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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

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: 001-37350

InVivo Therapeutics Holdings Corp.

(Exact name of registrant as specified in its charter)

Nevada

36-4528166

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

One Kendall Square, Suite B14402

Cambridge, MA

02139

(Address of principal executive offices)

(Zip code)

(617) 863-5500

(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

Common Stock, $0.00001 par value per share

NVIV

The Nasdaq Capital Market

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.    Yes     No  

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).    Yes     No  

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  

Non-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 12b2 of the Act). Yes No

As of August 3, 2023 3,105,446 shares of the registrant’s Common Stock, $0.00001 par value, were issued and outstanding.

Table of Contents

INVIVO THERAPEUTICS HOLDINGS CORP.

Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2023

TABLE OF CONTENTS

     

Page

1. Risk Factors Summary

3

PART I - FINANCIAL INFORMATION

1. Financial Statements (Unaudited)

4

Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

4

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022

5

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022

6

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

7

Notes to Consolidated Financial Statements

8

2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

3. Quantitative and Qualitative Disclosures about Market Risk

23

4. Controls and Procedures

23

PART II - OTHER INFORMATION

1A. Risk Factors

24

6. Exhibits

43

2

Table of Contents

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 have been wholly dependent on the success of one product candidate, the Neuro-Spinal Scaffold implant, an investigational bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord, and a program for which we recently announced negative topline data due to the INSPIRE 2.0 Study not achieving its primary endpoints. We have stopped all further development activities of the Neuro-Spinal Scaffold other than continued assessment of subjects in accordance with the clinical trial protocol, and are currently exploring a range of strategic alternatives, which may include a potential merger or sale of our company or sale or divestiture of some of our assets or proprietary technologies, among other potential alternatives. There can be no assurance that such activities will result in any agreements or transactions that will enhance stockholder value.
If we decide to seek protection under the bankruptcy laws, and if we decide to wind down the company under the bankruptcy laws or otherwise, risks and uncertainties associated with a potential bankruptcy proceeding and a wind-down may lead to adverse effects on recoveries for our stakeholders.
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.
There is substantial doubt about our ability to continue as a going concern, which may affect our ability to obtain future financing and may require us to curtail or cease our operations.
We anticipate that we will continue to incur substantial losses for the foreseeable future and may never achieve or maintain profitability.
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.

3

Table of Contents

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

    

June 30, 

    

December 31, 

 

2023

2022

ASSETS:

    

    

Current assets:

Cash and cash equivalents

$

10,720

$

16,351

Prepaid expenses

 

958

 

97

Assets held for sale

53

Other current assets

 

773

 

1,153

Total current assets

 

12,504

 

17,601

Property, equipment and leasehold improvements, net

 

37

 

227

Restricted cash - non-current

150

150

Operating lease right-of-use assets

643

844

Total assets

$

13,334

$

18,822

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Current liabilities:

Accounts payable

$

339

$

617

Operating lease liabilities

474

396

Accrued expenses

 

555

 

1,407

Total current liabilities

 

1,368

 

2,420

Other liabilities

109

103

Operating lease liabilities - non-current

280

553

Total liabilities

 

1,757

 

3,076

Commitments and contingencies (Note 5)

Stockholders’ equity:

Preferred stock, $0.00001 par value, authorized 1,000,000 at June 30, 2023 and December 31, 2022. No Preferred Stock issued and outstanding at June 30, 2023 and December 31, 2022

Common stock, $0.00001 par value, authorized 250,000,000 at June 30, 2023 and December 31, 2022. 3,105,446 and 2,429,446 shares issued and outstanding

 

3

 

3

Additional paid-in capital

 

264,462

 

264,362

Accumulated deficit

(252,888)

(248,619)

Total stockholders’ equity

 

11,577

 

15,746

Total liabilities and stockholders’ equity

$

13,334

$

18,822

See notes to the unaudited consolidated financial statements.

4

Table of Contents

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Operations

(In thousands, except share and per-share data)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

    

Operating expenses:

    

    

    

    

Research and development

$

715

$

1,349

$

2,096

$

2,780

General and administrative

 

1,370

 

1,381

 

2,477

 

2,615

Total operating expenses

 

2,085

 

2,730

 

4,573

 

5,395

Operating loss

 

(2,085)

 

(2,730)

 

(4,573)

 

(5,395)

Other income:

Interest income

 

148

 

11

 

304

 

12

Other income

9

Interest and other income, net

148

11

304

21

Net loss

$

(1,937)

$

(2,719)

$

(4,269)

$

(5,374)

Net loss per share, basic and diluted

$

(0.62)

$

(1.97)

$

(1.46)

$

(3.90)

Weighted average number of common shares outstanding, basic and diluted

 

3,105,956

 

1,383,280

 

2,921,884

 

1,376,849

See notes to the unaudited consolidated financial statements.

