Quarterly Report (10-q)

Date : 05/10/2019 @ 1:03PM
Source : Edgar (US Regulatory)
Stock : Invivo Therapeutics Holdings Corp. (MM) (NVIV)
Quote : 0.777  0.012 (1.57%) @ 1:00AM

Quarterly Report (10-q)

 

 

 

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 March 31, 2019

 

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)

(Former name, former address and former fiscal year, if changed since last report)


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 if any, 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 12b-2 of the Exchange Act).  Yes ☐ No ☒

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

As of May 3, 2019, 9,311,320 shares of the registrant’s Common Stock, $0.00001 par value, were issued and outstanding.

 

 

 

 


 

INVIVO THERAPEUTICS HOLDINGS CORP.

Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2019

 

TABLE OF CONTENTS

 

 

 

 

 

     

Page

PART I  

 

 

 

 

 

FINANCIAL INFORMATION  

 

 

 

 

 

1. Financial Statements (Unaudited)  

 

3

 

Consolidated Balance Sheets as of March 31, 2019, and December 31, 2018

 

3

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018

 

4

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018

 

5

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

6

 

Notes to Consolidated Financial Statements

 

7

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

 

21

3. Quantitative and Qualitative Disclosures about Market Risk  

 

27

4. Controls and Procedures  

 

28

 

 

 

PART II  

 

31

 

 

 

OTHER INFORMATION  

 

31

 

 

 

1A. Risk Factors  

 

31

2. Unregistered Sales of Equity Securities and Use of Proceeds  

 

53

5. Other Information  

 

53

6. Exhibits  

 

54

 

 

2


 

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

 

 

    

March 31, 

    

December 31, 

 

 

 

2019

 

2018

 

ASSETS:

 

 

    

 

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,203

 

$

16,660

 

Restricted cash

 

 

 4

 

 

 4

 

Prepaid expenses and other current assets

 

 

1,118

 

 

461

 

Total current assets

 

 

14,325

 

 

17,125

 

Property, equipment and leasehold improvements, net

 

 

89

 

 

100

 

Restricted cash - non current

 

 

110

 

 

110

 

Operating lease right-of-use assets

 

 

1,410

 

 

 —

 

Other assets

 

 

1,037

 

 

1,042

 

Total assets

 

$

16,971

 

$

18,377

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

988

 

$

815

 

Loan payable, current portion

 

 

 —

 

 

100

 

Operating lease liabilities

 

 

208

 

 

 —

 

Accrued expenses

 

 

893

 

 

1,290

 

Total current liabilities

 

 

2,089

 

 

2,205

 

Other liabilities

 

 

62

 

 

61

 

Operating lease liabilities - non current

 

 

1,276

 

 

 —

 

Total liabilities

 

 

3,427

 

 

2,266

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.00001 par value, authorized 25,000,000 shares; 9,311,070 shares issued and outstanding at March 31, 2019; 9,309,255 shares issued and outstanding at December 31, 2018

 

 

 1

 

 

 1

 

Additional paid-in capital

 

 

223,508

 

 

223,440

 

Accumulated deficit

 

 

(209,965)

 

 

(207,330)

 

Total stockholders’ equity

 

 

13,544

 

 

16,111

 

Total liabilities and stockholders’ equity

 

$

16,971

 

$

18,377

 

 

See notes to the unaudited consolidated financial statements.

 

(Reflects the retrospective application of the 1-for-25 reverse stock split effective April 16, 2018)

 

 

3


 

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Operations

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

Operating expenses:

 

 

    

 

 

    

 

Research and development

 

$

1,110

 

$

1,398

 

General and administrative

 

 

1,668

 

 

3,434

 

Total operating expenses

 

 

2,778

 

 

4,832

 

Operating loss

 

 

(2,778)

 

 

(4,832)

 

Other income / (expense):

 

 

 

 

 

 

 

Interest income / (expense), net

 

 

99

 

 

18

 

Other income / (expense), net

 

 

44

 

 

42

 

Derivatives loss

 

 

 —

 

 

(12)

 

Other income / (expense), net

 

 

143

 

 

48

 

Net loss

 

$

(2,635)

 

$

(4,784)

 

Net loss per share, basic and diluted

 

$

(0.28)

 

$

(3.34)

 

Weighted average number of common shares outstanding, basic and diluted

 

 

9,310,448

 

 

1,432,963

 

 

 

See notes to the unaudited consolidated financial statements.

 

(Reflects the retrospective application of the 1-for-25 reverse stock split effective April 16, 2018)

 

 

4


 

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Changes in Stockholders’ Equity

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Month Period Ended March 31, 2018

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

   

Shares

   

Amount    

   

Capital

   

Deficit

   

Equity 

Balance as of December 31, 2017

 

1,370,992

 

$

 1

 

$

194,016

 

$

(183,907)

 

$

10,110

Share-based compensation expense

 

 —

 

 

 —

 

 

306

 

 

 —

 

 

306

Issuance of common stock in public offering

 

190,664

 

 

 —

 

 

2,682

 

 

 —

 

 

2,682

Issuance of common stock under ESPP

 

188

 

 

 —

 

 

 3

 

 

 —

 

 

 3

Issuance of common stock to 401(k) plan

 

440

 

 

 —

 

 

 6

 

 

 —

 

 

 6

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(4,784)

 

 

(4,784)

Balance as of March 31, 2018

 

1,562,284

 

$

 1

 

$

197,013

 

$

(188,691)

 

$

8,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three-Month Period Ended March 31, 2019

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount 

    

Capital    

    

 Deficit   

    

    Equity

Balance as of December 31, 2018

 

9,309,255

 

$

 1

 

$

223,440

 

$

(207,330)

 

$

16,111

Share-based compensation expense

 

 —

 

 

 —

 

 

67

 

 

 —

 

 

67

Issuance of common stock upon vesting of restricted stock units

 

750

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of common stock under ESPP

 

1,065

 

 

 —

 

 

 1

 

 

 —

 

 

 1

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(2,635)

 

 

(2,635)

Balance as of March 31, 2019

 

9,311,070

 

$

 1

 

$

 223,508

 

$

(209,965)

 

$

13,544

 

 

See notes to the unaudited consolidated financial statements.

