with the Gen-two device has a higher likelihood of success and will provide further evidence that EVAS with Nellix provides excellent patient outcomes."

Endologix is also working on another iteration of the device, Nellix Chevas that is aimed at AAA patients with complex anatomy, which it notes is the case for nearly one-third of diagnosed aneurysms. That development and regulatory timeline has been extended as well, with patient enrollment in a clinical trial now slated to start next year, and an approval targeted in 2021.

DOWNHILL SLIDE

This is just the latest in a series of setbacks for the company, which during the last half of 2016 faced a temporary suspension of its CE mark for its marketed product AFX as well as a related shipment hold. It was also required to narrow instructions for use for Nellix, which is marketed in the EU.

The company's revenues are largely driven by the Ovation Abdominal Stent Graft Platform, which is FDA-approved and has a CE mark. It also markets the AFX Endovascular AAA System, which combines anatomical fixation and graft material technology in an effort to treat a wide variety of anatomies. Its first quarter revenues of $42.6 million were almost entirely unchanged from the same quarter a year earlier.

Last month, Endologix signed a $170 million credit facility with high profile health care investor Deerfield Management. The company had $36 million in cash as of March 31, with a net loss of $21.3 million during the first quarter.

"Our previous projection for cash flow positive in the second half of 2018 now shifts back to the second half of 2019. Between the cash we have in the bank and our unused revolving line of credit, we are confident that we have sufficient funds and do not expect to raise additional capital until refinancing the $125 million in convertible bonds due in 2020," said Endologix CFO Vaseem Mahboob.

Endologix reaffirmed the 2017 revenue guidance offered earlier this year of between $193 million to $200 million, which would be a growth rate range of flat to 4 percent. But it did raise its anticipated GAAP loss per share to $(0.83) to $(0.86) from $(0.70) to $(0.76), which it attributed to interest expense and debt extinguishment charges.

Prior to its challenges during the last half of 2016, Endologix had a revenue growth rate in the high single digits and the company aims to recapture that performance rate.

The company (NASDAQ:ELGS) shed about $200 million in market cap on the Nellix delay news, falling to around $360 million from $560 million. Endologix went public in 1996 and last year completed a merger with Trivascular Technologies Inc.; its valuation exceeded $1 billion around the middle of last year.