5

Table of Contents

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, 2022

2,429,446

$

3

$

264,362

$

(248,619)

$

15,746

Share-based compensation expense

 

62

62

Issuance of common stock upon exercise of warrants

676,000

Net loss

 

(2,332)

(2,332)

Balance as of March 31, 2023

 

3,105,446

$

3

$

264,424

$

(250,951)

$

13,476

Share-based compensation expense

 

38

38

Net loss

 

(1,937)

(1,937)

Balance as of June 30, 2023

 

3,105,446

$

3

$

264,462

$

(252,888)

$

11,577

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

 Deficit   

    

Equity     

Balance as of December 31, 2021

1,370,595

$

3

$

256,241

$

(238,129)

$

18,115

Share-based compensation expense

 

56

56

Net loss

 

(2,655)

(2,655)

Balance as of March 31, 2022

 

1,370,595

$

3

$

256,297

$

(240,784)

$

15,516

Share-based compensation expense

 

17

17

Forfeiture of restricted stock

(54)

Fractional shares issued due to 1 for 25 reverse stock split

 

20,619

Net loss

 

(2,719)

(2,719)

Balance as of June 30, 2022

 

1,391,160

$

3

$

256,314

$

(243,503)

$

12,814

See notes to the unaudited consolidated financial statements.

6

Table of Contents

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Six Months Ended

June 30, 

    

2023

    

2022

Cash flows from operating activities:

    

    

Net loss

$

(4,269)

$

(5,374)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

 

29

26

Amortization of operating lease right-of-use assets

201

191

Loss on sale of property and equipment

83

Share-based compensation expense

 

100

73

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

 

(481)

(438)

Accounts payable

 

(278)

519

Operating lease liability

(194)

(177)

Accrued expenses and other liabilities

 

(846)

(741)

Net cash used in operating activities

 

(5,655)

(5,921)

Cash flows from investing activities:

Purchases of property and equipment

(28)

(82)

Proceeds from sale of property and equipment

52

Net cash provided by / (used in) investing activities

 

24

(82)

Decrease in cash and cash equivalents and restricted cash

 

(5,631)

(6,003)

Cash, cash equivalents and restricted cash at beginning of period

 

16,501

19,181

Cash, cash equivalents and restricted cash at end of period

$

10,870

$

13,178

Supplemental disclosure of cash flow information and non-cash investing and financing activities:

Assets classified as assets held for sale

$

53

$

See notes to the unaudited consolidated financial statements.

7

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended June 30, 2023 (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 undertake any 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.

In light of the Company’s decision to stop future development of the Neuro-Spinal Scaffold, and based on a review of the status of our internal programs, resources and capabilities, the Company is exploring a wide range of strategic alternatives that may include a potential merger or sale of the Company or sale or divestiture of some of our assets or proprietary technologies. If the Company is unable to successfully conclude a strategic transaction outside of a dissolution, liquidation, or bankruptcy proceeding, it may decide to dissolve and liquidate its assets under the bankruptcy laws or otherwise. If the Company decides to dissolve and liquidate its assets under the bankruptcy laws or otherwise, it is unclear to what extent it will be able to pay its obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

Going Concern

The Company’s consolidated financial statements as of June 30, 2023 were prepared under the assumption that the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as of June 30, 2023, substantial doubt exists about the Company’s ability to continue as a going concern. Since its inception, the Company has suffered recurring losses and negative cash flows from operations and will need additional funding to continue as a going concern. As of June 30, 2023, the Company had unrestricted cash and cash equivalents of $10.7 million, working capital of $11.1 million and the Company has recorded a net loss of $4.3 million during the six months ended June 30, 2023. The Company will require additional liquidity to continue operations beyond the next 6 months.

Given a variety of external factors including the impact of the recent economic downturn in the U.S. and global financial markets, the Company may be unable to access further equity or debt financing when needed. Lack of necessary funds may require the Company to, among other things, delay, scale back or eliminate some or all of its research and product development programs, and capital expenditures. The Company may alternatively engage in cost-cutting measures in an attempt to extend its cash resources as long as possible. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all. There is no assurance, moreover, that any funds raised will be sufficient to enable the Company to continue as a going concern.

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The Company’s consolidated financial statements as of June 30, 2023, do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern. If the Company is unable to raise additional capital and is therefore unable to continue as a going concern, it may seek protection under the bankruptcy laws and potentially have to liquidate its assets and may receive less than the value at which those assets are carried on its consolidated financial statements, and it is likely that investors will lose all or part of their investment.

Reverse Stock Split

On April 26, 2022, the Company effected a reverse stock split of its common stock, par value $0.00001 per share, at a ratio of 1-for-25 (the “2022 Reverse Stock Split”). As a result of the 2022 Reverse Stock Split, (i) every 25 shares of the issued and outstanding common stock were automatically converted into one newly issued and outstanding share of common stock, without any change in the par value per share; (ii) the number of shares of common stock into which each outstanding warrant or option to purchase common stock is exercisable was proportionally decreased, and (iii) the number of authorized shares of common stock outstanding was proportionally decreased. Shares of common stock underlying outstanding stock options and other equity instruments convertible into common stock were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities.