 

(Reflects the retrospective application of the 1-for-25 reverse stock split effective April 16, 2018)

 

 

 

5


 

 

 

InVivo Therapeutics Holdings Corp.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Cash flows from operating activities:

 

 

    

 

 

    

 

Net loss

 

$

(2,635)

 

$

(4,784)

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

16

 

 

40

 

Amortization of operating lease right-of-use assets

 

 

65

 

 

 —

 

Loss on impairment of fixed assets

 

 

 —

 

 

48

 

Derivatives loss

 

 

 —

 

 

12

 

Non-cash interest expense

 

 

 1

 

 

 1

 

Gain on sale of asset

 

 

 —

 

 

(25)

 

Common stock issued to 401(k) plan

 

 

 —

 

 

 6

 

Share-based compensation expense

 

 

67

 

 

306

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(674)

 

 

(443)

 

Accounts payable

 

 

173

 

 

240

 

Operating lease liability

 

 

26

 

 

 —

 

Accrued expenses and other liabilities

 

 

(397)

 

 

906

 

Net cash used in operating activities

 

 

(3,358)

 

 

(3,693)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Disposals of property and equipment

 

 

 —

 

 

25

 

Net cash provided by investing activities

 

 

 —

 

 

25

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of stock under ESPP

 

 

 1

 

 

 3

 

Repayment of loan payable

 

 

(100)

 

 

(110)

 

Repurchase of warrants

 

 

 —

 

 

(14)

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 —

 

 

2,510

 

Net cash (used in) provided by financing activities

 

 

(99)

 

 

2,389

 

Decrease in cash and cash equivalents and restricted cash

 

 

(3,457)

 

 

(1,279)

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

16,774

 

 

13,271

 

Cash, cash equivalents and restricted cash at end of period

 

$

13,317

 

$

11,992

 

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

 

 

 

 

 

 

 

Cash paid for interest

 

$

 1

 

$

14

 

Right-of-use assets and lease liability recorded upon adoption of ASC 842

 

$

1,475

 

 

 —

 

Non-cash issuance of common stock for warrants

 

$

 —

 

$

287

 

 

See notes to the unaudited consolidated financial statements.

 

 

6


 

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statement s for the Quarter Ended March 31, 2019 (Unaudited)

 

1. NATURE OF OPERATIONS AND GOING CONCERN, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

 

Business

 

InVivo Therapeutics Holdings Corp. (the “Company”) is a pioneering 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 and the Massachusetts Institute of Technology, 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. At March 31, 2019, the Company had cash and cash equivalents of $13.2 million. The Company has not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. The Company does not expect to be profitable in the next several years, but rather expects to incur additional operating losses. The Company has limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain its product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of its anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses, and other working capital requirements. The Company expects that it will need additional capital to fund its operations, which it may raise through a combination of equity offerings, debt financings, other third party funding, marketing and distribution arrangements, and other collaborations, strategic alliances, and licensing arrangements.

 

Going Concern

 

The Company’s consolidated financial statements as of March 31, 2019 were prepared under the assumption that the Company will continue as a going concern. At March 31, 2019, the Company had cash and cash equivalents of $13.2 million. Given the Company’s development plans, the Company estimates cash resources will be sufficient to fund its operations into the first quarter of 2020. This estimate is based on assumptions that may prove to be wrong; expenses could prove to be significantly higher, leading to a more rapid consumption of the Company’s existing resources.

 

The Company’s ability to continue as a going concern depends on its ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on its audited consolidated financial statements, and it is likely that investors will lose all or part of their investment. If the Company seeks additional financing to fund its business activities in the future and there remains substantial doubt about its ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to the Company on commercially reasonable terms or at all. Based on these factors, as of March 31, 2019, management determined that there is substantial doubt regarding the Company’s ability to continue as a going concern.

 

Reverse Stock Split

 

On April 16, 2018, the Company effected a reverse stock split of its common stock, par value $0.00001 per share (the “Common Stock”), at a ratio of 1-for-25. As a result of the reverse stock split, (i) every 25 shares of the issued and outstanding common stock were automatically converted into 1 newly issued and outstanding share of common stock, without any change in the par value per share; (ii) 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

7


 

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

agreements governing such securities, and (iii) the number of authorized shares of common stock outstanding was proportionally decreased.

 

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 were adjusted, on a retroactive basis, to reflect this 1-for-25 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 (“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, 2018 included in the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on April 1, 2019. 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 March 31, 2019 and its results of operations and cash flows for the interim period 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 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.

 

Recently Adopted Accounting Standards

 

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance leases or operating leases, with classification affecting the pattern of expense recognition in the statement of operations. In January, July and December 2018, the FASB issued ASU No’s. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01, which were targeted improvements to ASU No. 2016-02 (collectively, with ASU No. 2016-02, “ASC 842”) and provided entities with an additional (and optional) transition method to adopt the new lease standard, and provided clarifications to address potential narrow-scope implementation issues. The Company adopted ASU 2016- 02 effective January 1, 2019 and elected the optional transition method for adoption. The Company also took advantage of the transition package of practical expedients permitted within ASU 2016-02, which among other things, allowed it to carryforward historical lease classifications. The Company also elected to keep leases with an initial term of 12 months or less off of the balance sheet as a policy election and will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. As of the adoption date, the Company identified 1 operating lease arrangement in which it is a lessee.  The adoption of this standard resulted in the recognition of operating lease liabilities and right-of-use assets of $1.5 million and $1.5 million, respectively, on the Company’s balance sheet as of January 1, 2019. The adoption of the standard did not have a material effect on the Company’s statements of operations or statements of cash flows.

 

In July 2017, the FASB issued ASU No. 2017-11, Part I. Accounting for Certain Financial Instruments with Down Round Features and Part II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I of this guidance applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II of this guidance replaces the indefinite deferrals for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities. ASU 2017-11 was effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within each annual reporting period. The Company adopted ASU 2017-11 on January 1, 2019, and it did not have any impact on the

8


 

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

financial position, results of operations or disclosures, as the Company currently does not hold any instruments that contain down round features.

