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 ena