UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
(Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ |
| Accelerated filer ◻ |
Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes
As November 4, 2022
INVIVO THERAPEUTICS HOLDINGS CORP.
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2022
TABLE OF CONTENTS
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Risk Factors Summary
Our business is subject to a number of risks of which you should be aware before making an investment decision. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors”, together with the other information in this Quarterly Report.
| ● | We are wholly dependent on the success of one product candidate, the Neuro-Spinal Scaffold implant, for which we recently completed enrollment into the INSPIRE 2.0 Study, and for which we expect top-line clinical results in the first quarter of 2023. We cannot be certain that we will be able to obtain favorable clinical results in our clinical trials, including in the INSPIRE 2.0 Study, and further, we cannot be certain that regulatory authorities will accept the results of our clinical trials or interpret them the way that we do. Further, even if we are able to obtain favorable clinical results, including in the INSPIRE 2.0 Study, we may not be able to obtain regulatory approval for, or successfully commercialize, our Neuro-Spinal Scaffold implant. |
| ● | We will need additional funding before achieving potential profitability. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate our product development programs or commercialization efforts, engage in one or more potential transactions, or cease our operations entirely. |
| ● | We anticipate that we will continue to incur substantial losses for the foreseeable future and may never achieve or maintain profitability. |
| ● | The continuing COVID-19 pandemic may have adverse effects on our business and operations, including, for example, the disruption of regulatory activities. In addition, this pandemic has caused substantial disruption in economies worldwide, and may cause disruption in the financial markets, both of which could result in adverse effects on our business and operations. |
| ● | If we cannot protect, maintain and, if necessary, enforce our intellectual property rights, our ability to develop and commercialize products will be adversely impacted. |
| ● | We will depend upon strategic relationships to develop and manufacture our products. If these relationships are not successful, we may not be able to capitalize on the market potential of these products. |
| ● | Our success depends on our ability to retain our management and other key personnel. |
| ● | We may face, and in the past have faced, lawsuits, which could divert management’s attention and harm our business. |
| ● | The price of our common stock has been and may continue to be volatile, which could lead to losses by investors and costly securities litigation. |
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PART I — FINANCIAL INFORMATION
Item 1.Financial Statements.
InVivo Therapeutics Holdings Corp.
Consolidated Balance Sheets
(In thousands, except share and per-share data)
(Unaudited)
As of | |||||||
| September 30, |
| December 31, |
| |||
2022 | 2021 | ||||||
ASSETS: |
|
| |||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Prepaid expenses |
| |
| | |||
Other current assets |
| |
| | |||
Total current assets |
| |
| | |||
Property, equipment and leasehold improvements, net |
| |
| | |||
Restricted cash - non-current | | | |||||
Operating lease right-of-use assets | | | |||||
Prepaid clinical trial expenses |
| |
| | |||
Total assets | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Operating lease liabilities | | | |||||
Accrued expenses |
| |
| | |||
Total current liabilities |
| |
| | |||
Other liabilities | | | |||||
Operating lease liabilities - non-current | | | |||||
Total liabilities |
| |
| | |||
Commitments and contingencies (Note 5) | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $ | — | — | |||||
Common stock, $ |
| |
| | |||
Additional paid-in capital |
| |
| | |||
Accumulated deficit | ( | ( | |||||
Total stockholders’ equity |
| |
| | |||
Total liabilities and stockholders’ equity | $ | | $ | | |||
See notes to the unaudited consolidated financial statements.
(Reflects the retrospective application of the 1-for- reverse stock split effective April 26, 2022)
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InVivo Therapeutics Holdings Corp.
Consolidated Statements of Operations
(In thousands, except share and per-share data)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Operating expenses: |
|
|
|
| |||||||||
Research and development | $ | | $ | | $ | | $ | | |||||
General and administrative |
| |
| |
| |
| | |||||
Total operating expenses |
| |
| |
| |
| | |||||
Operating loss |
| ( |
| ( |
| ( |
| ( | |||||
Other income: | |||||||||||||
Interest income |
| |
| |
| |
| | |||||
Other income | — | | | | |||||||||
Interest and other income, net | | | | | |||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per share, basic and diluted | ( | ( | ( | ( | |||||||||
Weighted average number of common shares outstanding, basic and diluted |
| |
| |
| |
| | |||||
See notes to the unaudited consolidated financial statements.
(Reflects the retrospective application of the 1-for- reverse stock split effective April 26, 2022)
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InVivo Therapeutics Holdings Corp.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share and per-share data)
(Unaudited)
Additional | Total | |||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||
Balance as of December 31, 2021 | | $ | | $ | | $ | ( | $ | | |||||
Share-based compensation expense |
| — | — | | — | | ||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balance as of March 31, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
Share-based compensation expense |
| — | — | | — | | ||||||||
Forfeiture of restricted stock | ( | — | — | — | — | |||||||||
Fractional shares issued due to 1 for reverse stock split |
| | — | — | — | — | ||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balance as of June 30, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
Share-based compensation expense |
| — | — | | — | | ||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balance as of September 30, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
Additional | Total | |||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||
Balance as of December 31, 2020 | | $ | | $ | | $ | ( | $ | | |||||
Share-based compensation expense |
| — | — | | — | | ||||||||
Issuance of common stock upon exercise of warrants |
| | — | | — | | ||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balance as of March 31, 2021 |
| | $ | | $ | | $ | ( | $ | | ||||
Share-based compensation expense |
| — | — | | — | | ||||||||
Issuance of common stock upon vesting of restricted stock units | | — | — | — | — | |||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balance as of June 30, 2021 |
| | $ | | $ | | $ | ( | $ | | ||||
Share-based compensation expense |
| — | — | | — | | ||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balance as of September 30, 2021 |
| | $ | | $ | | $ | ( | $ | | ||||
See notes to the unaudited consolidated financial statements.
(Reflects the retrospective application of the 1-for- reverse stock split effective April 26, 2022)
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InVivo Therapeutics Holdings Corp.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended | ||||||
September 30, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: |
|
| ||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization |
| | | |||
Amortization of operating lease right-of-use assets | | | ||||
Share-based compensation expense |
| | | |||
Changes in operating assets and liabilities: | ||||||
Prepaid expenses and other current assets |
| ( | ( | |||
Prepaid clinical trial expenses |
| | — | |||
Accounts payable |
| | | |||
Operating lease liability | ( | ( | ||||
Accrued expenses and other liabilities |
| ( | ( | |||
Net cash used in operating activities |
| ( | ( | |||
Cash flows from investing activities: | ||||||
Purchases of property and equipment | ( | ( | ||||
Net cash used in investing activities |
| ( | ( | |||
Cash flows from financing activities: | ||||||
Proceeds from exercise of warrants | — | | ||||
Net cash provided by financing activities |
| — | | |||
(Decrease) / Increase in cash and cash equivalents and restricted cash |
| ( | | |||
Cash, cash equivalents and restricted cash at beginning of period |
| | | |||
Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information and non-cash investing and financing activities: | ||||||
Property and equipment in accounts payable and accrued expenses | $ | | $ | — | ||
Increase in operating right-of-use assets and liabilities related to lease modifications | $ | — | $ | | ||
See notes to the unaudited consolidated financial statements.
(Reflects the retrospective application of the 1-for- reverse stock split effective April 26, 2022)
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InVivo Therapeutics Holdings Corp.
Notes to Consolidated Financial Statements for the Quarter Ended September 30, 2022 (Unaudited)
1. | NATURE OF OPERATIONS AND GOING CONCERN, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS |
Business
InVivo Therapeutics Holdings Corp., including its subsidiary (the “Company”) is a biomaterials and biotechnology company with a focus on the treatment of spinal cord injuries (“SCIs”). The Company’s proprietary technologies incorporate intellectual property that is licensed under an exclusive, worldwide license from Boston Children’s Hospital (“BCH”) and the Massachusetts Institute of Technology (“MIT”), as well as intellectual property that has been developed internally in collaboration with its advisors and partners.
Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company has historically financed its operations primarily through the sale of equity-related securities. The Company has not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. The Company does not expect to be profitable in the next several years, but rather expects to incur additional operating losses. The Company has limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain its product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of its anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses, and other working capital requirements.
Going Concern
The Company’s consolidated financial statements as of September 30, 2022 were prepared under the assumption that the Company will continue as a going concern. As of September 30, 2022, the Company had unrestricted cash and cash equivalents of $
The Company’s ability to continue as a going concern depends on its ability to obtain additional equity or debt financing, attain further operating efficiencies, manage expenditures, and, ultimately, to generate revenue. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on its audited financial statements, and it is likely that investors will lose all or part of their investment .
COVID-19
As a result of the COVID-19 pandemic, a significant number of the Company’s clinical sites temporarily suspended enrollment into the INSPIRE 2.0 Study at their institution in 2020. As such, the COVID-19 pandemic did affect enrollment in the Company’s INSPIRE 2.0 Study. On June 2, 2022, the Company announced that it had completed enrollment in the INSPIRE 2.0 Study. The Company did not experience any significant impact from the COVID-19 pandemic on its financial condition, liquidity, other operations, suppliers, industry, and workforce during the three and nine months ended September 30, 2022. The full impact of the COVID-19 pandemic continues to evolve as of the date of filing this Quarterly Report on Form 10-Q. The Company is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce, as there remains significant uncertainty related to the COVID-19 pandemic globally. Given the evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is not able to estimate the ultimate effects of the COVID-19 pandemic on its future results of operations, financial condition, or
8
liquidity in the future. However, as the COVID-19 pandemic continues, it may have an adverse effect on the Company’s results of future operations, financial position, and liquidity, and even after the COVID-19 pandemic has subsided, the Company may experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in the future.
Reverse Stock Split
The 2022 Reverse Stock Split became effective at 5:00 pm New York time on April 26, 2022, with the common stock trading on a post-split basis under the Company's existing trading symbol, “NVIV,” at the market open on April 27, 2022. Fractional shares resulting from the 2022 Reverse Stock Split were rounded up to the nearest whole share, and all shares of common stock (including fractions thereof) issuable upon the 2022 Reverse Stock Split to a given stockholder were aggregated for the purpose of determining whether the 2022 Reverse Stock Split would result in the issuance of a fractional share. Pursuant to Section 78.209 of the Nevada Revised Statutes, the Company’s Board of Directors was able take action to effect the 2022 Reverse Stock Split by filing a Certificate of Change with the Secretary of State of the State of Nevada without the consent of the Company’s stockholders.
All of the Company’s historical share and per share information related to issued and outstanding common stock and outstanding options and warrants exercisable for common stock in these consolidated financial statements have been adjusted, on a retroactive basis, to reflect the 2022 Reverse Stock Split.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 7, 2022. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of September 30, 2022 and its results of operations and cash flows for the interim periods presented, and are not necessarily indicative of results for subsequent interim periods or for the full year. The interim consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements, as allowed by the relevant SEC rules and regulations; however, the Company believes that its disclosures are adequate to ensure that the information presented is not misleading.
New Accounting Pronouncements
No accounting standards known by the Company to be applicable to it that have been issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies and that do not require adoption until a future date are expected to have a material impact on the Company’s consolidated financial statements upon adoption.
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2. | CASH AND CASH EQUIVALENTS |
The Company considers only those investments that are highly liquid, readily convertible to cash, and that mature within three months from date of purchase to be cash equivalents. From time to time, the Company may have cash balances in financial institutions in excess of insurance limits. The Company has not experienced any losses related to these balances. Management believes it is not exposed to significant credit risk.
Cash and cash equivalents consisted of the following:
September 30, | December 31, | ||||||
(In thousands) |
| 2022 |
| 2021 |
| ||
Cash | $ | | $ | | |||
Money market funds |
| |
| | |||
Total cash and cash equivalents | $ | | $ | | |||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
September 30, | December 31, | |||||
(In thousands) |
| 2022 |
| 2021 | ||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash included in other non-current assets (Note 3) | | | ||||
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | | $ | | ||
3. | RESTRICTED CASH |
Restricted cash as each of September 30, 2022 and December 31, 2021 was $
4. | FAIR VALUES OF ASSETS AND LIABILITIES |
The Company groups its assets and liabilities generally measured at fair value into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 — Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 — Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
As of September 30, 2022 | ||||||||||||
(In thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||
Cash equivalents | $ | | $ | — | $ | — | $ | | ||||
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As of December 31, 2021 | |||||||||||||
(In thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | |||||
Cash equivalents | $ | | $ | — | $ | — | $ | | |||||
During the three and nine months ended September 30, 2022 and 2021, there were
The Company believes the carrying amounts of its prepaid expenses and other current assets, restricted cash, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these amounts.