 

In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU relates to the impacts of the tax legislation commonly referred to as the Tax Reform Act. The guidance permits the reclassification of certain income tax effects of the Tax Reform Act from other comprehensive income to retained earnings (stranded tax effects). The guidance also requires certain new disclosures. The guidance was effective for annual periods beginning after December 15, 2018, and interim periods within those reporting periods. Early adoption is permitted. Entities may adopt the guidance using 1 of 2 transition methods: retrospective to each period (or periods) in which the income tax effects of the Tax Reform Act related to the items remaining in other comprehensive income are recognized or at the beginning of the period of adoption. The Company adopted ASU 2018-02 on January 1, 2019 and it did not have a material effect on the Company’s financial position, results of operations or disclosures.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting which is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606). The Company adopted ASU 2018-07 on January 1, 2019 and it did not have a material effect on the Company’s financial position, results of operations or disclosures.

 

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements which clarifies, corrects errors in, and makes improvements to several Codification Topics, including to:

 

·

Clarify when excess tax benefits should be recognized for share-based compensation awards

·

Remove inconsistent guidance in income tax accounting for business combinations

·

Clarify the circumstances when derivatives may be offset

·

Clarify the measurement of liability or equity-classified financial instruments when an identical asset is held as an asset

·

Allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives to use the portfolio exception to valuation

 

The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this ASU do not require transition guidance and are effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company adopted ASU 2018-09 on January 1, 2019, and it did not have a material effect on the Company’s financial position, results of operations or disclosures.

 

In August 2018, the FASB issued ASU No. 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement which improves the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. The Company does not expect the adoption of this ASU to have a material effect on its consolidated financial statements.

 

9


 

Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

 

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim consolidated financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule was effective on November 5, 2018. The Company adopted this release in the third quarter of 2018.

 

 

2. CASH AND CASH EQUIVALENTS

 

At March 31, 2019 and December 31, 2018, cash equivalents were comprised of money market funds and other short-term investments.

 

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. The Company considers only those investments that are highly liquid, readily convertible to cash, and that mature within 3 months from date of purchase to be cash equivalents. Management believes it is not exposed to significant credit risk.

 

Cash and cash equivalents consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

(In thousands)

    

2019

    

2018

 

Cash

 

$

 —

 

$

(83)

 

Money market funds

 

 

13,203

 

 

16,743

 

Total cash and cash equivalents

 

$

13,203

 

$

16,660

 

 

 

 

3. RESTRICTED CASH

 

Restricted cash as of both March 31, 2019 and December 31, 2018 was $114 thousand. Restricted cash as of March 31, 2019 and December 31, 2018 included a $50 thousand security deposit related to the Company’s credit card account, $4 thousand related to 401(k) reserve account and a $60 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

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2019

 

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

Cash equivalents

 

$

13,203

 

$

 —

 

$

 —

 

$

13,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

 

Cash equivalents

 

$

16,743

 

$

 —

 

$

 —

 

$

16,743

 

 

 

5. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

On November 30, 2011, the Company entered into a commercial lease for 26,342 square feet of office, laboratory, and manufacturing space in Cambridge, Massachusetts (as amended on September 17, 2012 and October 31, 2017, the “Cambridge Lease”). The term of the Cambridge Lease was 6 years and 3 months, with one 5-year extension option. On August 21, 2017, the Company exercised its option for the 5-year extension on the Cambridge Lease. The 5-year renewal lease term was set to commence on November 1, 2018 and end on October 31, 2023. The terms of the Cambridge Lease required a standby letter of credit in the amount of $311 thousand.

 

On June 13, 2017, the Company entered into a new short-term lease, to sub-lease 5,233 square feet of its facility (the “Moderna Sublease”). The lease term was from July 1, 2017 through October 26, 2018. On June 19, 2017, the Company received a $55 thousand security deposit under the terms of the Moderna Sublease. In connection with the Moderna Sublease, the Company received sublease income of $82 thousand for the three month period ended March 31, 2018, which was recorded as an offset to rent expense. In conjunction with the assignment of the Cambridge Lease on May 3, 2018 further described below, this security deposit was transferred to the third party that assumed the lease. The Company did not record any sublease income associated with the Moderna Sublease during the three month period ended March 31, 2019.

 

On May 3, 2018, the Company assigned the Cambridge Lease to a third party who assumed all of the Company’s remaining rights and obligations under the Cambridge Lease including the Moderna Sublease. On the same date as the lease assignment, the Company entered into a sublease for 5,104 square feet of space, originally part of the Cambridge Lease, from the third party to which the Company assigned the Cambridge Lease (the “Current Cambridge Lease”). The Current Cambridge Lease commenced on May 3, 2018 and expires October 31, 2023 and contains rent holiday and rent escalation clauses. The Current Cambridge Lease does not contain any renewal options.

 

In connection with the assignment of the Cambridge Lease and the entry into the Current Cambridge Lease, the $311 thousand standby letter of credit was terminated, and a new standby letter of credit was established for $40 thousand. On November 1, 2018, the standby letter of credit was increased to $60 thousand. The $55 thousand security deposit under the Moderna Sublease was transferred to the third party and $603 thousand of deferred rent was removed from the consolidated balance sheets as of June 30, 2018. The resulting gain was recorded within the consolidated statement of operations and comprehensive loss during the second quarter of 2018. The Company also wrote off certain furniture, fixtures and equipment (including laboratory equipment) and recorded an impairment charge of $48 thousand for the year ended December 31, 2018.

 

Under the Current 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. 

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InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

 

The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

 

·

As the Company’s Current Cambridge Lease does not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has estimated its incremental borrowing rate based on electing the remaining lease term as of the adoption date.