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, 2022 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 1, 2023. 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 June 30, 2023 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.

Certain reclassifications have been made to the prior year financial statements to conform to the presentation used in the current year. In the current year the Company reclassified certain current accrued expenses to Other liabilities on the Consolidated Balance Sheets. These reclassifications did not have an impact on total assets or total liabilities of the Consolidated Balance Sheets or cash flows as previously reported.

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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:

June 30, 

December 31, 

(In thousands)

    

2023

    

2022

 

Cash

$

295

$

55

Money market funds

 

10,425

 

16,296

Total cash and cash equivalents

$

10,720

$

16,351

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.

June 30, 

December 31, 

(In thousands)

    

2023

    

2022

Cash and cash equivalents

$

10,720

$

16,351

Restricted cash included in other non-current assets (Note 3)

150

150

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

$

10,870

$

16,501

3.

RESTRICTED CASH

Restricted cash at each of June 30, 2023 and December 31, 2022 was $150 thousand. Restricted cash as of June 30, 2023 and December 31, 2022 included a $50 thousand security deposit related to the Company’s credit card account and a $100 thousand standby letter of credit in favor of a landlord (see Note 5).

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 June 30, 2023

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Cash equivalents

$

10,425

$

$

$

10,425

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As of December 31, 2022

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Cash equivalents

$

16,296

$

$

$

16,296

During the three and six months ended June 30, 2023 and 2022, there were no transfers between levels. The fair value of the Company’s cash equivalents, consisting of a money market fund, is based on quoted market prices in active markets with no valuation adjustment.

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

The Company leases 5,104 square feet of space in Cambridge, Massachusetts, which is used primarily for corporate, manufacturing, and research and development functions (the “Cambridge Lease”). The lease commenced in June 2021, was amended in November 2021, and expires on December 31, 2024. The Cambridge Lease contains rent escalation clauses. In connection with the Cambridge Lease, a standby letter of credit was established for $100 thousand. Under the Cambridge Lease, the Company will be required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts. These costs are considered to be variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability.

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 5.97%, which resulted in an increase of $486 thousand in both the right-of-use asset and operating lease liabilities.

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.

The elements of lease expense are as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

Lease cost (In thousands)

2023

  

2022

  

2023

  

2022

Operating lease cost

$

113

$

113

$

226

$

226

Short-term lease cost

5

1

10

1

Variable lease cost

44

34

89

98

Total lease cost

$

162

$

148

$

325

$

325

Other information (In thousands)

Cash paid for amounts included in the measurement of lease liabilities:

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Operating cash flows from short term leases

$

5

$

1

$

10

$

1

Operating cash flows from operating leases

109

106

218

300

Total cash paid for leases

$

114

$

107

$

228

$

301

Weighted-average remaining lease term - operating leases

1.51 Years

2.51 Years

1.51 Years

2.51 Years

Weighted-average discount rate - operating leases

6.0%

6.0%

6.0%

6.0%

Maturities of the lease liability due under the Cambridge Lease as of June 30, 2023 are as follows:

Leases (In thousands)

As of June 30, 2023

    

2023 (excluding the six months ended June 30, 2023)

$

220

2024

568

Total lease payments

788

Less: imputed interest

(34)

Present value of lease liabilities

$

754

Right-of-use lease assets and lease liabilities are reported in the Company’s consolidated balance sheets as follows:

Leases (In thousands)

Classification

    

June 30, 2023

December 31, 
2022

Assets

Lease asset, net

Operating

$

643

$

844

Total lease assets

$

643

$

844

Liabilities

Current

Operating

$

474

$

396

Non-current

Operating

280

553

Total lease liabilities

$

754

$

949

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets (or asset groups) may not be fully recoverable. The asset (or asset group) to be held and used that is subject to impairment review represents the lowest level of identifiable cash flows that are largely independent of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are considered unrecoverable, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Factors the Company considers that could indicate an impairment may exist include, but are not limited to, the following: significant changes in the manner of our use of the assets or the strategy for the Company’s overall business, significant underperformance relative to expected historical or projected development milestones, significant negative regulatory or economic trends, significant technological changes which could render the assets in development obsolete. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. When recognized, impairment losses related to long-lived assets to be held and used in operations are recorded in operating expenses in the consolidated statements of operations.

During the six months ended June 30, 2023, the Company announced that its INSPIRE 2.0 Study for the Neuro-Spinal Scaffold had failed to meet its primary endpoint and the Company deemed this to be an event to test for impairment, pertaining to the Company’s single asset group. The Company performed an impairment analysis and concluded that none of its long-lived assets were impaired.

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Clinical Trial Commitments

The Company had engaged and executed contracts with contract research organizations (“CROs”) to assist with the administration of its INSPIRE 1.0 and INSPIRE 2.0 clinical trials. As of June 30, 2023, approximately $3.4 million is expected to be paid on these contracts.