5. | COMMITMENTS AND CONTINGENCIES |
Operating Leases
On May 3, 2018, the Company entered into a sublease for
Concurrent with the Sublease Termination, the Company entered into a new lease for the same space with ARE-MA (the “Cambridge Lease”). The Cambridge Lease commenced on June 1, 2021 and was scheduled to expire on December 31, 2023. The Cambridge Lease contains rent escalation clauses. In connection with the Cambridge Lease, a new standby letter of credit was established for $
The Sublease Termination and concurrent execution of the Cambridge Lease was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract. As such, the right-of-use assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of
On November 23, 2021, the Company amended the Cambridge Lease to extend the term through December 31, 2024. No other terms within the Cambridge Lease were amended. The amendment of the Cambridge Lease was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract. As such, the right-of-use assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:
| ● | As the Cambridge Lease does not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. |
| ● | Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the combined lease component. |
| ● | The expected lease terms include noncancelable lease periods. |
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The elements of lease expense are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
Lease cost (In thousands) | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Operating lease cost | $ | | $ | | $ | | $ | | |||
Short-term lease cost | | — | | | |||||||
Variable lease cost | | | | | |||||||
Total lease cost | $ | | $ | | $ | | $ | | |||
Other information (In thousands) | |||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
Operating cash flows from short term leases | $ | | $ | — | $ | | $ | | |||
Operating cash flows from operating leases | | | | | |||||||
Total cash paid for leases | $ | | $ | | $ | | $ | | |||
Weighted-average remaining lease term - operating leases | |||||||||||
Weighted-average discount rate - operating leases | |||||||||||
Maturities of the lease liability due under the Cambridge Lease as of September 30, 2022 are as follows:
Leases (In thousands) | As of September 30, 2022 |
| |
2022 (excluding the nine months ended September 30, 2022) | $ | | |
2023 | | ||
2024 | | ||
Total lease payments | | ||
Less: imputed interest | ( | ||
Present value of lease liabilities | $ | | |
Right-of-use lease assets and lease liabilities are reported in the Company’s consolidated balance sheets as follows:
Leases (In thousands) | Classification |
| September 30, 2022 | December 31, | ||||
Assets | ||||||||
Lease asset, net | Operating | $ | | $ | | |||
Total lease assets | $ | | $ | | ||||
Liabilities | ||||||||
Current | Operating | $ | | $ | | |||
Non-current | Operating | | | |||||
Total lease liabilities | $ | | $ | | ||||
Clinical Trial Commitments
The Company has engaged and executed contracts with clinical research organizations (“CROs”) to assist with the administration of its ongoing INSPIRE 1.0 and INSPIRE 2.0 clinical trials. As of September 30, 2022, approximately $
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6. FIXED ASSETS
Property, equipment, and leasehold improvements, net consisted of the following:
September 30, | December 31, | ||||||
(In thousands) |
| 2022 |
| 2021 |
| ||
Computer software | $ | | $ | | |||
Computer hardware | | | |||||
Leasehold improvements |
| |
| | |||
Research and lab equipment |
| |
| | |||
Property and equipment | | | |||||
Less accumulated depreciation |
| ( |
| ( | |||
Property and equipment, net | $ | | $ | | |||
Depreciation expense for the three and nine months ended September 30, 2022 was $
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
September 30, | December 31, | ||||||
(In thousands) |
| 2022 |
| 2021 |
| ||
Compensation | $ | | $ | | |||
Clinical |
| | | ||||
Legal | | — | |||||
Other accrued expenses |
| | | ||||
Total accrued expenses | $ | | $ | | |||
8. | EMPLOYEE BENEFIT PLAN |
In November 2006, the Company adopted a 401(k) plan (the “401k Plan”) covering all employees. Employees must be
9. | STOCKHOLDERS EQUITY |
Preferred Stock
As of September 30, 2022, the Company has
Common Stock
The Company has authorized
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During the nine months ended September 30, 2022, as part of the adjustment to reflect the 2022 Reverse Stock Split, the Company issued an aggregate of
During the nine months ended September 30, 2022,
During the three and nine months ended September 30, 2022, there was
During the nine months ended September 30, 2021, the Company issued an aggregate of
During the nine months ended September 30, 2021, the Company issued an aggregate of
10. | STOCK-BASED COMPENSATION |
On October 26, 2010, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2010 Equity Incentive Plan (as subsequently amended, the “2010 Plan”). The 2010 Plan provided for grants of incentive stock options to employees, and nonqualified stock options and restricted common stock to employees, consultants, and non-employee directors of the Company.
In April 2015, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan provides for grants of incentive stock options to employees, and nonqualified stock options, restricted common stock, restricted stock units (“RSUs”), and stock appreciation rights to employees, consultants, and non-employee directors of the Company.
As of September 30, 2022, the total number of shares available for issuance under the 2015 Plan was
Options issued under the Plan, and 2015 Plan (collectively, the “Plans”) are exercisable for up to
Stock-based compensation
The following table summarizes stock-based compensation expense by financial statement line item in the Company’s condensed consolidated statements of operation for each of the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(In thousands) | 2022 | 2021 | 2022 | 2021 | |||||||
Research and development | $ | | $ | | $ | ( | $ | | |||
General and administrative | | | | | |||||||
Total | $ | | $ | | $ | | $ | | |||
The fair value of each option award is estimated on the date of grant using the Black‑Scholes option pricing model, which uses the following assumptions; (i) Risk-free interest rate, (ii) Expected dividend yield, (iii) Expected term and (iv) Expected volatility. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercises within the valuation model. The expected term of options granted under the Plans, all of which qualify as “plain vanilla,” is based on the average of the contractual term (
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options, the expected term is the contractual term. The risk‑free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. The impact of forfeitures on compensation expense is recorded as they occur.
The Company grants RSUs and restricted stock awards (“RSAs”), collectively referred to as Restricted Securities under the 2015 Equity Incentive Plan. These Restricted Securities generally vest over a
The Company did
Stock options
The following table summarizes the stock option activity for the nine months ended September 30, 2022:
Weighted | |||||||||||
Weighted | Average | ||||||||||
Average | Remaining | Aggregate | |||||||||
Exercise | Contractual | Intrinsic | |||||||||
Options |
| Shares |
| Price |
| Term in Years | Value | ||||
Outstanding at December 31, 2021 |
| | $ | | $ | — | |||||
Cancelled/Forfeited | ( | $ | | ||||||||
Outstanding as of September 30, 2022 |
| | $ | |
| $ | — | ||||
Vested and Exercisable as of September 30, 2022 |
| | $ | | $ | — | |||||
Vested and expected to vest as of September 30, 2022 |
| | $ | |
| $ | — | ||||
The total fair value of options that vested in nine months ended September 30, 2022 was $
Restricted Securities
The following table summarizes the restricted securities activity for the nine months ended September 30, 2022;
Weighted-Average | |||||
Restricted Securities |
| Number of Grants |
| Grant Date Fair Value | |
Unvested balance as of December 31, 2021 | | $ | | ||
Vested | ( | $ | | ||
Forfeited | ( | $ | | ||
Unvested balance as of September 30, 2022 | — | $ | — | ||
During the three and nine months ended September 30, 2022, the Company recorded stock-based compensation expense of $
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11. WARRANTS
The following table presents information about warrants to purchase common stock issued and outstanding as of September 30, 2022:
|
|
| Number of |
| Exercise Price as of |
| ||||||
Year Issued | Defined Name | Classification | Warrants | September 30, 2022 | Date of Expiration | |||||||
2018 Series A Warrants | Equity | | $ | | ||||||||
2019 Placement Agent Warrants | Equity | | $ | | ||||||||
March 2020 Series A Warrants | Equity | | $ | | ||||||||
March 2020 Placement Agent Warrants | Equity | | $ | | ||||||||
March 2020 Series B Warrants | Equity | | $ | | Until Fully Exercised | |||||||
April 2020 Series C Warrants | Equity | | $ | | ||||||||
April 2020 Placement Agent Warrants | Equity | | $ | | ||||||||
October 2020 Placement Agent Warrants | Equity | | $ | | ||||||||
October 2020 Series A Warrants | Equity | | $ | | ||||||||
Total |
| | ||||||||||
Weighted average exercise price | $ | | ||||||||||
Weighted average life in years |
| |||||||||||
12. NET LOSS PER COMMON SHARE
Basic and diluted net loss per share of common stock has been computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted net loss per share of common stock is computed by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, warrants and convertible securities. In a net loss period, options, warrants, unvested Restricted Securities and convertible securities are anti-dilutive and, therefore, excluded from diluted loss per share calculations.
For the nine months ended September 30, 2022 and 2021 the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive:
September 30, | ||||
2022 | 2021 | |||
Warrants | | | ||
Stock options | | | ||
Unvested RSUs | — | | ||
Unvested RSAs | — | | ||
Total potentially dilutive securities | | | ||
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13. INCOME TAXES
The Company did
14. SUBSEQUENT EVENT
On October 9, 2022, the Company closed the October 2022 Registered Direct Offering and concurrent October 2022 Private Placement, of its common shares and warrants to purchase common shares with an institutional investor. In the October 2022 Registered Direct Offering, the Company issued (i) an aggregate of
Registered Direct Offering was $
Preferred Investment Option sold in each of the October 2022 Registered Direct Offering and October 2022
Private Placement was $
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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis should be read in conjunction with the unaudited consolidated financial statements included elsewhere in this Quarterly Report and with our historical consolidated financial statements, and the related notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”). The management’s discussion and analysis contains forward-looking statements within the meaning of the safe harbor provisions under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include statements made regarding our commercialization strategy, future operations, cash requirements and liquidity, capital requirements, and other statements on our business plans and strategy, financial position, and market trends. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “should,” “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and other similar expressions. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Quarterly Report, including factors such as our ability to raise substantial additional capital to finance our planned operations and to continue as a going concern; our ability to execute our strategy and business plan; our ability to obtain regulatory approvals for our products, including the Neuro-Spinal Scaffold™; our ability to successfully commercialize our current and future product candidates, including the Neuro-Spinal Scaffold; the progress and timing of our development programs; market acceptance of our products; our ability to retain management and other key personnel; our ability to promote, manufacture, and sell our products, either directly or through collaborative and other arrangements with third parties; the impact of the COVID-19 pandemic and our response to it; and other factors detailed under “Risk Factors” in Part II, Item 1A of this Quarterly Report. These forward-looking statements speak only as of the date hereof. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report, except as required by law.
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
All share amounts presented in this Item 2 give effect to the 1-for-25 reverse stock split of our outstanding shares of common stock, par value $0.00001 per share (“common stock”), that occurred on April 26, 2022.
Overview
We are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of spinal cord injuries, or SCIs. Our approach to treating acute SCIs is based on our investigational Neuro-Spinal Scaffold™ implant, a bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord and is intended to treat acute SCI. The Neuro-Spinal Scaffold implant incorporates intellectual property licensed under an exclusive, worldwide license from Boston Children’s Hospital, or BCH, and the Massachusetts Institute of Technology, or MIT. We also plan to evaluate other technologies and therapeutics that may be complementary to our development of the Neuro-Spinal Scaffold implant, such as stem cells, therapeutics or electrical stimulation, including in combination with learnings applied from our Neuro-Spinal Scaffold implant or technologies that offer the potential to bring us closer to our goal of redefining the life of the SCI patient.
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The current standard of care for acute management of spinal cord injuries focuses on preventing further injury to the spinal cord. However, the current standard of care does not address repair of the spinal cord.
Our Clinical Program
We currently have one clinical development program for the treatment of acute SCI.
Neuro-Spinal Scaffold Implant for acute SCI
Our Neuro-Spinal Scaffold implant is an investigational bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord. The Neuro-Spinal Scaffold implant is intended to promote appositional, or side-by-side, healing by supporting the surrounding tissue after injury, minimizing expansion of areas of necrosis, and providing a biomaterial substrate for the body’s own healing/repair processes following injury. We believe this form of appositional healing may spare white matter, increase neural sprouting, and diminish post-traumatic cyst formation.
The Neuro-Spinal Scaffold implant is composed of two biocompatible and bioresorbable polymers that are cast to form a highly porous investigational product:
| ● | Poly lactic-co-glycolic acid, a polymer that is widely used in resorbable sutures and provides the biocompatible support for Neuro-Spinal Scaffold implant; and |
| ● | Poly-L-Lysine, a positively charged polymer commonly used to coat surfaces in order to promote cellular attachment. |
Because of the complexity of SCIs, it is likely that multi-modal therapies will be required to maximize positive outcomes in SCI patients. In the future, we may attempt to further enhance the performance of our Neuro-Spinal Scaffold implant by multiple combination strategies involving electrostimulation devices, additional biomaterials, drugs approved by the U.S. Food and Drug Administration, or FDA, or growth factors. We expect the Neuro-Spinal Scaffold implant to be regulated by the FDA as a Class III medical device.
INSPIRE 2.0 Study
Our Neuro-Spinal Scaffold implant has been approved to be studied under our approved Investigational Device Exemption, or IDE, in the INSPIRE 2.0 Study, which is titled the “Randomized, Controlled, Single-blind Study of Probable Benefit of the Neuro-Spinal Scaffold™ for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A Spinal Cord Injury as Compared to Standard of Care.” The purpose of the INSPIRE 2.0 Study is to assess the overall safety and probable benefit of the Neuro-Spinal Scaffold for the treatment of neurologically complete thoracic traumatic acute SCI. The INSPIRE 2.0 Study is designed to enroll 10 subjects into each of the two study arms, which we refer to as the Scaffold Arm and the Comparator Arm. Patients in the Comparator Arm will receive the standard of care, which is spinal stabilization without dural opening or myelotomy. The INSPIRE 2.0 Study is a single blind study, meaning that the patients and assessors are blinded to treatment assignments. The FDA approved the enrollment of up to 35 patients in this study so that there would be at least 20 evaluable patients (10 in each study arm) at the primary endpoint analysis, accounting for events such as randomization or screen failures or deaths that would prevent a patient from reaching the primary endpoint visit. On June 2, 2022, we announced that we completed enrollment in the INSPIRE 2.0 Study and expect to present topline data from the INSPIRE 2.0 Study in the first quarter of 2023.
The primary endpoint of the INSPIRE 2.0 Study is defined as the proportion of patients achieving an improvement of at least one American Spinal Injury Association Impairment Scale (“AIS”) grade at six months post-implantation. Assessments of AIS grade are at hospital discharge, three months, six months, 12 months and 24 months. The definition of study success for INSPIRE 2.0 is that the difference in the proportion of subjects who demonstrate an improvement of at least one grade on AIS assessment at the 6-month primary endpoint follow-up visit between the Scaffold Arm and the Comparator Arm must be equal to or greater than 20%. In one example, if 50% of subjects in the Scaffold Arm have an improvement of AIS grade at the six-month primary endpoint and 30% of subjects in the Comparator Arm have an improvement, then the difference in the proportion of subjects who demonstrated an
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improvement is equal to 20% (50% minus 30% equals 20%) and the definition of study success would be met. In another example, if 40% of subjects in the Scaffold Arm have an improvement of AIS grade at the six-month primary endpoint and 30% of subjects in the Comparator Arm have an improvement, then the difference in the proportion of subjects who demonstrated an improvement is equal to 10% (40% minus 30% equals 10%) and the definition of study success would not be met. Additional endpoints include measurements of changes in neurological level of injury, sensory levels and motor scores, bladder, bowel and sexual function, pain, Spinal Cord Independence Measure, and quality of life.
Our Neuro-Spinal Scaffold was previously studied in The INSPIRE Study: the “InVivo Study of Probable Benefit of the Neuro- Spinal Scaffold for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A Spinal Cord Injury,” under an IDE application for the treatment of neurologically complete thoracic traumatic acute SCI. Although The INSPIRE Study was structured with an Objective Performance Criterion, or the OPC as the primary component for demonstrating probable benefit, the OPC is not the only variable that the FDA would evaluate when reviewing a future human device exemption, or HDE, application. Similarly, while our INSPIRE 2.0 Study is structured with a definition of study success requiring a minimum difference between study arms in the proportion of subjects achieving improvement, that success definition is not the only factor that the FDA would evaluate in the future HDE application. Approval is not guaranteed if the OPC is met for The INSPIRE Study or the definition of study success is met for the INSPIRE 2.0 Study, and even if the OPC or definition of study success are not met, the FDA may approve a medical device if probable benefit is supported by a comprehensive review of all clinical endpoints and preclinical results, as demonstrated by the sponsor’s body of evidence.