·

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:

 

 

 

 

 

Lease cost (In thousands)

    

As of March 31, 2019

Operating lease cost

 

$

91

Short-term lease cost

 

 

 6

Total lease cost

 

$

97

 

 

 

 

 

 

 

 

Other information (In thousands)

 

 

 

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

 

 

 

Operating cash flows from operating leases

 

$

 —

Right-of-use assets obtained in exchange for operating lease liabilities

 

 

1,475

Weighted-average remaining lease term - operating leases

 

 

4.6 Years

Weighted-average discount rate - operating leases

 

 

7.0%

 

 

Maturities of lease liabilities due under the Company’s Current Cambridge Lease as of March 31, 2019 is as follows:

 

 

 

 

 

Leases (In thousands)

    

As of March 31, 2019

2019 (excluding the 3 months ended March 31, 2019)

 

$

243

2020

 

 

375

2021

 

 

386

2022

 

 

397

2023

 

 

339

Thereafter

 

 

 —

Total lease payments

 

 

1,740

Less: interest

 

 

(256)

Present value of lease liabilities

 

$

1,484

 

 

 

 

 

 

 

 

Leases (In thousands)

    

 

Classification

    

As of March 31, 2019

Assets

 

 

 

 

 

 

Lease asset

 

 

Operating

 

$

1,410

Total lease assets

 

 

 

 

$

1,410

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current

 

 

Operating

 

$

208

Non Current

 

 

Operating

 

 

1,276

Total lease liabilities

 

 

 

 

$

1,484

 

 

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

Under ASC Topic 840, Leases (“ASC 840”), the Company recognized rent expense on a straight-line basis over the term of the lease and recorded the difference between the amount charged to expense and the rent paid as prepaid rent or deferred rent liability. As of December 31, 2018, the amount of prepaid rent was $17 thousand was subsequently reversed upon adoption of ASU No. 2016-02 on January 1, 2019.

 

Under ASC 840, rent expense related to the Company’s real estate lease charged to operations was approximately $407 thousand for the three months ended March 31, 2018.

 

Litigation

 

Lawsuits with Former Employee

 

In November 2013, the Company filed a lawsuit against Francis Reynolds, its former Chairman, Chief Executive Officer and Chief Financial Officer, in Middlesex Superior Court, Middlesex County, Massachusetts (InVivo Therapeutics Holdings Corp. v. Reynolds, Civil Action No. 13-5004). The complaint alleges breaches of fiduciary duties, breach of contract, conversion, misappropriation of corporate assets, unjust enrichment, and corporate waste, and seeks monetary damages and an accounting. The lawsuit involves approximately $500 thousand worth of personal and/or exorbitant expenses that the Company alleges Mr. Reynolds inappropriately caused it to pay while he was serving as the Company’s Chief Executive Officer, Chief Financial Officer, President, and Chairman of the Company’s Board of Directors. On December 6, 2013, Mr. Reynolds answered the complaint, and filed counterclaims against the Company and the Company’s Board of Directors. The counterclaims allege two counts of breach of contract, two counts of breach of the covenant of good faith and fair-dealing, and tortious interference with a contract, and seek monetary damages and a declaratory judgment. The counterclaims related to Mr. Reynolds’s allegations that the Company and the Company’s Board of Directors interfered with the performance of his duties under the terms of his employment agreement, and that Mr. Reynolds was entitled to additional shares upon the exercise of certain stock options that he did not receive. On January 9, 2014, the Company, along with the directors named in the counterclaims, filed the Company’s answer denying that Mr. Reynolds is entitled to any relief. The parties have completed discovery. On March 3, 2017, the counterclaim defendants filed a motion for summary judgement on all counterclaims asserted by Mr. Reynolds. On October 18, 2017, the Court allowed the motion for summary judgment in substantial part, and denied it in part. The Court, citing disputed issues of fact, declined to dismiss the counterclaims for breach of contract, breach of implied covenant of good faith and fair dealing, and declaratory judgment concerning Mr. Reynolds’ attempted exercise of certain stock options, which Mr. Reynolds claims is the equivalent of 47,864 shares of common stock, but dismissed all other claims asserted by Mr. Reynolds. In July 2018, the parties reported the case as settled to the Court. 

 

6.         ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

(In thousands)

    

2019

    

2018

 

Severance and restructuring

 

$

191

 

$

517

 

Compensation

 

 

479

 

 

489

 

Clinical

 

 

37

 

 

73

 

Legal

 

 

67

 

 

35

 

Other accrued expenses

 

 

119

 

 

176

 

    Total accrued expenses

 

$

893

 

$

1,290

 

 

 

7. LOAN PAYABLE

 

In October 2012, the Company entered into a loan agreement with the Massachusetts Development Finance Agency (“MassDev”). The loan agreement provided the Company with a $2.0 million line of credit from the Commonwealth of Massachusetts’ Emerging Technology Fund, with $200 thousand designated to be used for

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

working capital purposes and the remainder to be used for the purchase of capital equipment. The annual interest rate on the loan was fixed at 6.5% with interest-only payments for the first 30 months, commencing on November 1, 2012, and then equal installments of interest and principal over the next 54 months, until the final maturity of the loan in March 2019. Commencing on May 1, 2015, equal monthly payments of $41 thousand were due until loan maturity.

 

In May 2018, in order to obtain the consent of MassDev for facility changes, including the assignment of the Cambridge Lease, and the sale of certain assets, the Company paid down $300 thousand of principal on the MassDev loan. During the three month period ended March 31, 2019, the Company made principal loan payments of $100 thousand. As of March 31, 2019, there was no outstanding loan payable balance.

 

In October 2012, as part of the agreement, the Company issued MassDev a warrant for the purchase of 362 shares of the Company’s common stock of which 243 shares remain outstanding at March 31, 2019. The warrant has a 7-year term and is exercisable at $166 per share. The fair value of the warrant was determined to be $32 thousand and was amortized through interest expense over the life of the note. For each of the three months ended March 31, 2019 and 2018 the Company recorded $1 thousand in amortization expense. This amortization expense was included in interest expense in the Company’s consolidated statements of operations.

 

The equipment line of credit was secured by substantially all the assets of the Company, excluding intellectual property. Interest expense related to this loan for the three month periods ended March 31, 2019 and 2018 was $1 thousand and $14 thousand, respectively.

 

8. COMMON STOCK

 

In May 2018, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation to increase the number of shares of authorized Common Stock from 4,000,000 to 25,000,000 shares.  As of March 31, 2019, and December 31, 2018, 9,311,070 and 9,309,255 shares were issued and outstanding respectively.