6.        FIXED ASSETS

Property, equipment, and leasehold improvements, net consisted of the following:

June 30, 

December 31, 

(In thousands)

    

2023

    

2022

 

Computer software

$

3

$

7

Computer hardware

33

67

Leasehold improvements

 

66

 

66

Research and lab equipment

 

25

 

723

Office equipment

 

9

 

Property and equipment

136

863

Less accumulated depreciation

 

(99)

 

(636)

Property and equipment, net

$

37

$

227

Depreciation expense for the three and six months ended June 30, 2023 was $10 thousand and $29 thousand, respectively. Depreciation expense for the three and six months ended June 30, 2022 was $13 thousand and $26 thousand, respectively. Maintenance and repairs are charged to expense as incurred and any additions or improvements are capitalized. The Company has recorded assets held for sale on the condensed consolidated balance sheets for Research and Laboratory equipment actively marketed of $53 thousand at June 30, 2023.

7.       ACCRUED EXPENSES

Accrued expenses consisted of the following:

June 30, 

December 31, 

(In thousands)

    

2023

    

2022

 

Compensation

$

179

$

852

Clinical

 

233

385

Legal

77

Other accrued expenses

 

66

170

Total accrued expenses

$

555

$

1,407

8.

EMPLOYEE BENEFIT PLAN

In November 2006, the Company adopted a 401(k) plan (the “401k Plan”) covering all employees. Employees must be 21 years of age in order to participate in the 401k Plan. Under the 401k Plan, the Company has the option to make matching contributions. During the three and six months ended June 30, 2023 the Company contributed $22 thousand and $42 thousand, respectively, in cash as a matching contribution to employee 401(k) accounts which is included in the accrued expenses balances on the balance sheet. During the three and six months ended June 30, 2022, the Company contributed $17 thousand and $42 thousand, respectively, in cash as a matching contribution to employee 401(k) accounts which is included in the accrued expenses balances on the balance sheet.

9.

STOCKHOLDERS EQUITY

Preferred Stock

As of June 30, 2023, the Company has 1,000,000 authorized shares of undesignated preferred stock, $0.00001 par value per share, the rights, preferences and privileges of which may be designated from time to time by our board of directors. No shares of preferred stock have been issued or are outstanding.

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Common Stock

The Company has authorized 250,000,000 shares of common stock, $0.00001 par value per share, as of June 30, 2023 and December 31, 2022, respectively, of which 3,105,446 and 2,429,446, shares were issued and outstanding as of June 30, 2023 and December 31, 2022 respectively.

In October 2022, the Company closed a registered offering of shares of its common stock and pre-funded warrants to purchase common stock (the “October 2022 Registered Direct Offering”) and a concurrent private placement of pre-funded warrants and preferred investment options (the “October 2022 Private Placement”), with an institutional investor (together, the “October 2022 Financing”). In the October 2022 Registered Direct Offering, the Company issued (i) an aggregate of 154,000 common shares (“Shares”); and (ii) 369,810 pre-funded warrants (the “October 2022 Pre-Funded Warrants”). In the concurrent October 2022 Private Placement, the Company issued additional October 2022 Pre-Funded Warrants to purchase an aggregate of 1,190,476 shares of its common stock, and (ii) Preferred Investment Options to purchase an aggregate of 1,714,286 shares of its common stock (the “October 2022 Preferred Investment Options”). The purchase price of each Share and associated October 2022 Preferred Investment Option sold in the October 2022 Registered Direct Offering was $5.25 and the purchase price of each October 2022 Pre-Funded Warrant and associated October 2022 Preferred Investment Option sold in each of the October 2022 Registered Direct Offering and October 2022 Private Placement was $5.2499. In connection with the October 2022 Financing, the Company issued to designees of H.C. Wainwright & Co., LLC (“Wainwright”), the placement agent for the October 2022 Financing, Preferred Investment Options to purchase an aggregate of 111,429 shares of its common stock (the “October 2022 Placement Agent Warrants”). The net proceeds to the Company after deducting Wainwright's placement agent fees and other offering expenses payable by the Company, were approximately $8.0 million. The Company assessed whether the October 2022 Pre-Funded Warrants, October 2022 Placement Agent Warrants and the October 2022 Preferred Investment Options required accounting as derivatives and determined that they were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Accounting Standards Codification Topic 815, Derivatives and Hedging. As such, the Company concluded that the October 2022 Pre-Funded Warrants, October 2022 Placement Agent Warrants and the October 2022 Preferred Investment Options meet the scope exception for determining whether the instruments require accounting as derivatives and accordingly are classified in stockholders’ equity. The fair value of the October 2022 Placement Agent Warrants was estimated at $0.3 million using a Black-Scholes model with the following assumptions: expected volatility of 129.96%, risk free interest rate of 4.14%, expected life of five years and no dividends. The fair value of the October 2022 Preferred Investment Options was estimated at $4.9 million using a Black-Scholes model with the following assumptions: expected volatility of 128.87%, risk free interest rate of 4.12%, expected life of five and a half years and no dividends. The October 2022 Pre-Funded Warrants had an intrinsic value of approximately $8.2 million. During the three months ended June 30, 2023, the Company did not issue any shares of common stock upon the exercise of the October 2022 Pre-Funded Warrants. During the six months ended June 30, 2023, the Company issued an aggregate of 676,000 shares of common stock upon the exercise of the October 2022 Pre-Funded Warrants for an immaterial amount, as they were substantially pre-funded.