In 2016, the FDA accepted our proposed HDE modular shell submission and review process for the Neuro-Spinal Scaffold implant. The HDE modular shell is comprised of three modules: a preclinical module, a manufacturing module, and a clinical data module. As part of its review process, the FDA reviews each module, which are individual sections of the HDE submission, on a rolling basis. Following the submission of each module, the FDA reviews and provides feedback, typically within 90 days, allowing the applicant to receive feedback and potentially resolve any deficiencies during the review process. Upon receipt of all three modules, which constitutes the complete HDE submission, the FDA makes a filing decision that may trigger the review clock for an approval decision. We submitted the first module (the preclinical module) in March 2017. In July 2021, the FDA informed us that our preclinical module was accepted. In December 2021, we submitted the second module (the manufacturing module) to the FDA. In June 2022, we received feedback from the FDA on the second module (the manufacturing module) and we are actively assessing the FDA’s responses and potential timelines for submitting a response for the second module.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions and, in connection therewith, adopt certain accounting policies that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, we evaluate our estimates and judgments for all assets and liabilities and stock-based compensation expense. We base our estimates and judgments on historical experience, current economic and industry conditions, and on various other factors that we believe to be reasonable under the circumstances. Such factors form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes in our critical accounting policies and estimates from the disclosure provided in our 2021 Annual Report.
We believe that the consolidated financial statements accurately reflect our best estimate of the results of operations, financial position, and cash flows for the periods presented.
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
Research and Development Expenses
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Research and development expenses consisted primarily of expenses related to contract research organizations and clinical sites, professional services, and payroll. Research and development expenses for the three months ended September 30, 2022 were relatively flat year over year at $1.2 million.
General and Administrative Expenses
General and administrative expenses consisted primarily of payroll, rent, and professional services. General and administrative expenses for the three months ended September 30, 2022 were $1.6 million, an increase of $0.3 million compared to the three months ended September 30, 2021. The increase in general and administrative expenses for the three months ended September 30, 2022 is primarily due to an increase in legal and investor relations costs of $0.2 million primarily due to increased fees associated with the company’s 2022 Annual Meeting and an increase of $0.1 million in other net immaterial accounts.
Other Income and Expense, net
Other income for the three months ended September 30, 2022, was comprised of interest income of $45 thousand. Other income for the three months ended September 30, 2021 was immaterial.
Comparison of the Nine Months Ended September 30, 2022 and 2021
Research and Development Expenses
Research and development expenses consisted primarily of expenses related to contract research organizations and clinical sites, professional services, and payroll. Research and development expenses for the nine months ended September 30, 2022 were $3.9 million, an increase of $0.9 million compared to the nine months ended September 30, 2021. The increase in research and development expenses for the nine months ended September 30, 2022 can be attributed to an increase in clinical trial and consulting costs of $0.4 million primarily due to increased clinical trial and quality activities, an increase in compensation related expense of $0.3 million primarily due to a severance payment made to a former employee, an increase of $0.1 million in facilities related costs and an increase of $0.1 million in other net immaterial accounts.
General and Administrative Expenses
General and administrative expenses consisted primarily of payroll, rent, and professional services. General and administrative expenses for the nine months ended September 30, 2022 were $4.2 million an increase of $0.3 million compared to the nine months ended September 30, 2021. The increase in general and administrative expenses for the nine months ended September 30, 2022 is primarily due to an increase in legal and investor relations costs of $0.2 million primarily due to increased fees associated with the company’s 2022 Annual Meeting and an increase of $0.1 million in other net immaterial accounts.
Other Income and Expense, net
Other income for the nine months ended September 30, 2022, was comprised of interest income of $57 thousand and other income of $9 thousand. Other income for the nine months ended September 30, 2021 was immaterial.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including planned capital expenditures. Since inception, we have devoted substantially all of our efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, and raising capital. We have historically financed our operations primarily through the sale of equity-related securities. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expects to incur additional operating losses.
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As of September 30, 2022, we had approximately $9.1 million in working capital, our accumulated deficit was $246.3 million, we had total assets of $13.4 million, total liabilities of $3.3 million, and total stockholders’ equity of $10.1 million. In the October 2022 Financing, we received gross proceeds of $9.0 million, before deducting placement agent fees and other offering expenses payable by us. During the nine months ended September 30, 2022, we recorded a net loss of $8.1 million. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating losses. We believe that our cash and cash equivalents as of September 30, 2022 together with proceeds from the October 2022 Financing will provide necessary funding to fund operations into the first quarter of 2024. This estimate is based on assumptions that may prove to be wrong; expenses could prove to be significantly higher, leading to a more rapid consumption of our existing resources.
We have limited liquidity and capital resources and must obtain significant additional capital resources in order to fund our operations and sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses and for other working capital requirements. We will need to raise additional capital through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additionally, the COVID-19 pandemic could have a continued adverse impact on economic and market conditions and extend the period of global economic slowdown, which could impair our ability to raise needed funds.
We may pursue various other dilutive and non‑dilutive funding alternatives depending upon our clinical path forward and the extent to which we require additional capital to proceed with development of some or all of our product candidates on expected timelines. The source, timing and availability of any future financing will depend principally upon market conditions and the status of our clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and capital expenditures or to license our potential products or technologies to third parties. We may alternatively engage in cost-cutting measures in an attempt to extend our cash resources as long as possible. If we are unable to raise additional capital, we may be forced to cease operations entirely.
If we are unable to continue as a going concern, we may have to liquidate its assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or part of their investment.
Cashflows
Net cash used in operating activities for the nine months ended September 30, 2022, consisted of net loss of $8.1 million, non-cash items of $0.4 million and cash used by working capital of $0.6 million. Adjustments for non-cash items consisted primarily of $0.3 million in amortization of operating lease right-of-use assets and $0.1 million in stock-based compensation expense. The change in cash from working capital included a $0.4 million decrease in accrued expenses, and a $0.3 million decrease in the operating lease liability. These changes were offset by a $0.3 million increase in accounts payable and a $0.9 million increase in prepaid expenses and other assets.
Net cash used in operating activities for the nine months ended September 30, 2021 consisted of net loss of $7.0 million, non-cash items of $0.5 million and cash used by working capital of $0.4 million. Adjustments for non-cash items consisted primarily of $0.2 million in amortization of operating lease right-of-use assets and $0.2 million in stock-based compensation expense. The change in cash from working capital included a $0.1 million increase in prepaid expenses and other assets and a $0.2 million decrease in the operating lease liability.
Net cash used in investing activities for the nine months ended September 30, 2022 was $0.1 million related to the purchase of manufacturing and lab equipment. The Company did not generate or use cash in investing activities during the nine months ended September 30, 2021.
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The Company did not generate or use cash in financing activities during the nine months ended September 30, 2022. Net cash generated by financing activities for the nine months ended September 30, 2021 was $8.5 million related to proceeds from the exercise of warrants.
Inflation and Changing Prices
We do not believe that inflation has had, or will have, a material impact on our operating costs and earnings.
Material Cash Requirements from Contractual Obligations
Leases
As of September 30, 2022, we reported current and long-term operating lease liabilities of $0.4 million and $0.7 million, respectively. These balances represent our contractual obligation to make future payments on our Cambridge Sublease (as described in Note 5 in the Notes to Consolidated Financial Statements), discounted to reflect our cost of borrowing. In the event that we were to vacate the Cambridge facility, we may be obliged to continue making payments under the Cambridge Lease (as described in Note 5 in the Notes to Consolidated Financial Statements).
Clinical Trial Commitments
We have engaged and executed contracts with clinical research organizations to assist with the administration of our ongoing INSPIRE 1.0 and INSPIRE 2.0 clinical trials. As of September 30, 2022, approximately $4.3 million remains to be paid on these contracts.
See Note 5, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements for information regarding our commitments.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of September 30, 2022, the Company’s chief executive officer and chief financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1A. Risk Factors.
Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected.
Risks Related to Our Financial Position and Need for Additional Capital
We are wholly dependent on the success of one product candidate, the Neuro-Spinal Scaffold implant, for which we recently completed enrollment into the INSPIRE 2.0 Study, and for which we expect top-line clinical results in the first quarter of 2023. We cannot be certain that we will be able to obtain favorable clinical results in our clinical trials, including in the INSPIRE 2.0 Study, and further, we cannot be certain that regulatory authorities will accept the results of our clinical trials or interpret them the way that we do. Further, even if we are able to obtain favorable clinical results, including in the INSPIRE 2.0 Study, we may not be able to obtain regulatory approval for, or successfully commercialize, our Neuro-Spinal Scaffold implant.
We currently have only one product candidate, the Neuro-Spinal Scaffold implant, in clinical development, and our business depends almost entirely on the successful clinical development, regulatory approval, and commercialization of that product candidate, which may never occur. We expect top-line clinical results in the first quarter of 2023 for the INSPIRE 2.0 Study, and we cannot be certain that these data will be favorable, or even if favorable, whether regulatory authorities such as the FDA will accept the results of the trial.
We currently have no products available for sale, generate no revenues from sales of any products, and we may never be able to develop marketable products. Our Neuro-Spinal Scaffold implant will require substantial additional clinical development, testing, manufacturing process development, and regulatory approval before we are permitted to commence its commercialization. Before obtaining regulatory approval via the Humanitarian Device Exemption, or HDE, pathway for the commercial sale of any product candidate, we must demonstrate through extensive preclinical testing and clinical trials that the product candidate does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use, taking into account the probable risks and benefits of currently available devices or alternative forms of treatment.
Although we have completed enrollment into our INSPIRE 2.0 Study, our clinical trial results may subsequently fail to meet the safety and probable benefit standards required to obtain regulatory approvals. For example, in the INSPIRE Study, two of the 16 evaluable patients were initially assessed to have improved from complete AIS A SCI to incomplete AIS B SCI, but each was later assessed to have reverted to complete AIS A SCI prior to the patient’s 6-month examination. Of these two patients, one patient had converted back to AIS B and the other patient remained at AIS A at the six-month examination. There is known and published variability in some of the measures used to assess AIS improvement and these measures can vary over time or depending upon the examiner. While we implemented procedures in The INSPIRE Study and the INSPIRE 2.0 Study to limit such variations and will also implement procedures in any future clinical study to limit such variations, we cannot be certain that regulatory authorities will accept the results of our clinical trials or interpret them the way that we do.
Alternatively, if we were to seek premarket approval, or PMA, for our product candidate, that would require demonstration that the product is safe and effective for use in each target indication. This process can take many years. Of the large number of medical devices in development in the United States, only a small percentage successfully complete the regulatory approval process required by the FDA and are commercialized. Accordingly, even if we are able to obtain the requisite capital to continue to fund our development and clinical programs, we may be unable to successfully develop or commercialize our Neuro-Spinal Scaffold implant or any other product candidate.
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The clinical trials of any of our current or future product candidates are, and the manufacturing and marketing of any such product candidates will be, subject to extensive and rigorous review and regulation by the FDA and other government authorities in the United States and in other countries where we intend to test and, if approved, market such product candidates.
We will need additional funding before achieving potential profitability. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate our product development programs or commercialization efforts, engage in one or more potential transactions, or cease our operations entirely.
We believe we have sufficient cash resources to continue our business operations into the first quarter of 2024. We expect that our expenses will increase in connection with our ongoing activities, particularly as we seek potential regulatory approval for our Neuro-Spinal Scaffold implant. If we obtain regulatory approval for any of our current or future product candidates, we expect to incur significant commercialization expenses related to manufacturing, marketing, sales, and distribution. Accordingly, we will need to obtain additional funding in connection with our continuing operations.
If we are unable to raise additional capital, we may seek to engage in one or more potential transactions, such as the sale of our company, a strategic partnership with one or more parties or the licensing, sale or divestiture of some of our assets or proprietary technologies, or we may be forced to cease our operations entirely. There can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis or on terms that are favorable to us. If we are unable to raise capital when needed or on attractive terms, or should we engage in one or more potential strategic transactions, we could be forced to delay, reduce, or eliminate our research and development programs or any future commercialization efforts or to cease operations entirely. If we determine to change our business strategy or to seek to engage in a strategic transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management. Because of the significant uncertainty regarding these events, we are not able to accurately predict the impact of any potential changes in our existing business strategy.
Our future funding requirements, both near and long term, will depend on many factors, including, but not limited to:
| ● | the scope, progress, results, and costs of preclinical development, laboratory testing, clinical trials, and potential regulatory approval for our Neuro-Spinal Scaffold implant and any other product candidates that we may develop or acquire, including our INSPIRE 2.0 Study and the associated top-line data readout planned for the first quarter of 2023; |
| ● | future clinical trial results of our Neuro-Spinal Scaffold implant; including the results of the INSPIRE 2.0 Study; |
| ● | the timing of, and the costs involved in, obtaining regulatory approvals for the Neuro-Spinal Scaffold implant, and the outcome of regulatory review of the Neuro-Spinal Scaffold implant; |
| ● | the cost and timing of future commercialization activities for our products if any of our product candidates are approved for marketing, including product manufacturing, marketing, sales, and distribution costs; |
| ● | the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; |
| ● | the cost of having our product candidates manufactured for clinical trials in preparation for regulatory approval and in preparation for commercialization; |
| ● | the cost and delays in product development as a result of any changes in regulatory oversight applicable to our product candidates; |
| ● | our ability to establish and maintain strategic collaborations, licensing, or other arrangements and the financial terms of such agreements; |
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| ● | the cost and timing of establishing sales, marketing, and distribution capabilities; |
| ● | the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio; |
| ● | the efforts and activities of competitors and potential competitors; |
| ● | the effect of competing technological and market developments; and |
| ● | the extent to which we acquire or invest in businesses, products, and technologies. |
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. For example, the top-line data from our INSPIRE 2.0 Study is expected in the first quarter of 2023, and the data may not support regulatory approval for the Neuro-Spinal Scaffold implant. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
We have a limited operating history and have incurred significant losses since our inception.
We have incurred net losses each year since our inception, including net losses of $8.1 million for the nine months ended September 30, 2022, and net losses of $9.9 million for the year ended December 31, 2021 and $9.1 million for the year ended December 31,, 2020. As of September 30, 2022, we had an accumulated deficit of $246.3 million. We have a limited operating history on which to base an evaluation of our business and investors should consider the risks and difficulties frequently encountered by early-stage companies in new and rapidly evolving markets, particularly companies engaged in the development of medical devices. To date, we have not commercialized any products or generated any revenues from the sale of products, and we do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable. Moreover, we may allocate significant amounts of capital towards products and technologies for which market demand is lower than anticipated and, as a result, may not achieve expectations or may elect to abandon such efforts.