 

In June 2018, the Company closed an underwritten public offering of an aggregate of 1,378,400 Common Units, at an offering price of $2.00 each, each comprised of 1 share of the Company’s Common Stock and 1 Series A warrant to purchase 1 share of Common Stock. The public offering also included 6,242,811 pre-funded units at an offering price of $1.99 each, each comprised of 1 pre-funded Series B Warrant, and 1 Series A warrant to purchase 1 share of Common Stock. Each Series A warrant has an exercise price of $2.00 per share, is exercisable immediately and expires 5 years from the date of issuance. Each Series B warrant has an exercise price of $0.01 per share, is exercisable immediately and will expire 20 years from the date of issuance (see Note 11). The net proceeds to the Company, after deducting the underwriting discounts and commissions and other offering expenses, were $13.5 million (see Note 11). In September 2018, the Company entered into an Amendment to the Warrant Agency Agreement and Warrants (the “Ladenburg Warrant Amendment”) with Continental Stock Transfer & Trust Company (“Continental”) that amended the Warrant Agency Agreement, by and between the Company and Continental, as Warrant Agent, dated June 25, 2018, the Series A Common Stock Purchase Warrant, and the Series B Pre-Funded Common Stock Purchase Warrant, both dated June 25, 2018 (the Series A and Series B Warrant, collectively the “2018 Warrants”). The Ladenburg Warrant Amendment added a provision to each of the warrants that allowed the Company or a successor entity whose stock is not listed on a trading market to, in connection with a Fundamental Transaction (as such term is defined in the 2018 Warrants) that is not within the Company’s control, purchase the warrant from the holder, at the holder’s option, by paying the same form of consideration in the same proportion that is offered to the holders of the Company’s Common Stock in connection with the Fundamental Transaction, including cash, stock, any combination thereof and any choice of consideration thereof, in an amount equal to the Black-Sholes Value of the remaining unexercised portion of the Warrant on the consummation date of the Fundamental Transaction. The 2018 Warrants were initially classified as liabilities, as a result of the amendment, the Company reassessed the warrant classification and concluded that the warrants qualified for equity classification. The fair value of the amended 2018 Warrants was re-measured immediately prior to the date of the Ladenburg Warrant Amendment with changes in fair value recorded as a loss of $764

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

thousand in the Company’s consolidated statement of operations, and $14.7 million was reclassified to equity. During the year ended December 31, 2018, the Company issued an aggregate of 6,242,811 and 34,500 shares of Common Stock upon the exercise of Series B and Series A warrants, respectively for aggregate proceeds of $131 thousand. At the time of exercise, the Company reclassified $10.6 million from derivative warrant liability to additional paid-in capital and recorded a derivative loss of $1.2 million in connection with the warrant exercises. There are no outstanding Series B warrants as of either March 31, 2019 or December 31, 2018. During the three months ended March 31, 2019, the Company did not issue any shares as a result of warrant exercise activity.

 

In January 2018, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “RRA”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), under which it had the right to sell up to $15 million, in shares of our Common Stock, to Lincoln Park over a 24 month period, subject to certain limitations and conditions set forth in the Purchase Agreement and RRA. On May 30, 2018, the Company’s stockholders approved to increase the issuance and sale by the Company to Lincoln Park , including the Company’s prior issuances and sales of shares of Common Stock to Lincoln Park since January 2018, of up to 1,200,000 shares of Common Stock. In accordance with the terms of the Purchase Agreement, at the time the Company signed the Purchase Agreement and the RRA, it issued 17,192 shares to Lincoln Park as consideration for its commitment to purchase shares of the Company’s Common Stock under the Purchase Agreement and recorded $627 thousand in deferred offering costs of which the full amount was capitalized into additional paid-in capital as of December 31, 2018. During the year ended December 31, 2018, the Company sold an aggregate of 256,804 shares to Lincoln Park, for aggregate proceeds of $3.1 million net of issuance costs. During the three months ended March 31, 2019, the Company did not sell any shares to Lincoln Park. In May 2019, the Company terminated the Purchase Agreement with Lincoln Park.

 

In May 2018, the Company’s Board of Directors approved to increase the number of shares of Common Stock reserved under the 401(k) Plan by 4,000 shares, bringing the aggregate number of shares of Common Stock eligible for distribution pursuant to the 401(k) Plan as of that date to 4,100 shares. In the second quarter of 2018 the Company revised its 401(k)-matching policy to move from share matching to cash-based matching. During the year ended December 31, 2018, the Company issued an aggregate of 440 shares of Common Stock with a fair value of $6 thousand to the Company’s 401(k) plan as a matching contribution. During the three months ended March 31, 2019, the Company contributed $12 thousand in cash as a matching contributions to employee 401(k) accounts.

 

During the three months ended March 31, 2019, the Company did not issue any shares under the Company’s Employee Stock Purchase Plan (the “ESPP”). During the year ended December 31, 2018, the Company issued an aggregate of 1,133 shares of Common Stock under the ESPP and received cash proceeds of $4 thousand.

 

During the three months ended March 31, 2019 the Company issued an aggregate of 750 shares of Common Stock upon vesting of restricted stock units. During the year ended December 31, 2018, the Company issued an aggregate of 4,250 shares of Common Stock upon vesting of restricted stock units.

 

During the year ended December 31, 2018, as part of the adjustment to reflect the Company’s 1-for-25 reverse stock split on its Common Stock on April 16, 2018, the Company issued 2,733 shares of Common Stock to account for the fractional roundup of shareholders.

 

9. STOCK-BASED COMPENSATION

 

In 2007, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2007 Employee, Director and Consultant Stock Plan (the “2007 Plan”). The 2007 Plan provided that the Company’s Board of Directors (or committees and/or executive officers delegated by the Board of Directors) could grant incentive and nonqualified stock options to the Company’s employees, officers, directors, consultants and advisors.

 

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InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

On October 26, 2010, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2010 Equity Incentive Plan (as subsequently amended, the “2010 Plan”). The 2010 Plan provided for grants of incentive stock options to employees, and nonqualified stock options and restricted Common Stock to employees, consultants, and non-employee directors of the Company.