Concurrent with the October 2022 Financing, the Company modified certain outstanding warrants, consisting of 29,091 Series A Warrants issued in March 2020, 19,048 Series C Warrants issued in April 2020 and 32,000 Series A Warrants issued in October 2020 (collectively the “Existing Warrants”) held by the institutional investor that participated in the October 2022 Financing to lower the exercise price of these warrants to $5.05 and extend the term through April 2028. The change in the term and exercise price of the Existing Warrants was accounted for as modification of an equity instrument. The Company remeasured the Existing Warrants Fair Value both immediately before and after the modification and the remeasurement resulted in an incremental fair value of $0.1 million. As the modification was executed in an effort to induce the investor to participate in the October 2022 Registered Direct Offering and concurrent October 2022 Private Placement, the incremental fair value was accounted for as an issuance cost.

During the three and six months ended June 30, 2022, as part of the adjustment to reflect the 2022 Reverse Stock Split, the Company issued an aggregate of 20,619 shares of common stock to account for the fractional roundup of shareholders.

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During the three and six months ended June 30, 2022, 54 restricted stock awards that were considered issued and outstanding as of December 31, 2021 were forfeited.

During the three and six months ended June 30, 2023 and 2022, there was no exercise activity related to any warrants that were issued in 2018, 2019 and 2020.

10.

STOCK-BASED COMPENSATION

In October 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 June 30, 2023, the total number of shares available for issuance under the 2015 Plan was 793,043 shares.

Options issued under the 2010 Plan, and 2015 Plan (collectively, the “Plans”) are exercisable for up to 10 years from the date of issuance.

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 six months ended June 30, 2023 and 2022:

Three Months Ended June 30, 

Six Months Ended June 30, 

(In thousands)

2023

2022

2023

2022

Research and development

$

$

(17)

$

1

$

(11)

General and administrative

38

34

99

84

Total

$

38

$

17

$

100

$

73

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 (10 years) and the vesting period (generally, 48 months). For non‑employee 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” and together with the RSUs, the “Restricted Securities”) under the 2015 Equity Incentive Plan. These Restricted Securities generally vest over a three-year period, contingent on the recipient’s continued employment. Prior to vesting, all RSAs have the right to vote and receive dividends under the 2015 Equity Incentive Plan; however, the Company’s form of Restricted Stock Agreement provides that the payment of dividends on unvested RSAs shall be deferred until such time as the shares vest. The grant date fair value of these awards is based on the fair market value of our common stock on the date of grant.

The Company granted 1,300 options during the six months ended June 30, 2023 all of which were forfeited in the first quarter of the current fiscal year.

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Stock options

The following table summarizes the stock option activity for the six months ended June 30, 2023:

Weighted

Weighted

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Options

    

Shares

    

Price

    

Term in Years

Value

Outstanding at December 31, 2022

 

136,568

$

36.46

9.72

$

Granted

 

1,300

$

2.30

Cancelled/Forfeited

(5,646)

$

207.55

Outstanding as of June 30, 2023

 

132,222

$

28.81

 

9.22

$

Vested and Exercisable as of June 30, 2023

 

13,122

$

267.65

7.68

$

Vested and expected to vest as of June 30, 2023

 

132,222

$

28.81

 

9.22

$

The total fair value of options that vested in the three and six months ended June 30, 2023 was $118 thousand and $239 thousand, respectively. The total fair value of options that vested in the three and six months ended June 30, 2022 was $239 thousand. During the three and six months ended June 30, 2023, the Company recorded stock-based compensation expense of $38 thousand and $100 thousand, respectively, related to stock options. During the three and six months ended June 30, 2022, the Company recorded stock-based compensation expense of $29 thousand and $77 thousand, respectively, related to stock options. As of June 30, 2023, total unrecognized compensation expense related to non-vested share-based option compensation arrangements amounted to $167 thousand and is estimated to be recognized over a period of 1.16 years.