We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities related to our Neuro-Spinal Scaffold implant. Overall, we expect our research and development expenses to be substantial and to increase for the foreseeable future as we continue the development and clinical investigation of our current and future products. We expect that it could be several years, if ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval to market our Neuro-Spinal Scaffold implant or other products, our future revenues will depend upon the size of any markets in which our products have received approval, our ability to achieve sufficient market acceptance, reimbursement from third-party payers, and other factors.
We anticipate that we will continue to incur substantial losses for the foreseeable future and may never achieve or maintain profitability.
We expect to continue to incur significant expenses and increasing net losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
| ● | continue clinical development of our Neuro-Spinal Scaffold implant; |
| ● | initiate or restart the research and development of other product candidates; |
| ● | have our product candidates manufactured for clinical trials and for commercial sale; |
| ● | establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval; |
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| ● | maintain, protect, and expand our intellectual property portfolio; and |
| ● | continue our research and development efforts for new product opportunities. |
To become and remain profitable, we must succeed in developing and commercializing our product candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our current and future product candidates, developing additional product candidates, obtaining regulatory approval for these product candidates, and manufacturing, marketing, and selling any products for which we may obtain regulatory approval. We are only in the initial stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings, or even continue our operations. A decline in the value of our company could cause an investor to lose all or part of their investment.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations, or require us to relinquish rights to our product candidates on unfavorable terms to us.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, and other third party funding alternatives including license and collaboration agreements. To raise additional capital or pursue strategic transactions, we may in the future sell additional shares of our common stock, or other securities convertible into or exchangeable for our common stock, which will dilute the ownership interest of our current stockholders, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our current stockholders. If we raise additional funds through collaborations, strategic alliances, or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs, or grant licenses on terms that may not be favorable to us or that may reduce the value of our common stock. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce, or terminate our product development or commercialization efforts for our Neuro-Spinal Scaffold implant or any other product candidates that we develop or acquire or to cease operations entirely.
Although we recently increased the number of authorized shares available, future increases in authorized shares may be required for future financings or other strategic transactions. We have previously experienced difficulties obtaining quorum for our annual meetings of stockholders and achieving the number of votes required for increases in authorized shares. If we continue to experience such difficulties, we will be limited in our efforts to raise additional capital, and our operations, financial condition and our ability to continue as a going concern may be materially and adversely affected.
We will need to seek the additional capital necessary to fund our operations through public or private equity offerings, debt financings, and collaborative and licensing arrangements. We have limited capital and in order for us to execute on our business plan and remain viable as a going concern, we must have the flexibility to engage in capital raising transactions until we are able to generate sufficient revenue and cash flow. Investors in prior transactions have purchased our common stock or our derivative securities, such as warrants, for which we must reserve unissued common stock. We therefore may need to increase the number of authorized shares of our common stock in order to issue common stock or securities convertible or exercisable into common stock to investors and other strategic partners, and as a result enable us to engage in capital raising transactions and other strategic transactions involving the issuance of equity securities.
Such increases to our authorized common stock require shareholder approval. Our 2019 Annual Meeting of stockholders was initially postponed due to a lack of quorum, and we were able to successfully achieve quorum and the votes required to pass the proposal to increase the number of authorized shares only after announcing a new record date for the meeting, which was held in January 2020. Our 2020 Annual Meeting of stockholders was held in August 2020,
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and we were able to achieve quorum and obtain the number of votes necessary to approve an increase in our authorized common stock, without having to postpone the meeting. Our 2021 Annual Meeting of stockholders was held in July 2021, and we were able to achieve quorum but we were not able to obtain the number of necessary votes to approve an increase in our authorized common stock. In connection with our 2022 Annual Meeting of Stockholders, which took place on September 9, 2022, our Board adopted and applied a voting rights plan, which allowed certain shareholders exercise additional voting rights with respect to their shares of common stock to which the voting rights are applied (the “Voting Rights Plan”). The Voting Rights Plan was of limited scope of and purpose and was designed to facilitate the approval of an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock and another amendment to the Company’s Articles of Incorporation to authorize shares of “blank-check” preferred stock at the 2022 Annual Meeting. Although the implementation of the Voting Rights Plan allowed us to successfully pass both proposals at the 2022 Annual Meeting, we cannot be sure that we will not experience future difficulties in obtaining quorum for our annual meetings or difficulties in obtaining the necessary votes required to pass proposals such as increases in authorized shares, as we experienced at the 2021 Annual Meeting and prior meetings. In such events, we will be limited in our efforts to raise additional capital, and our operations, financial condition and our ability to continue as a going concern may be materially and adversely affected.
Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition.
As part of Congress’ response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, was enacted on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was enacted on March 27, 2020. Both contain numerous tax provisions. In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation on the use of net operating losses, or NOLs, which was enacted as part of the Tax Act. It also provides that NOLs arising in any taxable year beginning after December 31, 2017 and before January 1, 2021 are generally eligible to be carried back up to five years. The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxes the limitation of the tax deductibility for net interest expense by increasing the limitation from 30% to 50% of adjusted taxable income. The Company has evaluated the impact of the CARES Act and determined it to have an immaterial effect on the Company’s tax position.
Regulatory guidance under the Tax Act, the FFCR Act and the CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition. Congress is also considering and may enact further tax law changes in connection with the COVID-19 pandemic, some of which could have an impact on our company. In addition, state tax legislation or administration guidance conforming to or decoupling from particular provisions of the Tax Act, the FFCR Act and the CARES Act could affect our business or financial condition.
Our ability to use our net operating loss carryforwards and tax credit carryforwards may be limited.
We have generated significant NOLs and research and development tax credits, or R&D credits, as a result of our incurrence of losses and our conduct of research activities since inception. We generally are able to carry NOLs and R&D credits forward to reduce our tax liability in future years but certain NOL carryforwards could expire unused and be unavailable to offset our future income tax liabilities. As described above in “Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition,” the Tax Act, as amended by the CARES Act, includes changes to U.S. federal tax rates and the rules governing NOLs that may significantly impact our ability to utilize our NOLs to offset taxable income in the future. Nor is it clear how various states will respond to the Tax Act, the FFCR Act or the CARES Act. In addition, state NOLs generated in one state cannot be used to offset income generated in another state. For these reasons, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.
In addition, our ability to utilize the NOLs and R&D credits is subject to the rules of Sections 382 and 383, respectively, of the Code. Those sections generally restrict the use of NOLs and R&D credits after an “ownership change.” An ownership change occurs if, among other things, the stockholders (or specified groups of stockholders) who own or have owned, directly or indirectly, 5% or more of a corporation’s common stock or are otherwise treated as 5% stockholders under Section 382 of the Code and the United States Treasury Department regulations promulgated thereunder increase their aggregate percentage ownership of that corporation’s stock by more than 50 percentage points
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over the lowest percentage of the stock owned by these stockholders over the applicable testing period. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards and Section 383 imposes an annual limitation on the amount of tax a corporation may offset with business credit (including the R&D credit) carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL or R&D credit carryforwards. We have completed several financings since our inception, which may have resulted in an ownership change as defined by Sections 382 and 383 of the Code, or could result in an ownership change in the future, but we have not completed an analysis of whether a limitation as noted above exists. As of September 30, 2022, we have not performed a Section 382 study yet, but we will complete an appropriate analysis before our tax attributes are utilized.
Acquisitions of companies, businesses, or technologies may substantially dilute our stockholders and increase our operating losses.
We continue to actively evaluate business partnerships and acquisitions of businesses, technologies, or intellectual property rights that we believe would be necessary, useful, or complementary to our current business. Any such acquisition may require assimilation of the operations, products or product candidates, and personnel of the acquired business and the training and integration of its employees, and could substantially increase our operating costs, without any offsetting increase in revenue. We may also acquire the right to use certain intellectual property through licensing agreements, which could substantially increase our operating costs. Acquisitions and licensing agreements may not provide the intended technological, scientific or business benefits and could disrupt our operations and divert our limited resources and management’s attention from our current operations, which could harm our existing product development efforts. While we may use cash or equity to finance a future acquisition or licensing agreement, it is likely we would issue equity securities as a significant portion or all of the consideration in any acquisition. The issuance of equity securities for an acquisition could be substantially dilutive to our stockholders. Any investment made in, or funds advanced to, a potential acquisition target could also significantly, adversely affect our results of operations and could further reduce our limited capital resources. Any acquisition or action taken in anticipation of a potential acquisition or other change in business activities could substantially depress the price of our stock. In addition, our results of operations may suffer because of acquisition related costs, or the post-acquisition costs of funding the development of an acquired technology or product candidates or operations of the acquired business, or due to amortization or impairment costs for acquired goodwill and other intangible assets.
Risks Related to our Business
The COVID-19 pandemic, which began in late 2019 and has had impacts worldwide, previously delayed our potential to enroll patients in our INSPIRE 2.0 clinical trial and may, in the future continue to have other adverse effects on our business and operations, including the disruption of regulatory activities. In addition, this pandemic has caused substantial disruption to economies worldwide and may adversely impact the financial markets, both of which could result in adverse effects on our business and operations.
The COVID-19 pandemic, which began in December 2019, has had impacts worldwide, causing many governments to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border scrutiny, and other measures. The outbreak and government measures taken in response, including widespread emergency orders requiring business and residents to curtail non-essential activities, have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the outbreak and its effects on our business and operations are uncertain. We and our clinical research organizations, as well as clinical trial sites, have faced disruptions related to the INSPIRE 2.0 clinical trial arising from suspension of activity at numerous clinical trial sites due to hospital staff shortages or state or city ‘‘stay at home’’ or ‘‘shelter in place’’ orders, delays in the ability to obtain necessary institutional review board, or IRB, or other necessary site approvals, as well as other delays at clinical trial sites. Specifically, we are aware that a significant number of our clinical sites had previously temporarily suspended enrollment into the INSPIRE 2.0 Study at their institution due to the coronavirus pandemic. Although we have now completed enrollment into our INSPIRE 2.0 Study, the full impact of the COVID-19 pandemic continues to evolve as of the date of filing this Quarterly Report on Form 10-Q, including the impact of potential COVID-19 variants and the impact of vaccine rollout efforts, and we cannot be certain what future impact the COVID-19 pandemic may have on our business and operations. Additionally, the response to the
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COVID-19 pandemic may redirect resources of regulators in a way that would adversely impact our ability to progress regulatory approvals. In addition, we may face impediments to regulatory meetings and approvals due to measures intended to limit in-person interactions. Any of these factors could continue to adversely impact our ability to seek potential regulatory approval of our Neuro-Spinal Scaffold implant. Additionally, the pandemic could cause significant disruptions in the financial markets, which could impact our ability to raise additional funds through public offerings and may also impact the volatility of our stock price and trading in our stock. Moreover, it is possible the pandemic will continue to significantly impact economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has the potential to adversely affect our business, financial condition, results of operations, and prospects.
In addition, clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:
| ● | obtain regulatory approval to commence future clinical trials; |
| ● | reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
| ● | obtain IRB approval at each site; |
| ● | recruit, enroll, and retain patients through the completion of clinical trials; |
| ● | maintain clinical sites in compliance with trial protocols through the completion of clinical trials; |
| ● | address patient safety concerns that arise during the course of the trial; |
| ● | initiate or add a sufficient number of clinical trial sites; or |
| ● | manufacture sufficient quantities of our product candidate for use in clinical trials. |
We could encounter delays if a clinical trial is suspended or terminated by us, by the relevant IRB at the sites at which such trials are being conducted, by the Data Safety Monitoring Board for such trial, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, a problematic inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse events, or changes in laws or regulations. In addition, regulatory agencies may require an audit with respect to the conduct of a clinical trial, which could cause further delays or increase costs. For example, in December 2017, we and several of our clinical sites and our CRO were subject to an FDA inspection in association with The INSPIRE Study. At the close of the inspection at the Company, the FDA issued a Form 483 with two observations relating to our oversight of clinical trial sites in The INSPIRE Study. We sought input from the FDA regarding the scope and timing of our proposed remediation efforts and the FDA has indicated that our corrective actions appear adequate. We cannot be certain that we will not be subject to additional regulatory action by the FDA. Our remediation efforts have added, and may continue to add, costs to our clinical development plans. Any delays in completing our clinical trials will increase our costs, slow down our product candidate development and regulatory review process, and jeopardize our ability to obtain approval and commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition, and prospects significantly.
Risks Related to the Development, Regulatory Approval, and Commercialization of Our Product Candidates
We have experienced delays in our clinical development of our Neuro-Spinal Scaffold implant. Clinical trials for future product candidates may also experience delays or may not be able to commence.
Before we can obtain regulatory approval for the sale of any of our product candidates, including the Neuro-Spinal Scaffold implant, we must complete the clinical studies that are required. We previously experienced delays in our clinical development of the Neuro-Spinal Scaffold implant, and we cannot be certain that we won’t experience future delays in or not successfully complete the clinical development of other product candidates. For example, in July 2017, the INSPIRE Study of our Neuro-Spinal Scaffold implant was placed on hold following the third patient death in the
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trial. We subsequently closed enrollment in The INSPIRE Study and will follow the active patients until completion. Although we have now completed enrollment into the INSPIRE 2.0 Study, we experienced delays in the enrollment of subjects into the study. Future clinical studies and clinical development may take longer than anticipated because of any number of factors, including potential delays in the enrollment of subjects in the study, including delays due to the COVID-19 pandemic, the availability of scaffold implants or other investigational products to supply to our clinical sites, failure to demonstrate clinical success, the lack of adequate funding to continue any clinical trials, or unforeseen safety issues. Further, enrolling patients into any clinical trial will continue to require the approval of the institutional review boards, or IRBs, at each clinical site.