 

In April 2015, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan provides for grants of incentive stock options to employees, and nonqualified stock options, restricted Common Stock, restricted stock units, and stock appreciation rights to employees, consultants, and non-employee directors of the Company.

 

Upon approval of the 2015 Plan by the Company’s shareholders on June 16, 2015, the 2010 Plan was terminated and no additional shares or share awards have been subsequently granted under the 2010 Plan. As of March 31, 2019, the total number of shares available to be issued under the 2015 Plan was 204,175 shares, consisting of 160,000 shares initially authorized under the 2015 Plan shares plus the 12,894 shares that remained available for grant under the 2010 Plan at the time of its termination adjusted for cumulative cancellations, forfeitures and issuances from the 2010 Plan and 2015 Plan.

 

Options issued under the 2007 Plan, 2010 Plan, and 2015 Plan (collectively, the “Plans”) are exercisable for up to 10 years from the date of issuance.

 

In March 2015, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently approved, the ESPP. The ESPP allows employees to buy company stock twice per year through after-tax payroll deductions at a discount from market. The Company’s Board of Directors initially authorized 7,500 shares for issuance under the ESPP. Commencing on the first day of the year ended December 31, 2016 and on the first day of each year thereafter during the term of the ESPP, the number of shares of Common Stock reserved for issuance shall be increased by the lesser of (i) 1% of the Company’s outstanding shares of Common Stock on such date, (ii) 2,000 shares, or (iii) a lesser amount determined by the Board of Directors. Under the terms of the ESPP, in no event shall the aggregate number of shares reserved for issuance during the term of the ESPP exceed 50,000 shares. As of both March 31, 2019 and December 31, 2018, there were 7,923 shares reserved for issuance under the ESPP.

 

In January 2019, 1,065 shares that were purchased in the offering period commencing on July 1, 2018 and ending on December 31, 2018 were issued under the ESPP. The ESPP is considered a compensatory plan with the related compensation cost recognized over each 6 month offering period. None of the Company’s employees participated in the ESPP plan in the current offering period and consequently no compensation expense was recorded in the three month period ended March 31, 2019. The compensation expense related to the ESPP for the three month periods ended March 31, 2018 was $1 thousand and was included in share-based compensation expense.

 

Stock-based compensation

 

For the three month periods ended March 31, 2019 and 2018, the Company recorded stock-based compensation expense of $67 thousand and $306 thousand, respectively, inclusive of the expense related to the ESPP.

 

The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option pricing 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.

 

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

The assumptions used principally in determining the fair value of options granted were as follows:

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

    

2019

 

2018

 

 

Risk-free interest rate

    

2.55%

 

2.45 - 2.88%

 

 

Expected dividend yield

 

0%

 

0%

 

 

Expected term (employee grants)

 

6 Years

 

5.62 Years

 

 

Expected volatility

 

105%

 

104%

 

 

 

Stock options

 

A summary of option activity as of March 31, 2019 and changes for the three-month period then ended are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

 

 

Exercise

 

Contractual

 

Intrinsic

 

Options

    

Shares

    

Price

    

Term in Years

    

Value

 

Outstanding at December 31, 2018

 

54,849

 

$

100.83

 

7.32

 

$

 —

 

Granted

 

90,000

 

$

1.53

 

 

 

 

 

 

Cancelled/Forfeited

 

(17,459)

 

$

40.12

 

 

 

 

 

 

Outstanding at March 31, 2019

 

127,390

 

$

39.00

 

8.75

 

$

 2

 

Vested and Exercisable at March 31, 2019

 

28,773

 

$

146.51

 

5.66

 

$

 —

 

 

The weighted average grant-date fair value of options granted during the three months ended March 31, 2019 was $1.25 per share. The total fair value of options that vested in the three months ended March 31, 2019 was $36 thousand. For the three month period ended March 31, 2019, the Company recorded stock-based compensation expense of $41 thousand related to stock options. As of March 31, 2019, total unrecognized compensation expense related to non-vested share-based option compensation arrangements amounted to $305 thousand and is estimated to be recognized over a period of 2.15 years.

 

Restricted Stock Units

 

The following table summarizes the restricted stock unit (“RSU”) activity under the 2015 Plan during the three month period ended March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

    

Number of Grants

    

Grant Date Fair Value

Unvested balance at December 31, 2018

 

10,250

 

$

23.13

Granted

 

 —

 

$

 —

Vested/Released

 

(750)

 

$

22.00

Forfeited

 

 —

 

$

 —

Unvested balance at March 31, 2019

 

9,500

 

$

23.22

 

For the three month period ended March 31, 2019, the Company recorded stock-based compensation expense of $26 thousand related to the time-based RSUs. As of March 31, 2019, total unrecognized compensation expense related to non-vested RSUs amounted to $197 thousand which the Company expects to recognize over a remaining weighted-average of 2.51 years.

 

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

10.       WARRANTS

 

The following table presents information about warrants to purchase Common Stock issued and outstanding at March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Number of

    

Exercise

    

 

 

Year Issued

 

Classification

 

Warrants

 

Price

 

Date of Expiration

 

2012

 

Equity

 

243

 

$

166.00

 

10/5/2019

 

2014

 

Equity

 

307

 

$

11.75

 

5/9/2021

 

2016

 

Equity

 

85,869

 

$

250.00

 

3/18/2021

 

2018

 

Equity

 

7,586,711

 

$

2.00

 

6/25/2023

 

Total

 

 

 

7,673,130

 

 

 

 

 

 

Weighted average exercise price

 

 

 

 

 

$

4.78

 

 

 

Weighted average life in years

 

 

 

 

 

 

 

 

4.21

 

 

In May 2014, the Company issued warrants in a public offering (the “2014 Warrants”). At inception, the 2014 and 2018 Warrants had provisions that precluded equity classification. Upon amendment, the Company assessed whether the warrants required accounting as derivatives and determined that the warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with FASB Accounting Standards Codification Topic 815, Derivatives and Hedging . As such, the Company concluded that the warrants meet the scope exception for determining whether the instruments require accounting as derivatives and accordingly are classified in stockholders’ equity.   See below for a further description of the warrant amendments.