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11.     WARRANTS

The following table presents information about warrants to purchase common stock issued and outstanding as of June 30, 2023:

    

    

    

Number of

    

Exercise Price as of

    

Year Issued

Defined Name

Classification

Warrants

June 30, 2023

Date of Expiration

2019

2019 Placement Agent Warrants

Equity

610

$

112.50

11/21/2024

2020

March 2020 Series A Warrants

Equity

72,738

$

68.75

3/10/2025

2020

Amended March 2020 Series A Warrants

Equity

29,091

$

5.05

4/11/2028

2020

March 2020 Placement Agent Warrants

Equity

6,620

$

85.9400

3/5/2025

2020

March 2020 Series B Warrants

Equity

510

$

0.00025

Until Fully Exercised

2020

April 2020 Series C Warrants

Equity

48,163

$

40.50

10/17/2025

2020

Amended April 2020 Series C Warrants

Equity

19,048

$

5.05

4/11/2028

2020

April 2020 Placement Agent Warrants

Equity

4,461

$

54.6900

4/15/2025

2020

October 2020 Placement Agent Warrants

Equity

48,264

$

25.00

10/22/2025

2020

October 2020 Series A Warrants

Equity

293,174

$

20.00

10/27/2025

2020

Amended October 2020 Series A Warrants

Equity

32,000

$

5.05

4/11/2028

2022

October 2022 Preferred Investment Options

Equity

1,714,286

$

5.05

4/11/2028

2022

October 2022 Placement Agent Warrants

Equity

111,429

$

6.56

10/7/2027

Total

 

2,380,394

Weighted average exercise price

$

10.37

Weighted average life in years

 

4.21

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.

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For the six months ended June 30, 2023 and 2022 the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive:

June 30, 

2023

2022

Warrants

2,380,394

563,162

Stock options

132,222

13,982

Unvested RSAs

200

Total potentially dilutive securities

2,512,616

577,344

13. INCOME TAXES

The Company did not record a federal or state income tax provision or benefit for each of the three and six months ended June 30, 2023 and 2022 due to the expected loss before income taxes to be incurred for the years ended December 31, 2023 and 2022, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.

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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, 2022 (the “2022 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 identify and execute on potential strategic alternatives that we are currently exploring; our ability to retain management and other key personnel; 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. In March 2023, we announced that our INSPIRE 2.0 Study of our Neuro-Spinal Scaffold had failed to meet its primary endpoint. Subjects in the INSPIRE 2.0 Study continue to be assessed in accordance with the clinical trial protocol. However, we have stopped other activities related to the development of the Neuro-Spinal Scaffold and do not plan future development of the Neuro-Spinal Scaffold. We are currently exploring a range of strategic alternatives that may include a potential merger or sale of the Company, or sale or divestiture of some of our assets or proprietary technologies, among other potential alternatives. There can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis, on terms that are favorable to us, or at all. If we are unable to successfully conclude a strategic transaction outside of a dissolution, liquidation, or bankruptcy proceeding, we may decide to dissolve and liquidate our assets under the bankruptcy laws or otherwise. If we decide to dissolve and liquidate our assets under the bankruptcy laws or otherwise, it is unclear to what extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

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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 2022 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 June 30, 2023 and 2022

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 three months ended June 30, 2023 were $0.7 million, a decrease of $0.6 million compared to the three months ended June 30, 2022. The decrease in research and development expenses for the three months ended June 30, 2023 is attributable to a $0.4 million decrease in compensation related expenses, a $0.1 million decrease in consulting costs and a $0.1 million decrease in other net immaterial accounts. These decreases reflect the cost cutting measures taken in the manufacturing and quality areas in response to the negative topline data from the INSPIRE 2.0 Study.

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 June 30, 2023 were relatively flat at $1.4 million compared to the three months ended June 30, 2022.

Other Income and Expense, net

Other income for the three months ended June 30, 2023, was comprised of interest income of $148 thousand. Other income for the three months ended June 30, 2022 was immaterial.

Comparison of the Six Months Ended June 30,  2023 and 2022

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 six months ended June 30, 2023 were $2.1 million, a decrease of $0.7 million compared to the six months ended June 30, 2022. The decrease in research and development expenses for the six months ended June 30, 2023 is mainly attributable to a $0.4 million decrease in compensation related expense as result of cost cutting measures taken in the manufacturing and quality areas in response to the negative topline data from the INSPIRE 2.0 Study, and a $0.3 million decrease in clinical trial costs as the INSPIRE 2.0 Study reached full enrollment in the prior year.

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General and Administrative Expenses

General and administrative expenses consisted primarily of payroll, rent, and professional services. General and administrative expenses for the six months ended June 30, 2023 were relatively flat at $2.5 million compared to the six months ended June 30, 2022.

Other Income and Expense

Other income for the six months ended June 30, 2023, was comprised of interest income of $304 thousand. Other income for the six months ended June 30, 2022 was immaterial.

Liquidity, Capital Resources and Going Concern

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.

As of June 30, 2023, we had approximately $11.1 million in working capital, our accumulated deficit was $252.9 million, we had total assets of $13.3 million, total liabilities of $1.8 million, and total stockholders’ equity of $11.6 million. During the six months ended June 30, 2023, we recorded a net loss of $4.3 million.