In addition, clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:
| ● | obtain regulatory approval to commence future clinical trials; |
| ● | reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
| ● | obtain IRB approval at each site; |
| ● | recruit, enroll, and retain patients through the completion of clinical trials; |
| ● | maintain clinical sites in compliance with trial protocols through the completion of clinical trials; |
| ● | address patient safety concerns that arise during the course of the trial; |
| ● | initiate or add a sufficient number of clinical trial sites; or |
| ● | manufacture sufficient quantities of our product candidate for use in clinical trials. |
We could encounter delays if a clinical trial is suspended or terminated by us, by the relevant IRB at the sites at which such trials are being conducted, by the Data Safety Monitoring Board for such trial, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, a problematic inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse events, or changes in laws or regulations. In addition, regulatory agencies may require an audit with respect to the conduct of a clinical trial, which could cause further delays or increase costs. For example, in December 2017, we and several of our clinical sites and our CRO were subject to an FDA inspection in association with The INSPIRE Study. At the close of the inspection at the Company, the FDA issued a Form 483 with two observations relating to our oversight of clinical trial sites in The INSPIRE Study. We sought input from the FDA regarding the scope and timing of our proposed remediation efforts and the FDA has indicated that our corrective actions appear adequate. We cannot be certain that we will not be subject to additional regulatory action by the FDA. Our remediation efforts have added, and may continue to add, costs to our clinical development plans. Any delays in completing our clinical trials will increase our costs, slow down our product candidate development and regulatory review process, and jeopardize our ability to obtain approval and commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition, and prospects significantly.
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier nonclinical studies and clinical trials may not be predictive of future trial results.
The results of preclinical studies and early clinical trials of new medical devices do not necessarily predict the results of later-stage clinical trials. The design of our clinical trials is based on many assumptions about the expected effects of our product candidates, and if those assumptions are incorrect, the trials may not produce results to support regulatory approval. We are currently pursuing marketing approval via the HDE regulatory pathway which requires us to show the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit of health outweighs the risk of injury or illness from its use. Preliminary results may not be confirmed upon full analysis of the detailed results of an early clinical trial. Product candidates in later stages of clinical development may fail to show safety and probable benefit sufficient to support intended use claims despite having progressed through initial clinical
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testing. The data collected from clinical trials of our product candidates may not be sufficient to obtain regulatory approval in the United States or elsewhere. It is also possible that patients enrolled in clinical trials will experience adverse events or unpleasant side effects that are not currently part of the product candidate’s profile. Because of the uncertainties associated with clinical development and regulatory approval, we cannot determine if or when we will have an approved product ready for commercialization or achieve sales or profits, including in connection with the results of our INSPIRE 2.0 Study for our Neuro-Spinal Scaffold implant.
We must obtain FDA approval before we can sell any of our products in the United States and approval of similar regulatory authorities in countries outside the United States before we can sell our products in such countries. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our products if such approval is denied or delayed.
The development, manufacture, and marketing of our products are subject to government regulation in the United States and other countries. In the United States and most foreign countries, we must complete rigorous preclinical testing and extensive human clinical trials that demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product. If the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution. Expanded or additional indications for approved devices may not be approved, which could limit our potential revenues. Foreign regulatory authorities may apply similar or additional limitations or may refuse to grant any approval. Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for our products, the FDA and foreign regulatory authorities may not ultimately grant approval for commercial sale in any jurisdiction. If our product candidates are not approved, our ability to generate revenues will be limited and our business will be adversely affected.
We are currently pursuing an HDE regulatory pathway in the United States for our Neuro-Spinal Scaffold implant. The HDE requires that there is no other comparable device available to provide therapy for a condition and requires sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. The amended protocol for The INSPIRE Study, which was approved in February 2016, established an Objective Performance Criteria, or OPC, which is a measure of study success used in clinical studies designed to demonstrate safety and probable benefit in support of an HDE approval. The OPC for The INSPIRE Study is currently defined as 25% or more of the patients in the study demonstrating an improvement of at least one ASIA Impairment Scale, or AIS, grade by six months post-implantation. While we expect The INSPIRE Study to serve as one source of data used to support HDE approval in the future, we did not complete full enrollment of that study. In addition, although The INSPIRE Study is structured with the OPC as the primary component for demonstrating probable benefit, the OPC is not the only variable that the FDA would evaluate when reviewing a future HDE application.
The FDA had previously recommended that we include a randomized, concurrent control arm in the study and we have proposed and received approval for the INSPIRE 2.0 Study. The primary endpoint is defined as the proportion of patients achieving an improvement of at least one AIS grade at six months post-implantation. The definition of study success is that the difference in the proportion of subjects who demonstrate an improvement of at least one grade on AIS assessment at the six-month primary endpoint follow-up visit between the Scaffold Arm and the Comparator Arm must be equal to or greater than 20%. While our INSPIRE 2.0 Study is structured with a definition of study success requiring a minimum difference between groups in the percentage of subjects achieving improvement, that success definition is not the only factor that the FDA would evaluate in the future HDE application.
Approval is not guaranteed if the OPC is met for The INSPIRE Study or the definition of study success is met for the INSPIRE 2.0 Study, and even if the OPC or definition of study success are not met, the FDA may approve a medical device if probable benefit is supported by a comprehensive review of all clinical endpoints and preclinical results, as demonstrated by the sponsor’s body of evidence.
In addition, as one source of comparator data, we completed the CONTEMPO Registry Study, utilizing existing databases and registries to develop a historical comparator that, to the extent possible, matches patients to those patients enrolled in The INSPIRE Study. Analysis of data from the CONTEMPO Registry Study may suggest a higher threshold for evidencing probable benefit. For example, AIS conversion rates at approximately six months post-injury across the three registries used in CONTEMPO varied from 16.7% – 23.4%, which are higher than the approximately 15.5%
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conversion rate from the historical registries that were the basis for the selection of the current OPC for The INSPIRE Study.
Even if we successfully complete the INSPIRE 2.0 Study, we cannot be certain that the FDA will agree that this study, together with the CONTEMPO Registry Study, provides sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use.
In the event our clinical data is not acceptable to the FDA, our ability to obtain approval under the HDE pathway may be delayed or may not be feasible. If the FDA does not approve our product candidates in a timely fashion, or at all, our business and financial condition will be adversely affected.
The 21st Century Cures Act increased the upper population limit for an HDE from 4,000 to 8,000, which allows us to potentially request an expansion of our current Humanitarian Use Device, or HUD to include additional patient populations beyond our current HUD for complete SCI. If we choose to pursue such an expansion, this may cause our application to be delayed or cause the FDA to request additional information. In addition, our current study is not designed to support approval beyond complete SCI. Thus, expansion would require additional studies. We cannot be certain that we will be able to increase the potential population that we might be able to treat based on the HDE pathway. If any of these events occur, our business and financial condition will be adversely affected.
There are risks associated with pursuing FDA approval via an HDE pathway, including the possibility that the approval could be withdrawn in the future if the FDA subsequently approves another device for the same intended use, as well as limitations on the ability to profit from sales of the product.
If the FDA subsequently approves a PMA or clears a 510(k) for the HUD or another comparable device with the same indication, the FDA may withdraw the HDE. Once a comparable device becomes legally marketed through PMA or 510(k) clearance to treat or diagnose the disease or condition in question, there may no longer be a need for the HUD and so the HUD may no longer meet the requirements of section 520(m)(2)(B) of the Food Drug & Cosmetic Act, or the FDCA.
Except in certain circumstances, products approved under an HDE cannot be sold for an amount that exceeds the costs of research and development, fabrication, and distribution of the device (i.e., for profit). Currently, under section 520(m)(6)(A)(i) of the FDCA, as amended by the Food and Drug Administration Safety and Innovation Act, a HUD is only eligible to be sold for profit after receiving HDE approval if the device (1) is intended for the treatment or diagnosis of a disease or condition that occurs in pediatric patients or in a pediatric subpopulation, and such device is labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs; or (2) is intended for the treatment or diagnosis of a disease or condition that does not occur in pediatric patients or that occurs in pediatric patients in such numbers that the development of the device for such patients is impossible, highly impracticable, or unsafe. If an HDE-approved device does not meet either of the eligibility criteria, the device cannot be sold for profit. With enactment of the FDA Reauthorization Act of 2017, Congress provided that the exemption for HUD / HDE profitability is available as long as the request for an exemption is submitted before October 1, 2022.
Some of our future products may be viewed by the FDA as combination products and the review of combination products is often more complex and more time consuming than the review of other types of products.
Our future products may be regulated by the FDA as combination products. For a combination product, the FDA must determine which center or centers within the FDA will review the product candidate and under what legal authority the product candidate will be reviewed. The process of obtaining FDA marketing clearance or approval is lengthy, expensive, and uncertain, and we cannot be sure that any of our combination products, or any other products, will be cleared or approved in a timely fashion, or at all. In addition, the review of combination products is often more complex and more time consuming than the review of a product candidate under the jurisdiction of only one center within the FDA. We cannot be sure that the FDA will not select to have our combination products reviewed and regulated by only one FDA center and/or different legal authority, in which case the path to regulatory approval would be different and could be lengthier and more costly. If the FDA does not approve or clear our products in a timely fashion, or at all, our business and financial condition will be adversely affected.
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We may face substantial competition, which may result in others discovering, developing, or commercializing products before or more successfully than we do.
In general, the biotechnology industry is subject to intense competition and rapid and significant technological change. We have many potential competitors, including major drug companies, specialized biotechnology firms, academic institutions, government agencies, and private and public research institutions. Many of these competitors have significantly greater financial and technical resources than us, and superior experience and expertise in research and development, preclinical testing, design and implementation of clinical trials, regulatory processes and approval for products, production and manufacturing, and sales and marketing of approved products. Large and established companies compete in the biotechnology market. In particular, these companies have greater experience and expertise in securing government contracts and grants to support their research and development efforts, conducting testing and clinical trials, obtaining regulatory approvals to market products, manufacturing such products on a broad scale, and marketing approved products. Smaller or early-stage companies and research institutions may also prove to be significant competitors, particularly if they have collaborative arrangements with larger and more established biotechnology companies. We will also face competition from these parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, and registering subjects for clinical trials.
In order to effectively compete, we will have to make substantial investments in development, clinical testing, manufacturing, and sales and marketing, or partner with one or more established companies. There is no assurance that we will be successful in having our products approved or gaining significant market share for any of our products. Our technologies and products also may be rendered obsolete or noncompetitive as a result of products introduced by our competitors.
The results of our clinical trials may not support our product candidate claims or may result in the discovery of adverse side effects.
Our ongoing research and development, preclinical testing, and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities both in the United States and abroad. Clinical studies must be conducted in compliance with FDA regulations or the FDA may take enforcement action. The data collected from these clinical studies may ultimately be used to support market clearance for these products. Even if our clinical trials are completed as planned, we cannot be certain that their results will support our product candidate claims or that the FDA will agree with our conclusions regarding them. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and preclinical studies. The clinical trial process may fail to demonstrate that our product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’s profile.
If approved, our products will require market acceptance to be successful. Failure to gain market acceptance would impact our revenues and may materially impair our ability to continue our business.
Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of our products will depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurance companies, and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. Physicians and hospitals will need to establish training and procedures to utilize and implement our Neuro-Spinal Scaffold implant, and there can be no assurance that these parties will adopt the use of our device or develop sufficient training and procedures to properly utilize it. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, both within and outside of our control. Payers may view new products or products that have only recently been launched or with limited clinical data available, as investigational, unproven, or experimental, and on that basis may deny coverage of procedures involving use of our products. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business.
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If we or our suppliers fail to comply with FDA regulatory requirements, or if we experience unanticipated problems with any approved products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain regulatory approval, and the manufacturing processes, reporting requirements, post-approval clinical data, and promotional activities for such product, will be subject to continued regulatory review and oversight by the FDA. In particular, we and our third-party suppliers will be required to comply with the FDA’s Quality System Regulations, or QSRs. These FDA regulations cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of products. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to QSR requirements, this could delay production of our product candidates and lead to fines, difficulties in obtaining regulatory clearances, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a material adverse effect on our financial condition and results of operations.
In addition, we and our suppliers are required to comply with Good Manufacturing Practices and Good Tissue Practices with respect to any human cells and biologic products we may develop, and International Standards Organization regulations for the manufacture of our products, and other regulations which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage, and shipping of any product for which we obtain clearance or approval. Manufacturing may also be subject to controls by the FDA for parts of the combination products that the FDA may find are controlled by the biologics regulations.
The FDA audits compliance with the QSR and other similar regulatory requirements through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in any of the following enforcement actions:
| ● | untitled letters, warning letters, fines, injunctions, consent decrees, and civil penalties; |
| ● | unanticipated expenditures to address or defend such actions; |
| ● | customer notifications or repair, replacement, refunds, recall, detention, or seizure of our products; |
| ● | operating restrictions or partial suspension or total shutdown of production; |
| ● | refusing or delaying our requests for premarket approval of new products or modified products; |
| ● | withdrawing PMA that have already been granted; |
| ● | refusal to grant export approval for our products; or |
| ● | criminal prosecution. |
Any of these sanctions could have a material adverse effect on our reputation, business, results of operations, and financial condition.
Our products and operations are subject to extensive governmental regulation both in the United States and abroad, and our failure to comply with applicable requirements could cause our business to suffer.
Our medical device and biologic products and operations are subject to extensive regulation by the FDA and various other federal, state, and foreign governmental authorities. Government regulation of medical devices and biologic products is meant to assure their safety and effectiveness, and includes regulation of, among other things:
| ● | design, development, and manufacturing; |
| ● | testing, labeling, content, and language of instructions for use and storage; |
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| ● | clinical trials; |
| ● | product safety; |
| ● | marketing, sales, and distribution; |
| ● | regulatory clearances and approvals including premarket clearance and approval; |
| ● | conformity assessment procedures; |
| ● | product traceability and record keeping procedures; |
| ● | advertising and promotion; |
| ● | product complaints, complaint reporting, recalls, and field safety corrective actions; |
| ● | post-market surveillance, including reporting of deaths or serious injuries, and malfunctions that, if they were to recur, could lead to death or serious injury; |
| ● | post-market studies; and |
| ● | product import and export. |
The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could impede our ability to carry on or expand our operations and could result in higher than anticipated costs or lower than anticipated sales.
Before we can market or sell a new regulated medical device product in the United States, we must obtain clearance under Section 510(k) of the FDCA, approval of a PMA, or approval of an HDE, unless the device is specifically exempt from premarket review. Our Neuro-Spinal Scaffold implant is expected to be regulated by the FDA as a Class III medical device, requiring either PMA or HDE approval. A HUD designation was granted for the Neuro-Spinal Scaffold implant in 2013, opening the HDE pathway.
In the PMA process, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing, and labeling data.
Modifications to products that are approved through an HDE or PMA generally need FDA approval. The process of obtaining an HDE or PMA is costly and generally takes from one to three years, or even longer, from the time the application is submitted to the FDA until an approval is obtained.
An HDE application is similar in form and content to a PMA and, although exempt from the effectiveness requirements of a PMA, an HDE does require sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. Like a PMA, changes to HDE devices generally need FDA approval.