 

Warrant Cancellation

 

During the year ended December 31, 2018, the Company entered into warrant cancellation agreements with certain holders of the 2014 Warrants to cancel and terminate such warrants for total cash consideration of $14 thousand. As of March 31, 2019, the sole remaining 2014 Warrant was exercisable for an aggregate of 307 shares of Common Stock.

 

Warrant Amendment

 

In May 2018, the Company entered into a warrant amendment agreement with the sole remaining holder of a 2014 Warrant   (the “Warrant Amendment”). The warrant holder received cash compensation of $19 thousand and a 2 year extension of warrant term in exchange for the removal of all anti-dilution provisions except those for stock splits, reverse splits or stock dividends. As a result of the Warrant Amendment, the Company reclassified the remaining 2014 Warrant valued at $1 thousand to stockholders’ equity (see Note 11).

 

In September 2018, the Company entered into the Ladenburg Warrant Amendment. As a result of the Ladenburg Warrant Amendment, the Company reclassified the 2018 Warrants valued at $14.7 million to stockholders’ equity (see Note 11).

 

 

11.       DERIVATIVE INSTRUMENTS

 

The warrants issued in connection with the Company’s 2018 underwritten public offering had provisions that precluded the Company from classifying them as equity instruments (See Note 10). Accordingly, these warrants had been accounted for as derivative warrant liabilities. The Company used the Black-Scholes model and assumptions that considered, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life, and dividend rates in estimating fair value for these warrants.

 

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

At inception, the fair value of the Series B pre-funded warrants was estimated at $11.5 million using a Black-Scholes model with the following assumptions: expected volatility of 202.51%, risk free interest rate of 2.95%, expected life of 20 years and no dividends.

 

At inception, the fair value of the Series A warrants was estimated at $13.7 million using a Black-Scholes model with the following assumptions: expected volatility of 202.51%, risk free interest rate of 2.75%, expected life of 5 years and no dividends.

 

The Company allocated $13.2 million of the net proceeds to record the relative fair value of the warrant liability, with the remaining amount of $287 thousand recorded to permanent equity. The Company subsequently recorded the fair value of the warrant liability at $25.2 million with the loss of $12 million being recorded as a derivative loss on the Company’s consolidated statement of operations and comprehensive loss during the second quarter of 2018. 

 

In September 2018, the Company entered into the Ladenburg Warrant Amendment. As a result of the amendment, the Company reassessed the warrant classification and concluded that the warrants qualified for equity classification. The fair value of the amended 2018 Warrants was re-measured immediately prior to the date of the Ladenburg Warrant Amendment with changes in fair value recorded as a loss of $764 thousand in the Company’s consolidated statement of operations and $14.7 million was reclassified to equity.

 

During the year ended December 31, 2018, the Company issued an aggregate of 6,242,811 shares of Common Stock upon the exercise of Series B warrants for aggregate proceeds of $62 thousand. During the year ended December 31, 2018, the Company issued an aggregate of 34,500 shares of Common Stock upon the exercise of Series A warrants for aggregate proceeds of $69 thousand. At the time, the Company reclassified $10.6 million from derivative warrant liability to additional paid-in capital and recorded a derivative loss of $1.2 million in connection with the warrant exercises. There are no outstanding Series B warrants as of March 31, 2019. During the three months ended March 31, 2019, the Company did not issue any shares as a result of warrant exercise activity.

 

The 2014 Warrants had anti-dilution protection provisions and, under certain conditions, required the Company to automatically reprice the 2014 Warrants. Accordingly, the 2014 Warrants had been accounted for as derivative warrant liabilities. Through the date of the warrant exchange in 2017, the Company used the Binomial Lattice option pricing model and assumptions that considered, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life, and dividend rates in estimating fair value for the 2014 Warrants considered to be derivative instruments.

 

In May 2018, the Company entered into the Warrant Amendment, which removed provisions that had previously precluded equity classification treatment of the 2014 Warrants on the Company’s balance sheets. The fair value of the amended 2014 Warrants was re-measured immediately prior to the date of amendment with changes in fair value recorded as a loss of $1 thousand in the Company’s consolidated statement of operations and $1 thousand was reclassified to equity.

 

As of the balance sheet at March 31, 2019 and December 31, 2018, the Company did not have any liability classified warrants.

 

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Table of Contents

InVivo Therapeutics Holdings Corp.

Notes to Consolidated Financial Statements for the Quarter Ended March 31, 2019 (Unaudited)

(Continued)

 

The table below presents the changes in the derivative warrant liability during the three month period ended March 31, 2018:

 

 

 

 

 

(In thousands)

    

Three Months Ended
March 31, 2018

Balance at December 31, 2017

 

$

 4

Repurchase of warrants

 

 

(14)

Increase in the fair value of warrants

 

 

12

Balance at March 31, 2018

 

$

 2

 

 

 

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 related to the Company’s May 2014 and June 2018 capital raises, unvested restricted stock units and convertible securities are anti-dilutive and therefore excluded from diluted loss per share calculations.

 

For the three month periods ended March 31, 2019 and 2018, the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive:

 

 

 

 

 

 

 

 

March 31, 

 

 

2019

 

2018

Warrants

 

7,673,130

 

86,419

Stock options

 

127,390

 

81,011

Unvested restricted stock units

 

9,500

 

16,700

Total potentially dilutive securities

 

7,810,020

 

184,130

 

 

13.     SUBSEQUENT EVENTS

 

In May 2019, the Company terminated the Purchase Agreement with Lincoln Park. From January 2018 through the date of termination, the Company sold 256,804 shares of Common Stock under the Purchase Agreement, generating aggregate net proceeds of approximately $3.1 million. The Company did not incur any early termination penalties as a result of terminating the Purchase Agreement.