In light of our decision to stop future development of the Neuro-Spinal Scaffold, and based on a review of the status of our internal programs, resources and capabilities, we are exploring a wide range of strategic alternatives that may include a potential merger or sale of the Company or the sale or divestiture of some of our assets or proprietary technologies. There can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis, on terms that are favorable to us, or at all. If we are unable to successfully conclude a strategic transaction outside of a dissolution, liquidation, or bankruptcy proceeding, we may decide to dissolve and liquidate our assets under the bankruptcy laws or otherwise. If we decide to dissolve and liquidate our assets under the bankruptcy laws or otherwise, it is unclear to what extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

We have limited liquidity and capital resources and anticipate that we will continue to incur significant expenses and operating losses as we implement our review of strategic options, and we may incur increased expenses if and to the extent we are unable to stop activities or eliminate expenses related to the Neuro-Spinal Scaffold program on our anticipated timelines or we incur unexpected material expenses during this process; need to respond to any investigations or inquiries, or defend against any litigation, that may result from the announcement of the results of our INSPIRE 2.0 Study; are unable to successfully complete our exploration and evaluation of strategic options and implement any such options; or are unable to limit our ongoing operating costs as we work to explore and evaluate strategic options.

Our consolidated financial statements as of June 30, 2023 were prepared under the assumption that we will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt exists about our ability to continue as a going concern exists and we will require additional liquidity to continue operations beyond the next 6 months.

Our consolidated financial statements as of June 30, 2023, do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern. If we are unable to continue as a going concern, we may have to seek protection under bankruptcy laws and potentially have to liquidate our 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.

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Cashflows

Net cash used in operating activities for the six months ended June 30, 2023, consisted of net loss of $4.3 million, non-cash items of $0.4 million and cash used by working capital of $1.8 million. Adjustments for non-cash items consisted primarily of $0.2 million in amortization of operating lease right-of-use assets, $0.1 million in loss on sale of fixed assets and $0.1 million in stock-based compensation expense. The change in cash from working capital included a $0.8 million decrease in accrued expenses, a $0.3 million decrease in accounts payable, and a $0.2 million decrease in the operating lease liability and a $0.5 million increase in prepaid expenses and other assets.

Net cash used in operating activities for the six months ended June 30, 2022, consisted of net loss of $5.4 million, non-cash items of $0.3 million and cash used by working capital of $0.8 million. Adjustments for non-cash items consisted primarily of $0.2 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 $0.7 million decrease in accrued expenses, a $0.4 million increase in prepaid expenses and other assets and a $0.2 million decrease in the operating lease liability. These changes were offset by a $0.5 million increase in accounts payable.

Net cash provided by investing activities for the six months ended June 30, 2023 was immaterial. Net cash used in investing activities for the six months ended June 30, 2022 was $82 thousand related to the purchase of manufacturing and lab equipment.

The Company did not generate or use cash in financing activities during either of the six months ended June 30, 2023 and 2022.

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 June 30, 2023, we reported current and long-term operating lease liabilities of $0.5 million and $0.3 million, respectively. These balances represent our contractual obligation to make future payments on our Cambridge Lease, 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 contract research organizations to assist with the administration of our ongoing INSPIRE 1.0 and INSPIRE 2.0 clinical trials. As of June 30, 2023, approximately $3.4 million remained 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 June 30, 2023. 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 June 30, 2023, 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 June 30, 2023 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 Business

Our business has been entirely dependent on the success of our Neuro-Spinal implant as a potential treatment for spinal cord injuries, a program for which we recently stopped all further development activities due to the fact that the INSPIRE 2.0 Study did not meet its primary endpoints. In light of our decision to stop future development of the Neuro-Spinal Scaffold, and based on a review of the status of our internal programs, resources and capabilities, we are exploring a wide range of strategic alternatives. If we are unable to successfully conclude a strategic transaction outside of a dissolution, liquidation, or bankruptcy proceeding, we may decide to dissolve and liquidate our assets under the bankruptcy laws or otherwise. If we decide to dissolve and liquidate our assets under the bankruptcy laws or otherwise, it is unclear to what extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

In March 2023, we announced that topline results from our INSPIRE 2.0 Study did not meet the study’s primary endpoint. We are continuing to conduct a full assessment of the study data and subjects in the INSPIRE 2.0 Study continue to be assessed in accordance with the clinical trial protocol. However, we have stopped other activities related to the development of the Neuro-Spinal Scaffold and do not plan future development of the Neuro-Spinal Scaffold. We are currently exploring a range of strategic alternatives. These strategic alternatives may include a potential merger or sale of the Company or the sale or divestiture of some of our assets or proprietary technologies, among other potential alternatives. We do not have a defined timeline for the exploration and evaluation of strategic options and cannot confirm that the process will result in any strategic option being announced or consummated. We cannot provide any commitment regarding when or if this strategic evaluation process will result in any type of transaction, and there can be no assurance that such activities will result in any agreements or transactions that will enhance stockholder value. If the Company is unable to successfully conclude a strategic transaction outside of a dissolution, liquidation, or bankruptcy proceeding, it may decide to dissolve and liquidate its assets under the bankruptcy laws or otherwise. If the Company decides to dissolve and liquidate its assets under the bankruptcy laws or otherwise, it is unclear to what extent it will be able to pay its obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders. If we determine to engage in a transaction as a result of our exploration and evaluation of strategic options, 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 our future plans, we are not able to accurately predict the impact of a potential change in our existing business strategy. We do not intend to discuss or disclose further developments during this process unless and until our board of directors has approved a specific action or we otherwise determined that further disclosure is appropriate. Pending the results of our exploration and evaluation of strategic options, our current operating plan provides for stopping all activities related to the Neuro-Spinal Implant program and focusing on activities necessary to explore and evaluate strategic options.