Biological products must satisfy the requirements of the Public Health Services Act and its implementing regulations. In order for a biologic product to be legally marketed in the U.S., the product must have a biologics license applicable approved by the FDA. The testing and approval process requires substantial time, effort, and financial resources, and each may take several years to complete.
The FDA can delay, limit, or deny clearance or approval of a product for many reasons, including:
| ● | we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended uses; |
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| ● | the data from our preclinical studies and clinical trials may be insufficient to support clearance or approval, where required; and |
| ● | the manufacturing process or facilities we use may not meet applicable requirements. |
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions that may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently approved or cleared products on a timely basis.
Further, even after we have obtained the proper regulatory clearance or approval to market a product, the FDA may require us to conduct post-marketing studies. Failure to conduct required studies in a timely manner could result in the revocation of approval for the product that is subject to such a requirement and could also result in the recall or withdrawal of the product, which would prevent us from generating sales from that product in the United States.
Failure to comply with applicable laws and regulations could jeopardize our ability to sell our products and result in enforcement actions such as:
| ● | warning letters; |
| ● | fines; |
| ● | injunctions; |
| ● | civil penalties; |
| ● | termination of distribution; |
| ● | recalls or seizures of products; |
| ● | delays in the introduction of products into the market; |
| ● | total or partial suspension of production; |
| ● | refusal of the FDA or other regulators to grant future clearances or approvals; |
| ● | withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products; and/or |
| ● | in the most serious cases, criminal penalties. |
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, results of operations, and financial condition.
If our products, or the malfunction of our products, cause or contribute to a death or a serious injury before or after approval, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers with approved products are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. Any such serious adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. In the context of our ongoing clinical trial, we report adverse events to the FDA in accordance with IDE regulations and to other relevant regulatory authorities in accordance with applicable national and local regulations. Any corrective action, whether voluntary or involuntary, and either pre- or post-market, needed to
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address any serious adverse events will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
Our products, once approved, may in the future be subject to product recalls. A recall of our products, either voluntarily or at the direction of the FDA, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
If our products are approved for commercialization, the FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the decision to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious injury or death. A government-mandated or voluntary recall by us or one of our partners could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects, or other deficiencies and issues. Recalls of any of our commercialized products would divert managerial and financial resources and have an adverse effect on our reputation, results of operations, and financial condition, which could impair our ability to manufacture our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be subject to liability claims, be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate profits.
If we obtain approval for our products, we may be subject to enforcement action if we engage in improper marketing or promotion of our products.
We are not permitted to promote or market our investigational products. After approval, our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of unapproved, or off-label, use. Surgeons may use our products off-label, as the FDA does not restrict or regulate a surgeon’s choice of treatment within the practice of medicine. However, if the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine, or criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the products could be impaired. In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in substantial damage awards against us, and harm our reputation.
If we obtain approval for our products, their commercial success will depend in part upon the level of reimbursement we receive from third parties for the cost of our products to users.
The commercial success of any product will depend, in part, on the extent to which reimbursement for the costs of our products and related treatments will be available from third-party payers such as government health administration authorities, private health insurers, managed care programs, and other organizations. Adequate third-party insurance coverage may not be available for us to establish and maintain price levels that are sufficient for us to continue our business or for realization of an appropriate return on investment in product development.
Legislative or regulatory reform of the healthcare systems in which we operate may affect our ability to commercialize our product candidates and could adversely affect our business.
The government and regulatory authorities in the United States, the European Union, and other markets in which we plan to commercialize our product candidates may propose and adopt new legislation and regulatory requirements relating to the approval, Conformité Européenne (CE) or European Union marking, manufacturing, promotion, or reimbursement of medical device and biologic products. It is impossible to predict whether legislative changes will be enacted or applicable regulations, guidance, or interpretations changed, and what the impact of such changes, if any, may be. Such legislation or regulatory requirements, or the failure to comply with such, could adversely impact our operations and could have a material adverse effect on our business, financial condition, and results of operations.
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The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory clearance or approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Certain policies of the current or future administrations may impact our business and industry. It is difficult to predict how any executive actions will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If executive actions impose restrictions on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
For example, in the United States, legislative changes have been enacted in the past and further changes are proposed that would impact the Patient Protection and Affordable Care Act, or the Affordable Care Act. These new laws may result in additional reductions in Medicare and other healthcare funding. Beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2025. It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. The Affordable Care Act has faced ongoing legal challenges, including litigation seeking to invalidate some of or all of the law or the manner in which it has been implemented. With the current Presidential administration and Congress, there have been, and may be additional, legislative changes affecting the Affordable Care Act, including repeal of certain provisions of the Affordable Care Act. It remains to be seen, however, precisely what impact legislation to date and any future legislation will have on the availability of healthcare and containing or reducing healthcare costs. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. We cannot quantify or predict with any certainty the likely impact of the Affordable Care Act, its amendment or repeal, or any alternative or related legislation, or any implementation of any such legislation, on our business model, prospects, financial condition, and results of operations.
These and other legislative and regulatory changes that have been or may be proposed in the future may impact our ability to successfully commercialize our product candidates.
We have limited experience manufacturing our Neuro-Spinal Scaffold implant for clinical-study scale and no experience for commercial scale.
To date, we have manufactured our Neuro-Spinal Scaffold implant on a small scale, including sufficient supply that is needed for our clinical studies. We may encounter unanticipated problems in the scale-up process that will result in delays in the manufacturing of the Neuro-Spinal Scaffold implant and therefore delay our clinical studies. During our clinical trials, we are subject to FDA regulations requiring manufacturing of our scaffolds with the FDA requirements for design controls and subject to inspections by regulatory agencies. Our failure to comply with applicable regulations may result in delays and interruptions to our product supply while we seek to secure another supplier that meets all regulatory requirements. If we are unable to scale up our manufacturing to meet requirements for our clinical studies, we may be required to rely on contract manufacturers. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product ourselves, including the possible breach of the manufacturing agreements by the third parties because of factors beyond our control, and the possibility of termination or nonrenewal of the agreements by the third parties because of our breach of the manufacturing agreement or based on their own business priorities.
Risks Related to Our Intellectual Property
We license certain technology underlying the development of our Neuro-Spinal Scaffold implant from BCH and MIT, and the loss of the license would result in a material adverse effect on our business, financial position, and operating results and cause the market value of our common stock to decline.
We license technology from BCH and MIT that is integrated into our Neuro-Spinal Scaffold implant under an exclusive license. Under the license agreement, we have agreed to milestone payments and to meet certain reporting obligations. In the event that we were to breach any of the obligations under the agreement and fail to cure timely, BCH
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and MIT would have the right to terminate the agreement upon notice. In addition, BCH and MIT have the right to terminate our license upon the bankruptcy or receivership of the Company. If we are unable to continue to use or license this technology on reasonable terms, or if this technology fails to operate properly, we may not be able to secure alternatives in a timely manner and our ability to develop our products could be harmed.
If we cannot protect, maintain and, if necessary, enforce our intellectual property rights, our ability to develop and commercialize products will be adversely impacted.
Our success, in large part, depends on our ability to protect and maintain the proprietary nature of our technology. We and our licensors must prosecute and maintain our existing patents and obtain new patents. Some of our proprietary information may not be patentable, and there can be no assurance that others will not utilize similar or superior solutions to compete with us. We cannot guarantee that we will develop proprietary products that are patentable, and that, if issued, any patent will give a competitive advantage or that such patent will not be challenged by third parties. The process of obtaining patents can be time consuming with no certainty of success, as a patent may not issue or may not have sufficient scope or strength to protect the intellectual property it was intended to protect. We cannot assure you that our means of protecting our proprietary rights will suffice or that others will not independently develop competitive technology or design around patents or other intellectual property rights issued to us. Even if a patent is issued, it does not guarantee that it is valid or enforceable. Any patents that we or our licensors have obtained or obtain in the future may be challenged, invalidated, or unenforceable. If necessary, we may initiate actions to protect our intellectual property, which can be costly and time consuming.
If third parties successfully claim that we infringe their intellectual property rights, our ability to continue to develop and commercialize products could be delayed or prevented.
Third parties may claim that we or our licensors are infringing on or misappropriating their proprietary information. Other organizations are engaged in research and product development efforts that may overlap with our products. Such third parties may currently have, or may obtain in the future, legally blocking proprietary rights, including patent rights, in one or more products or methods under development or consideration by us. These rights may prevent us from commercializing products, or may require us to obtain a license from the organizations to use the technology. We may not be able to obtain any such licenses that may be required on reasonable financial terms, if at all, and cannot be sure that the patents underlying any such licenses will be valid or enforceable. There may be rights that we are not aware of, including applications that have been filed but not published that, when issued, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research and development of the product that is the subject of the suit. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our trade secrets or other confidential information could be compromised by disclosure during this type of litigation.
Risks Related to our Dependence on Third Parties
We will depend upon strategic relationships to develop and manufacture our products. If these relationships are not successful, we may not be able to capitalize on the market potential of these products.
The near and long-term viability of our products will depend, in part, on our ability to successfully establish new strategic collaborations with biotechnology companies, hospitals, insurance companies, and government agencies. Establishing strategic collaborations is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory, or intellectual property position. If we fail to establish a sufficient number of collaborations on acceptable terms, we may not be able to commercialize our products or generate sufficient revenue to fund further research and development efforts.
Even if we establish new collaborations, these relationships may never result in the successful development or commercialization of any of our product candidates for reasons both within and outside of our control.
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There are a limited number of suppliers that can provide materials to us. Any problems encountered by such suppliers may detrimentally impact us.
We rely on third-party suppliers and vendors for certain of the materials used in the manufacture of our products or other of our product candidates. Any significant problem experienced by one of our suppliers could result in a delay or interruption in the supply of materials to us until such supplier resolves the problem or an alternative source of supply is located. Any delay or interruption could negatively affect our operations.
If the third parties on which we rely to conduct our laboratory testing, animal, and human clinical trials do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our products.
We have been, and will continue to be, dependent on third-party CROs, medical institutions, investigators, and contract laboratories to conduct certain activities related to our laboratory testing and animal and human clinical studies. We are responsible for confirming that each of our clinical trials is conducted in accordance with our approved plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on these third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended, or terminated, and we may not be able to obtain regulatory approval or successfully commercialize our products on a timely basis, if at all, and our business, operating results, and prospects may be adversely affected.
Risks Related to Employee Matters and Managing Growth
Our success depends on our ability to retain our management and other key personnel.
We depend on our senior management as well as key scientific personnel. We have implemented restructurings that have significantly reduced our workforce, leaving only key positions filled. The loss of any members of senior management or key scientific personnel could harm our business and significantly delay or prevent the achievement of research, development, or business objectives. Competition for qualified employees is intense among biotechnology companies, and the loss of qualified employees, or an inability to attract, retain, and motivate additional highly skilled employees could hinder our ability to successfully develop marketable products.
Our future success also depends on our ability to identify, attract, hire, train, retain, and motivate other highly skilled scientific, technical, marketing, managerial, and financial personnel. Although we will seek to hire and retain qualified personnel with experience and abilities commensurate with our needs, there is no assurance that we will succeed despite our collective efforts. The loss of the services of any of our senior management or other key personnel could hinder our ability to fulfill our business plan and further develop and commercialize our products and services. Competition for personnel is intense, and any failure to attract and retain the necessary technical, marketing, managerial, and financial personnel would have a material adverse effect on our business, prospects, financial condition, and results of operations.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary information from collaborators, prospective licensees, and other third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. We may also be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing
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our product candidates. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
Risks Related to Litigation and Legal Compliance
We may face, and in the past have faced, lawsuits, which could divert management’s attention and harm our business.
We may face, and in the past have faced, lawsuits, including class action or securities derivative lawsuits. The amount of time that is required to resolve these lawsuits is unpredictable and any lawsuits may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations, and cash flows. Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation.
We face potential product liability claims, and, if successful claims are brought against us, we may incur substantial liability and costs.
We will have exposure to claims for product liability. Product liability coverage for the healthcare industry is expensive and sometimes difficult to obtain. We may not be able to maintain such insurance on acceptable terms or be able to secure increased coverage if the commercialization of our products progresses, nor can we be sure that existing or future claims against us will be covered by our product liability insurance. Moreover, the existing coverage of our insurance policy or any rights of indemnification and contribution that we may have may not be sufficient to offset existing or future claims. A successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms, if at all. Even if a claim is not successful, defending such a claim would be time-consuming and expensive, may damage our reputation in the marketplace, and would likely divert our management’s attention.
We are subject to environmental, health, and safety laws. Failure to comply with such environmental, health, and safety laws could cause us to become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to various environmental, health, and safety laws and regulations, including those relating to safe working conditions, laboratory, and manufacturing practices, the experimental use of animals and humans, emissions and wastewater discharges, and the use and disposal of hazardous or potentially hazardous substances used in connection with our research. Any of these laws or regulations could cause us to incur additional expense or restrict our operations. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research and development efforts.
Our relationships with customers and third party payers will be subject to applicable anti-kickback, fraud and abuse, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm, and diminished profits and future earnings.
Healthcare providers, physicians, and third-party payers will play a primary role in the recommendation and use of our products and any other product candidates for which we obtain marketing approval. Our future arrangements with healthcare providers, physicians, and third-party payers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through
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which we market, sell, and distribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
| ● | the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order, or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid; |
| ● | the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996 or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information; |
| ● | the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report payments and other transfers of value to physicians and teaching hospitals; and |
| ● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency statutes, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers. |
Some state laws require device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require product manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment, or restructuring of our operations could adversely affect our financial results. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal, and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil, or administrative sanctions, including exclusions from government funded healthcare programs.
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Our operations and reputation may be impaired if our information technology systems fail to perform adequately or if we are the subject of a data breach or cyber-attack.
Our information technology systems are important to operating our business. We rely on our information technology systems, some of which are or may be managed or hosted by or out-sourced to third party service providers, to manage our business data and other business processes. If we do not allocate and effectively manage the resources necessary to build, sustain, and protect appropriate information technology systems and infrastructure, or we do not effectively implement system upgrades or oversee third party service providers, our business or financial results could be negatively impacted. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction or reporting errors and processing inefficiencies causing our business and results of operations to suffer.
