While most investors were enjoying the Memorial Day holiday, medical technology company IMRIS Inc. and its affiliates were filing for bankruptcy protection in Delaware. The companies, which trade on the Toronto Stock Exchange under the symbol “IM” and on the NASDAQ Global Markets Exchange under “IMRS,” described the troubles leading to Monday’s bankruptcy filings:
As with many medical device companies, IMRIS has had numerous hurdles to achieving financial success, which are often not necessarily linked to the enormous benefits derived from its cutting-edge technology. First, IMRIS has historically incurred significant fixed operating costs allocated to research and development of new technologies. These investments often require large capital commitments over long development timeframes. While the Company has had some ability to eliminate or delay certain costs, delaying or halting these activities would have dramatically impacted the completion and commercialization of new products, further limiting the Company’s ability to grow the business.
In addition, the significant capital expenditures required by the Company’s customers to purchase and install a VISIUS Surgical Theatre has created enormous variability in the Company’s economic performance. Due to the size and complexity of these projects, the Company’s sales process requires that it engage with a number of different stakeholders within and outside the hospital, including surgeons, radiologists, anesthesiologists, facilities managers, hospital administrators and other hospital staff. As a result, the sales cycle associated with the marketing of our VISIUS Surgical Theatres is both complex and lengthy, with an average sales cycle of more than 12 months from initial customer engagement to receipt of a purchase order. Further, once a hospital purchases a VISIUS Surgical Theatre, the time for manufacture, delivery and installation of the product may exceed 12 months, which delays the Company’s ability to recognize revenue. In addition, because payment of a substantial portion of the purchase price for our products is not due from the customer until the system has been delivered, installed and accepted by the customers, delays in manufacturing, delivering and installing a completed system, as well as customer construction delays, may have a negative effect on the Company’s cash flow.
Moreover, the imaging medical device industry is heavily competitive, with the Company’s competitors being large medical systems suppliers that have considerably greater resources at their disposal than the Company does in terms of technology, manufacturing, product development, marketing, distribution, sales, commercialization, capital resources and human resources, with established relationships with hospitals. The Company’s competitors also generally have more experience in obtaining domestic and foreign regulatory approvals.
A combination of all of these factors have led to mounting losses for the Company. Total revenue in 2014 compared with 2013 decreased by $17.2 million or 37.3 percent to $28.9 million. Lower new order bookings in early 2013 resulted in lower backlog during 2013, particularly in new systems orders, which in turn resulted in lower revenues in 2014 due to the long delivery and installation cycles for the VISIUS Surgical Theatres, in part due to customer construction delays. Service revenue in 2014, including revenue from extended maintenance contracts, increased $1.7 million from 2013 primarily as a result of a larger install base of clinical VISIUS Surgical Theatres which have transitioned to chargeable service programs.
A combination of mounting losses, extensive capital expenditures and delayed new product sales has resulted in severely constrained liquidity, which has significantly affected the Company’s liquidity and ability to pay its debts as they become due.
Prior to filing these chapter 11 cases, the Company engaged Imperial Capital (“Imperial”) to explore a broad range of strategic financing and sale options for the Company and its various business units. Initially, Imperial focused its efforts on raising additional equity for the Company, either through a PIPE transaction or through a rights offering. In addition, Imperial was directed to explore the sale of the Company, either in its entirety as a going-concern or in parts, focusing on (i) the Imaging Business, (ii) Service Business and (iii) Robotics Business platforms. In all, Imperial approached 39 financial and strategy buyers for the Company’s assets. As this process unfolded, however, it became clear that owing to liquidity constraints, the Company could not effectuate a sale of its business, in whole or in part, outside of chapter 11.
After careful evaluation and further negotiation with the Company’s stakeholders, including Deerfield, it was determined that the structure and financial support through securing debtor- in-possession financing provided by Deerfield, as well as Deerfield’s ability to consummate a transaction within the limited time available for at least certain of the Company’s assets, presented the best option for the Company. The Debtors believe that the Company’s assets have been thoroughly marketed by Imperial and that an expedited sale of their business is essential to not only preserving the underlying value of their operations by providing customers and employees with a clear path forward, but in satisfying the Company’s obligations to its creditors.