If we decide to seek protection under the bankruptcy laws, and if we decide to wind down the company under the bankruptcy laws or otherwise, risks and uncertainties associated with a potential bankruptcy proceeding and a wind-down may lead to adverse effects on recoveries for our stakeholders.

Due to the risks and uncertainties associated with a potential bankruptcy proceeding and a wind-down of our company, we cannot assure our creditors or stockholders of any recovery, or any specific level of recovery, on their claims and interests if we were to determine to seek protection under the bankruptcy laws or wind down the company.

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Any wind-down and potential bankruptcy proceeding that might occur, and any distributions that might be made in connection with our wind-down and bankruptcy proceeding, will be affected by a number of factors, including:

the timing, duration, and cost of the wind-down and potential bankruptcy process;

our ability to effectuate transactions, if any, in the course of our wind-down and potential bankruptcy proceeding, and the value to be realized in any such transactions;

our ability to obtain bankruptcy court approval with respect to motions we file in the potential bankruptcy proceeding and the impact of bankruptcy court rulings on the case in general;

motions and other papers filed by third parties in the bankruptcy proceeding, and the bankruptcy court’s reaction to the same; and

our ability to conclude the bankruptcy proceeding through a plan of liquidation or other means.

Risks Related to Our Financial Position and Need for Additional Capital

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 estimate that our existing cash resources will be sufficient to fund our operations into the first quarter of 2024. We currently do not have sufficient cash resources to continue our business operations beyond that time. While we are stopping future development related to the Neuro-Spinal Implant program, we still expect to continue to incur significant expenses and operating losses for the foreseeable future. Accordingly, we will need to obtain substantial 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 operation 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 time and expense required to stop development of the Neuro-Spinal Scaffold and wind down the INSPIRE 2.0 study;
the nature of any transaction we may enter into;
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;

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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;
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. 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, and if we are not successful in raising additional capital, we may not be able to continue as a going concern.

There is substantial doubt about our ability to continue as a going concern, which may affect our ability to obtain future financing and may require us to curtail or cease our operations.

 

Our consolidated financial statements as of June 30, 2023 were prepared under the assumption that we will continue as a going concern. As of June 30, 2023, we had unrestricted cash and cash equivalents of $10.7 million. Our ability to continue as a going concern will depend on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce or contain expenditures, and, ultimately, to generate revenue. Based on these factors, management determined that there is substantial doubt regarding our ability to continue as a going concern. Our independent registered public accounting firm expressed substantial doubt as to our ability to continue as a going concern in its report dated March 1, 2023 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 1, 2023.

 

If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will lose all or part of their investment. When we seek additional financing to fund our business activities as a result of the substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable 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 $4.3 million for the six months ended June 30, 2023, and net losses of $10.5 million for the year ended December 31, 2022 and $9.9 million for the year ended December 31, 2021. As of June 30, 2023, we had an accumulated deficit of $252.9 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 biotechnology companies. 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

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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 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. To become and remain profitable, we must succeed in identifying, 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 any 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 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

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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 or 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 the FFCR Act, was enacted on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted on March 27, 2020. Both contain numerous tax provisions. Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017, or the Tax Act, or Section 174 of the Internal Revenue Code, or the Code, will no longer permit an immediate deduction for R&D expenditures in the tax year that such costs are incurred. For expenses that are incurred for R&D in the U.S., such amounts will be amortized over five years (this is currently approximately 90% of the Company’s relevant spend), and expenses that are incurred for R&D expenditures outside the U.S. will be amortized over 15 years.

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 the 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, or NOLs, 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 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

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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 June 30, 2023, 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.

If we enter into a business partnership, any such partnership 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 the Development, Regulatory Approval, and Commercialization of Our Product Candidates

Clinical trials for future product candidates may experience delays or may not be able to commence.

Before we can obtain regulatory approval for the sale of any of our product candidates, 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 will not experience future delays in or not successfully complete the clinical development of other product candidates. 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, 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.

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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 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. 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 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.

Risks Related to Government Regulation

Our Products and our operations are subject to extensive government regulation and oversight in the United States and overseas. 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. If we fail to maintain regulatory approvals and clearances, or are unable to obtain, or experience significant delays in obtaining, FDA clearances or approvals for our future products or product enhancements, our ability to commercially distribute and market these products could suffer.

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 effectiveness 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 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.

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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.

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.

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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. 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 the 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.

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 regulatory approvals that have already been granted;

refusal to grant export approval for our products; or

criminal prosecution.

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