Furthermore, our information technology systems may be vulnerable to cyber-attacks or other security incidents, service disruptions, or other system or process failures. Such incidents could result in unauthorized access to information including vendor, consumer or other company confidential data as well as disruptions to operations. We have experienced in the past, and expect to continue to experience, cybersecurity threats and incidents, although to date none has been material. To address the risks to our information technology systems and data, we maintain an information security program that includes updating technology, developing security policies and procedures, implementing and assessing the effectiveness of controls, conducting risk assessments of third-party service providers and designing business processes to mitigate the risk of such breaches. There can be no assurance that these measures will prevent or limit the impact of a future incident. Moreover, the development and maintenance of these measures requires continuous monitoring as technologies change and efforts to overcome security measures evolve. If we are unable to prevent or adequately respond to and resolve an incident, it may have a material, negative impact on our operations or business reputation, and we may experience other adverse consequences such as loss of assets, remediation costs, litigation, regulatory investigations, and the failure by us to retain or attract customers following such an event. Additionally, we rely on services provided by third-party vendors for certain information technology processes and functions, which makes our operations vulnerable to a failure by any one of these vendors to perform adequately or maintain effective internal controls.
Risks Related to Investment in Our Securities
The price of our common stock has been and may continue to be volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
| ● | the status, completion, and/or results of our clinical trials; |
| ● | actual or anticipated variations in our operating results; |
| ● | announcement of the commencement or completion of securities offerings by us; |
| ● | announcements of developments by us or our competitors; |
| ● | regulatory actions regarding our products; |
| ● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments; |
| ● | adoption of new accounting standards affecting our industry; |
| ● | additions or departures of key personnel; |
| ● | sales of our common stock or other securities in the open market; and |
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| ● | other events or factors, many of which are beyond our control. |
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
In the foreseeable future, we do not intend to pay cash dividends on shares of our common stock so any investor gains will be limited to the value of our shares.
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any gains to stockholders will therefore be limited to the increase, if any, in our share price.
In the event that we fail to satisfy any of the listing requirements of the Nasdaq Capital Market, our common stock may be delisted, which could affect our market price and liquidity.
Our common stock is listed on the Nasdaq Capital Market. For continued listing on the Nasdaq Capital Market, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the corporate governance requirements and the minimum closing bid price requirement, among other requirements. For example, we have received deficiency letters due to the failure to maintain the minimum bid price and the failure to meet stockholder equity requirements, including the deficiency letter from the Listings Qualifications Department of the Nasdaq Stock Market letter we received on May 19, 2021 notifying us of a failure to comply with the minimum bid requirement. To regain compliance, on April 26, 2022, we implemented a 1:25 reverse stock split. Previously, in response to other deficiency letters, we needed to implement reverse stock splits and take other actions including transferring to the Nasdaq Capital Market (from the Nasdaq Global Market) and implementing a warrant amendment.
There can be no assurance that we will maintain compliance with the bid price requirement in the future, or that we will continue to be in compliance with the other continued listing requirements of the Nasdaq Capital Market.
In the event that we fail to regain compliance, or we fail to obtain a second compliance period from Nasdaq, or fail to satisfy any of the listing requirements of the Nasdaq Capital Market, our common stock may be delisted. If our securities are delisted from trading on the Nasdaq Capital Market, and we are not able to list our securities on another exchange our securities could be quoted on the OTC Bulletin Board or on the “pink sheets.” As a result, we could face significant adverse consequences including:
| ● | a limited availability of market quotations for our securities; |
| ● | a determination that our common stock is a “penny stock,” which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| ● | a limited amount of news and analyst coverage |
| ● | a limited ability to raise capital to continue to fund our operations by selling shares; and |
| ● | a limited ability to acquire other companies or technologies by using our shares as consideration. |
Anti-takeover effects of certain provisions of our articles of incorporation and Nevada state law may discourage or prevent a takeover.
Our articles of incorporation divide our Board of Directors into three classes, with three-year staggered terms. The classified board provision could increase the likelihood that, in the event an outside party acquired a controlling block of our stock, incumbent directors nevertheless would retain their positions for a substantial period, which may have the effect of discouraging, delaying, or preventing a change in control. In addition, Nevada has a business
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combination law, which prohibits certain business combinations between Nevada publicly traded corporations, or Nevada corporations that elect to be subject to the law, and “interested stockholders” for two years after the interested stockholder first becomes an interested stockholder, unless the corporation’s board of directors approves the transaction by which the stockholder becomes an interested stockholder in advance, or the proposed combination in advance of the stockholder becoming an interested stockholder.
The proposed combination may be approved after the stockholder becomes an interested stockholder with preapproval by the board of directors and a vote at a special or annual meeting of stockholders holding at least 60% of the voting power not owned by the interested stockholder or his/her/its affiliates or associates. After the two year moratorium period, additional stockholder approvals or fair value requirements must be met by the interested shareholder up to four years after the stockholder became an interested stockholder. In addition, we may become subject to Nevada’s control share laws. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and if the corporation does business in Nevada, including through an affiliated corporation. This control share law may have the effect of discouraging corporate takeovers. Currently, we believe that we have less than 100 stockholders of record who are residents of Nevada, and are therefore not subject to the control share laws.
The provisions of our articles of incorporation and Nevada’s business combination and control share laws make it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction were in our stockholders’ interest or might result in a premium over the market price for our common stock.
Failure to maintain an effective system of internal controls could result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations or fail to prevent fraud in which case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.
We are required to comply with the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX, and management is required to report annually on our internal control over financial reporting. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of SOX until the date we have a public float of $75 million or greater and $100 million or greater in revenue.
If we fail to maintain effective internal controls and procedures for financial reporting, it could result in material misstatements in the annual or interim financial statements that would not be prevented or detected in a timely manner. We cannot assure you that material weaknesses or significant deficiencies will not occur in the future and that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.
We are a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We are considered a “smaller reporting company” under Rule 12b-2 of the Exchange Act. We are therefore entitled to rely on certain reduced disclosure requirements, such as an exemption from providing selected financial data and executive compensation information. These exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company also mean our auditors are not required to review our internal control over financial reporting and may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our common stock prices may be more volatile. We will remain a smaller reporting company until our public float exceeds $250 million or our annual revenues exceed $100 million with a public float greater than $700 million.
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4.5 | ||
10.1+ | ||
10.2 | ||
10.3 | ||
10.4 | ||
31.1+ | ||
31.2+ | ||
32.1+ | ||
32.2+ | ||
101.INS+ | Inline XBRL Instance Document | |
101.SCH+ | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL+ | Inline XBRL Taxonomy Calculation Linkbase Document | |
101.DEF+ | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB+ | Inline XBRL Taxonomy Label Linkbase Document | |
101.PRE+ | Inline XBRL Taxonomy Presentation Linkbase Document | |
104+ | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
+ Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INVIVO THERAPEUTICS HOLDINGS CORP. | ||
Date: November 7, 2022 | By: | /s/ Richard Toselli |
Name: | Richard Toselli | |
Title: | Chief Executive Officer, Principal Executive Officer | |
Date: November 7, 2022 | By: | /s/ Richard Christopher |
Name: | Richard Christopher | |
Title: | Principal Financial Officer, Principal Accounting Officer, Treasurer | |
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Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is made between InVivo Therapeutics Holdings Corp. (the “Company”) a corporation duly organized and validly existing under the laws of the State of Nevada having a business address of One Kendall Square, Building 1400 West, Floor 4, Cambridge, MA 02139, and Heather Hamel (the “Executive”).
WITNESSETH THAT:
WHEREAS, the parties desire to enter into this Agreement pertaining to the employment of the Executive by the Company:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Executive and the Company as follows:
1. | Performance of Services. The Executive’s employment with the Company as Chief Legal Officer and General Counsel shall be subject to the following: |
(a) | Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive as its Chief Legal Officer and General Counsel, effective as of the Start Date (as defined below). The Executive shall also serve as Chief Legal Officer and General Counsel of InVivo Therapeutics Corporation, the Company’s wholly-owned subsidiary. The Executive shall be based at the Company’s headquarters in Cambridge, MA. |
(b) | While the Executive is employed by the Company, the Executive shall devote her business time, energies and talents to serving as its Chief Legal Officer and General Counsel. The Executive may, with the consent of the Board of Directors of the Company (the “Board”) or a committee thereof, serve on outside boards of directors, to the extent that such activities do not materially inhibit or prohibit the performance of the Executive’s duties under this Agreement or conflict in any material way with the business of the Company or any subsidiary. |
(c) | The Executive shall serve as a Section 16 officer of the Company subject to the various regulatory filing responsibilities that must be met by directors, officers and principal stockholders as required by this section of the Securities and Exchange Act of 1934, as amended, and the related rules and regulations of the Securities and Exchange Commission. |
(d) | The Executive agrees that she shall perform her duties faithfully and efficiently subject to the directions of the Chief Executive Officer (“CEO”) and the Board. The Executive shall not, without her consent, be assigned tasks that would be inconsistent with those of the Chief Legal Officer and General Counsel. The Executive shall report to the CEO and shall have such authority, power, responsibilities and duties as are inherent in her position (and the undertakings applicable to her position) and necessary to carry out her responsibilities and the duties required of him. |
(e) | The Executive’s employment with the Company is “at-will,” which means that either the Executive or the Company may terminate the Executive’s employment at any time, for any reason, or for no reason, by providing notice thereof to the other party, subject to the terms of this Agreement. The Executive acknowledges that this Agreement does not constitute a contract of employment for any particular period of time or impose on the Company any obligation to retain the Executive as an employee. If the Executive’s employment with the Company terminates for any reason, the Executive shall be deemed to have resigned, effective as of the date of such termination, as an officer or director of both the Company and any subsidiary of the Company, and the Executive hereby agrees to promptly execute resignation letters documenting such resignations upon the request of the Company. |
(f) | The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. |
2. | Compensation. Subject to the terms of this Agreement, while the Executive is employed by the Company, the Company shall compensate her for her services as follows: |
(a) | Salary. The Company shall pay to the Executive a salary at a rate of $29,583 per month (equal to $355,000 on an annualized basis), payable in accordance with the Company’s usual payroll practices. This salary will be reviewed annually by the Compensation Committee of the Board and may be adjusted upward (but not downward without the Executive’s consent) in the sole discretion of the Compensation Committee of the Board. |
(b) | Bonus. Following the end of each fiscal year, the Executive shall be eligible to receive a discretionary annual retention and performance bonus. The target amount of such bonus will be 35% of the Executive’s annualized salary for the applicable fiscal year, based on the Company’s achievement of its specified objectives for the applicable fiscal year and the Executive’s achievement of her specified objectives for the applicable fiscal year (to be established by the CEO in collaboration with the Executive each year), both as determined by the Board in its sole discretion. Actual bonus payout shall be determined in the discretion of the Board (or a committee thereof) and may be below or above the annual target bonus, based on the Company’s and the Executive’s performance. The Executive must be employed on the date on which any annual bonus is distributed in order to be eligible for and to earn any part of it, as it also serves as an incentive to remain employed by the Company. For purposes of clarification, any bonus payable to the Executive in 2023 (covering the 2022 fiscal year) shall be solely based on the Executive’s salary and target bonus percentage described in this Section 2(a) and 2(b). |
(c) | Equity Awards. From time to time, the Executive may be granted the option to purchase shares of the Company’s common stock at an exercise price equal to the closing price of a share of the Company’s common stock priced at market value on the grant date, which shall vest as determined by the Board. The Executive shall also be eligible to receive other equity awards through participation in the Company’s equity incentive programs, as determined in the sole discretion of the Board (or a designated committee thereof). |
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(d) | Other Benefits. The Executive shall be eligible for all medical, dental and other benefits and fringe benefits to the same extent and on the same terms as those benefits are provided by the Company from time to time to the Company’s other senior management members, including paid vacation. |
(e) | Expense Reimbursement. The Company will reimburse the Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of her duties, responsibilities or services under this Agreement, provided that such expenses are incurred and accounted for in accordance with the reasonable policies and procedures established by the Company. |
(f) | Withholding. All salary, bonus and other compensation payable to the Executive shall be subject to applicable withholding taxes. |
(g) | Indemnification and Insurance. |
(i) | The Company and the Executive, contemporaneously with the execution of this Agreement, shall execute the Company’s standard Indemnification Agreement. |
(ii) | The Company shall maintain directors’ and officers’ liability insurance in commercially reasonable amounts (as reasonably determined by the Board), and the Executive shall be covered under such insurance to the same extent as other senior management members. |
3. | Term and Termination. The Company and the Executive agree that the Executive’s employment as Chief Legal Officer and General Counsel with the Company is scheduled to begin on or about July 11, 2022, being defined herein as the “Start Date.” The Executive’s employment with the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: |
(a) | At the election of the Company for Cause immediately upon written notice by the Company to the Executive which notice shall identify in reasonable detail the Cause upon which the termination is based (and if notice is provided pursuant to subclause (i)(A), “immediately” shall mean the last day of the cure period if the Executive has not cured the circumstance(s) set forth in the Company’s notice). For the purposes of this Agreement, “Cause” shall mean (i) a good faith finding by the Company that (A) the Executive has failed to perform her reasonably assigned duties for the Company (other than due to her physical or mental illness or disability for a period of less than three consecutive months or in aggregate less than four months in a twelve-month period) and has failed to remedy such failure within 30 days |
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following written notice from the Company to the Executive notifying her of such failure, or (B) the Executive has engaged in dishonesty, gross negligence or misconduct, or (ii) the Executive’s conviction of, or the entry of a pleading of guilty or nolo contendere by the Executive to, any crime involving moral turpitude or any felony;
(b) | Upon the death or disability of the Executive, if such disability renders the Executive incapable of performing her duties, as reasonably determined by the Company, and the Executive is considered disabled within the meaning of Section 409A of the Internal Revenue Code and the guidance issued thereunder; |
(c) | At the election of the Company without Cause or the Executive without Good Reason upon not less than 10 days’ prior written notice of termination; or |
(d) | At the election of the Executive for Good Reason, following written notice by the Executive to the Company which notice shall identify the Good Reason upon which the termination is based. For the purposes of this Agreement, “Good Reason” shall mean (i) a material adverse change in the Executive’s authority, duties or compensation without the prior consent of the Executive, (ii) a material breach by the Company of the terms of this Agreement, (iii) a requirement that the Executive report to an employee other than the CEO, or (iv) a relocation of the principal place at which the Executive performs services to more than 150 miles from Cambridge, MA. To terminate the Executive’s employment for Good Reason, the Executive must (i) provide notice to the Company of the purported event giving rise to Good Reason within 90 days after it occurs, (ii) provide the Company with at least 30 days to cure, and (iii) if not cured, resign for Good Reason within 30 days after the end of the cure period. |
4. | Rights Upon Termination. |
(a) | Accrued Obligations. Except for a termination by the Company without Cause or by the Executive for Good Reason, following the Executive’s Date of Termination (as defined below), the Company’s obligations under this Agreement shall immediately cease and the Company will pay the Executive only her Accrued Obligations (as defined below). For purposes of this Agreement, “Date of Termination” means the last day the Executive is employed by the Company pursuant to this Agreement, and “Accrued Obligations” means (i) the portion of the Executive’s salary as has accrued prior to any termination of her employment with the Company and has not yet been paid, (ii) an amount equal to the value of any accrued but unused vacation days or paid time off, and (iii) the amount of any expenses properly incurred by the Executive on behalf of the Company prior to any such termination and not yet reimbursed pursuant to Section 2(e) hereof. |
(b) | Severance. |
(i) | If the Executive’s employment is terminated without Cause by the Company or by the Executive for Good Reason, in each case prior to, or more than 12 months following, a Change in Control (as defined in the Award Agreement), the Company |
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shall, in addition to paying the Accrued Obligations, (A) continue to pay the Executive, as severance, her salary as in effect on the Date of Termination, paid in accordance with the Company’s usual payroll practices, for a period of 12 months following the Date of Termination and (B) if the Executive is participating in the Company’s employee group health insurance plans on the Date of Termination, and if the Executive is eligible for and timely elects to continue receiving group health insurance under the continuation coverage rules known as COBRA, continue to pay the share of the premium for such coverage that it pays for active and similarly-situated employees who receive the same type of coverage until the earlier of (x) the 12 month anniversary of the Date of Termination, and (y) the date the Executive becomes eligible for coverage under a new employer’s group health plan, unless, as a result of a change in legal requirements, the Company’s provision of payments for COBRA will violate the nondiscrimination requirements of applicable law, in which case this benefit will not apply.
(ii) | If the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason, in each case within the twelve month period following a Change in Control, the Company shall, in addition to paying the Accrued Obligations, (A) pay the Executive an aggregate amount equal to (1) 1.5 times her annualized salary, and (2) 100% of her target annual bonus, in each case at the salary and target annual bonus level in effect on the Date of Termination or, if higher, at any time within the six month period preceding the Change in Control, which aggregate amount shall be paid in equal annual installments over the 12 month period following the Date of Termination, (B) accelerate in full the vesting of all outstanding, unvested equity awards held by the Executive, and (C) if the Executive is participating in the Company’s employee group health insurance plans on the Date of Termination, and if the Executive is eligible for and timely elects to continue receiving group health insurance under the continuation coverage rules known as COBRA, continue to pay the share of the premium for such coverage that it pays for active and similarly-situated employees who receive the same type of coverage until the earlier of ((x) the twelve (12) month anniversary of the Date of Termination, and (y) the date the Executive becomes eligible for coverage under a new employer’s group health plan, unless, as a result of a change in legal requirements, the Company’s provision of payments for COBRA will violate the nondiscrimination requirements of applicable law, in which case this benefit will not apply. |
(iii) | The provision to the Executive of the severance benefits set forth in Section 4(b)(i) or 4(b)(ii), as applicable, shall (A) be contingent upon the execution by the Executive of a separation and release of claims agreement in a form reasonably acceptable to the Company that becomes effective within sixty (60) days following the Termination Date (or such shorter period as the Company may provide) and (B) begin on the first payroll date following the effective date of the release, provided that if the period during which the release may become effective spans two calendar years, the payments will commence in the second calendar year and (C) constitute the sole remedy of the Executive in the event of a termination of the |
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Executive’s employment in the circumstances set forth in Section 4(b)(i) or 4(b)(ii), as applicable.
(c) | Other Benefits. The Company shall provide any other payments or benefits to be provided to the Executive by the Company or a subsidiary pursuant to any Executive benefit plans or arrangements established or adopted by the Company or a subsidiary (including, without limitation, any rights to indemnification from the Company (or from a third-party insurer for directors and officers liability coverage) under Section 2(g) or otherwise with respect to any costs, losses, claims, suits, proceedings, damages or liabilities to which the Executive may become subject which arise out of, are based upon or relate to the Executive’s employment by the Company), to the extent such amounts are due from the Company in accordance with the terms of this Agreement or such plans or arrangements. |
5. | Proprietary Information. |
(a) | The Executive agrees that all information, whether or not in writing, of a private, secret or confidential nature concerning the Company’s business, business relationships or financial affairs (collectively, “Proprietary Information”) is and shall be the exclusive property of the Company. Without limitation, Proprietary Information shall include inventions, products, processes, methods, techniques, formulas, compositions, compounds, projects, development plans, research data, clinical data, confidential communications with regulatory bodies and other third parties, financial data, personnel data obtained pursuant to the Executive’s duties and responsibilities, computer programs, customer and supplier lists, and contacts with or knowledge of customers or prospective customers of the Company. The Executive will not disclose any Proprietary Information to any person or entity other than employees of the Company with authorization to access the information or use the same for any purposes (other than in the performance of her duties as an employee of the Company) during or after her employment with the Company, unless and until such Proprietary Information has become public knowledge without fault of the Executive or such disclosure is required by law. |
(b) | The Executive agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings, or other written, photographic, electronic, or other tangible material containing Proprietary Information, in any form, whether created by the Executive or others, which shall come into her custody or possession, shall be the exclusive property of the Company and will be used by the Executive only in the performance of her duties for the Company. All such materials or copies thereof and all tangible property of the Company in the custody or possession of the Executive shall be delivered to the Company, upon the earlier of (i) a request by the Company or (ii) the Date of Termination. After such delivery, the Executive shall not retain any such materials or copies thereof or any such tangible property. |
(c) | The Executive agrees that her obligation not to disclose or to use information and materials of the types set forth in Sections 5(a) and 5(b), and her obligation to return materials and tangible property, set forth in Section 5(b), also extends to such types of information, materials and tangible property of customers of the Company or suppliers to |
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the Company or other third parties, including licensors and licensees, who may have disclosed or entrusted the same to the Company or to the Executive.
6. | Inventions. |
(a) | The Executive will make full and prompt disclosure to the Company of all inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by his, or under her direction, or jointly with others, during her employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as “Inventions”). |
(b) | The Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all of her right, title and interest in and to all Inventions and related patents, patent applications, trade secrets, copyrights and copyright applications. However, this Section 6(b) shall not apply to Inventions which are unrelated to the present or planned business or research and development of the Company and which are made and conceived by the Executive outside of normal working hours, outside the Company’s premises and do not involve use of the Company’s tools, devices, equipment or Proprietary Information. The Executive understands that, to the extent this Agreement is to be construed in accordance with the laws of any state which precludes a requirement in an Executive agreement to assign certain classes of inventions made by an Executive, this Section 6(b) shall be interpreted to not apply to any invention which a court rules and/or the Company agrees to fall within such classes. |
(c) | The Executive agrees to cooperate fully with the Company, both during and after her employment with the Company, with respect to the procurement, maintenance and enforcement of patents, trademarks, copyrights and other intellectual property rights (both in the United States and foreign countries) relating to Inventions. The Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Invention. The Executive further agrees that if the Company is unable to secure the signature of the Executive on any such papers with reasonable effort, an executive officer of the Company shall be entitled to execute any such papers as the agent and the attorney-in-fact of the Executive, and the Executive hereby irrevocably designates and appoints each executive officer of the Company as her agent and attorney-in-fact to execute any such papers on her behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Invention, under the conditions described herein. |
7. | Remedies. The Executive agrees and acknowledges that her breach of Section 5 or Section 6 cannot be reasonably or adequately compensated for in money damages alone and would cause irreparable injury to the Company. Accordingly, the Executive agrees that, with respect to a |
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breach of such Sections, the Company is entitled to, in addition to all other rights and remedies available to the Company at law or in equity, specific performance and immediate injunctive relief, without posting a bond.
8. | Non-Solicitation. |
(a) | Restricted Activities. While the Executive is employed by the Company and for a period of one year after the termination or cessation of such employment for any reason, the Executive will not directly or indirectly either alone or in association with others (i) solicit, or permit any organization directly or indirectly controlled by the Executive to solicit, any employee of the Company to leave the employ of the Company, or (ii) solicit for employment, hire or engage as an independent contractor, or permit any organization directly or indirectly controlled by the Executive to solicit for employment, hire or engage as an independent contractor, any person who was employed by the Company at any time during the last six months of the Executive’s employment with the Company. |
(b) | Extension. If the Executive violates the provisions of Section 8(a), the Executive shall continue to be bound by the restrictions set forth in Section 8(a) until a period of one year has expired without any violation of such provisions. |
(c) | Interpretation. If any restriction set forth in Section 8(a) is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. |
(d) | Equitable Remedies. The restrictions contained in this Section 8 are necessary for the protection of the business and goodwill of the Company and are considered by the Executive to be reasonable for such purpose. The Executive agrees that any breach of this Section 8 is likely to cause the Company substantial and irrevocable damage which is difficult to measure. Therefore, in the event of any such breach or threatened breach, the Executive agrees that the Company, in addition to such other remedies which may be available, shall have the right to obtain an injunction from a court restraining such a breach or threatened breach and the right to specific performance of the provisions of this Section 8 and the Executive hereby waives the adequacy of a remedy at law as a defense to such relief. |
9. | Compliance with Section 409A. |
(a) | General. It is the intention of both the Company and the Executive that the benefits and rights to which the Executive could be entitled pursuant to this Agreement comply with Section 409A of the Code and the Treasury Regulations and other guidance promulgated or issued thereunder (“Section 409A”), to the extent that the requirements of Section 409A are applicable thereto, and the provisions of this Agreement shall be construed in a manner consistent with that intention. |
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(b) | Distributions on Account of Separation from Service. If and to the extent required to comply with Section 409A, no payment or benefit required to be paid under this Agreement on account of termination of the Executive’s employment shall be made unless and until the Executive incurs a “separation from service” within the meaning of Section 409A. |
(c) | 6 Month Delay for “Specified Employees”. |
(i) | If the Executive is a “specified employee,” then no payment or benefit that is payable on account of the Executive’s “separation from service,” as that term is defined for purposes of Section 409A, shall be made before the date that is six months after the Executive’s “separation from service” (or, if earlier, the date of the Executive’s death) if and to the extent that such payment or benefit constitutes deferred compensation (or may be nonqualified deferred compensation) under Section 409A and such deferral is required to comply with the requirements of Section 409A. Any payment or benefit delayed by reason of the prior sentence shall be paid out or provided in a single lump sum at the end of such required delay period in order to catch up to the original payment schedule (or, if earlier, upon the death of the Executive). There shall be added to any payments that are delayed pursuant to this provision interest at the prime rate as reported in the Wall Street Journal for the date of the Executive’s separation from service. Such interest shall be calculated from the date on which the payment otherwise would have been made until the date on which the payment is made. |
(ii) | For purposes of this provision, the Executive shall be considered to be a “specified employee” if, at the time of her separation from service, the Executive is a “key employee” (within the meaning of Section 416(i) of the Code) of the Company (or any person or entity with whom the Company would be considered a single employer under Section 414(b) or Section 414(c) of the Code) any stock in which is publicly traded on an established securities market or otherwise. |
(d) | No Acceleration or Deferral of Payments. Neither the Company nor the Executive, individually or in combination, may accelerate or defer any payment or benefit that is subject to Section 409A, except in compliance with Section 409A and the provisions of this Agreement, and no amount that is subject to Section 409A shall be paid prior to the earliest date on which it may be paid without violating Section 409A. |
(e) | Treatment of Each Installment as a Separate Payment. For purposes of applying the provisions of Section 409A to this Agreement, each separately identified amount to which the Executive is entitled under this Agreement shall be treated as a separate payment. In addition, to the extent permissible under Section 409A, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments. |
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(f) | Taxable Reimbursements. |
(i) | Any reimbursements by the Company to the Executive of any eligible expenses under this Agreement that are not excludable from the Executive’s income for Federal income tax purposes (the “Taxable Reimbursements”) shall be made by no later than the earlier of the date on which they would be paid under the Company’s normal policies and the last day of the taxable year of the Executive following the year in which the expense was incurred. |
(ii) | The amount of any Taxable Reimbursements to be provided to the Executive during any taxable year of the Executive shall not affect the expenses eligible for reimbursement to be provided in any other taxable year of the Executive. |
(iii) | The right to Taxable Reimbursements shall not be subject to liquidation or exchange for another benefit. |
(g) | Limitation on Liability. The Company shall have no liability to the Executive nor to any other person in the event that the payments and/or benefits provided under this Agreement are not exempt from or compliant with Section 409A. |
10. | Survival. The Parties agree that the obligations under Sections 5, 6, 8 and 9 of this Agreement shall survive the termination of the Executive’s employment, regardless of the reason for such termination. |
11. | Acknowledgement. The Executive acknowledges and agrees that the Company does not desire her to use any confidential information of any prior employer during her employment hereunder and that the Company will not ask for nor will it accept any such confidential information. This acknowledgement shall not reduce or otherwise affect the Executive’s rights to indemnification from the Company. |
12. | Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. |
13. | Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Massachusetts. Both parties agree to exclusive venue in the state (Middlesex County) or federal courts located in the Commonwealth of Massachusetts. |
14. | Successors and Assigns. This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. |
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15. | Entire Agreement. This Agreement, with the Indemnification Agreement, contains the entire agreement of the parties and supersedes any prior understandings or agreements between the Executive and the Company. This Agreement may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. |
16. | Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same instrument. |
[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date set forth below.
| Company | |
| | |
| InVivo Therapeutics Holdings Corp. | |
| | |
| | |
| By: /s/ Richard Toselli | |
| | |
| Name: Richard Toselli, M.D. | |
| Title: President & Chief Executive Officer | |
| | |
| July 11, 2022 | |
| Date | |
| | |
| | |
| Executive | |
| | |
| | |
| /s/ Heather Hamel | |
| Heather Hamel | |
| | |
| | |
| July 11, 2022 | |
| Date | |
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Exhibit 31.1
SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, Richard Toselli, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of InVivo Therapeutics Holdings Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 7, 2022 | /s/ Richard Toselli |
| Richard Toselli |
| Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 31.2
SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, Richard Christopher, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of InVivo Therapeutics Holdings Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 7, 2022 | /s/ Richard Christopher |
| Richard Christopher |
| Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of InVivo Therapeutics Holdings Corp. (the “Company”) for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Toselli, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: November 7, 2022 | /s/ Richard Toselli |
| Richard Toselli |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of InVivo Therapeutics Holdings Corp. (the “Company”) for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Christopher, Chief Financial Officer and Principal Financial and Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: November 7, 2022 | /s/ Richard Christopher |
| Richard Christopher Chief Financial Officer |
| (Principal Financial and Accounting Officer) |