 

 

 

 

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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, 2018 (the “2018 Annual Report”). The management’s discussion and analysis contains forward-looking statements within the meaning of the safe harbor provisions under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include statements made regarding our commercialization strategy, future operations, cash requirements and liquidity, capital requirements, and other statements on our business plans and strategy, financial position, and market trends. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “should,” “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and other similar expressions. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Quarterly Report, including factors such as our ability to raise substantial additional capital to finance our planned operations and to continue as a going concern; our ability to execute our strategy and business plan; our ability to obtain regulatory approvals for our products, including the Neuro-Spinal Scaffold™; our ability to successfully commercialize our current and future product candidates, including the Neuro-Spinal Scaffold; the progress and timing of our development programs; market acceptance of our products; our ability to retain management and other key personnel; our ability to promote, manufacture, and sell our products, either directly or through collaborative and other arrangements with third parties; 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 16, 2018.

 

Overview

 

We are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of spinal cord injuries, or SCIs. Our approach to treating acute SCIs is based on our investigational  Neuro-Spinal Scaffold ™ implant, a bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord and is intended to treat acute SCI. The  Neuro-Spinal Scaffold  implant incorporates intellectual property licensed under an exclusive, worldwide license from Boston Children’s Hospital and the Massachusetts Institute of Technology. We also plan to evaluate other technologies and therapeutics that may be complementary to our development of the  Neuro-Spinal Scaffold  implant or offer the potential to bring us closer to our goal of redefining the life of the SCI patient.

 

The current standard of care for acute management of spinal cord injuries focuses on preventing further injury to the spinal cord. However, the current standard of care does not address repair of the spinal cord.

 

Our Clinical Program

 

We currently have 1 clinical development program for the treatment of acute SCI.

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Neuro-Spinal Scaffold Implant for acute SCI

 

Our Neuro-Spinal Scaffold implant is an investigational bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord. The Neuro-Spinal Scaffold implant is intended to promote appositional, or side-by-side, healing by supporting the surrounding tissue after injury, minimizing expansion of areas of necrosis, and providing a biomaterial substrate for the body’s own healing/repair processes following injury. We believe this form of appositional healing may spare white matter, increase neural sprouting, and diminish post-traumatic cyst formation.

 

The Neuro-Spinal Scaffold implant is composed of  2 biocompatible and bioresorbable polymers that are cast to form a highly porous investigational product:

 

·

Poly lactic-co-glycolic acid, a polymer that is widely used in resorbable sutures and provides the biocompatible support for Neuro-Spinal Scaffold implant; and

 

·

Poly-L-Lysine, a positively charged polymer commonly used to coat surfaces in order to promote cellular attachment.

 

Because of the complexity of SCIs, it is likely that multi-modal therapies will be required to maximize positive outcomes in SCI patients. In the future, we may attempt to further enhance the performance of our Neuro-Spinal Scaffold implant by multiple combination strategies involving electrostimulation devices, additional biomaterials, drugs approved by the U.S. Food and Drug Administration, or FDA, or growth factors. We expect the Neuro-Spinal Scaffold implant to be regulated by the FDA as a Class III medical device.

 

Completed Pilot Study

 

We conducted an early feasibility human pilot study, as the initial phase of a larger pivotal study, of our Neuro-Spinal Scaffold under our approved Investigational Device Exemption, or IDE, application for the treatment of complete, traumatic acute SCI. The study was intended to assess the safety and feasibility of the Neuro-Spinal Scaffold for the treatment of complete thoracic functional SCI, as well as to gather preliminary evidence of the clinical effectiveness of the Neuro-Spinal Scaffold .

 

The pilot study was initially approved for 5 subjects in up to 6 clinical sites across the United States, and was later modified to increase the number of allowable clinical sites to up to 20 and to permit enrollment of up to 10 subjects. The pilot study was initially staggered such that each patient that met the eligibility criteria would be followed for three months prior to enrolling the next patient in the study. In December 2014, the FDA approved an expedited enrollment plan that allowed us to continue enrolling patients more rapidly barring any significant safety issues. We enrolled 5 subjects in the pilot study between October 2014 and September 2015. The FDA approved conversion of this pilot study to a pivotal probable benefit study, which we refer to as The INSPIRE Study, that includes data from the patients enrolled in the pilot study.

 

The INSPIRE Study

 

Our Neuro-Spinal Scaffold implant has been studied in The INSPIRE Study: the “InVivo Study of Probable Benefit of the Neuro- Spinal Scaffold for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A Spinal Cord Injury,” under an Investigational Device Exemption, or IDE, application for the treatment of neurologically complete thoracic traumatic acute SCI. We commenced an FDA-approved pilot study in 2014 that the FDA approved converting into The INSPIRE Study in January 2016. As of December 31, 2017, we had implanted our N euro-Spinal Scaffold implant in a total of 19 patients in The INSPIRE Study, 16 of whom reached the 6-month primary endpoint visit, and 3 of whom died. In July 2017, after the third patient death, enrollment of patients in The INSPIRE Study was placed on hold as we engaged with the FDA to address the patient deaths.  We subsequently closed enrollment in The INSPIRE Study and will follow the remaining active subjects until completion.  Following discussions with the FDA, in March 2018, we received FDA approval for a randomized controlled trial to supplement the existing clinical evidence for the Neuro-Spinal Scaffold implant that we obtained from The INSPIRE Study. We refer to this herein as the INSPIRE 2.0 Study.

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The purpose of The INSPIRE Study, which was the original study, was to evaluate whether the Neuro-Spinal Scaffold implant is safe and demonstrates probable benefit for the treatment of complete T2-T12 neurological level of injury, or (NLI), SCI. The primary endpoint was defined as the proportion of patients achieving an improvement of at least 1 AIS grade at 6 months post-implantation. Additional endpoints included measurements of pain, sensory and motor scores, bladder and bowel function, Spinal Cord Independence Measure (a disability scale for patients with SCI), and quality of life. The INSPIRE Study included an Objective Performance Criterion, or OPC, which is a measure of study success used in clinical studies designed to demonstrate safety and probable benefit in support of a Humanitarian Device Exemption, or HDE, approval.  At the time enrollment of patients in The INSPIRE Study was placed on hold, the OPC was defined as 25% or more of the patients in the study demonstrating an improvement of at least 1 AIS grade at the 6-month post-implantation visit.

 

The FDA approved the enrollment of up to 30 patients in The INSPIRE Study so that there would be at least 20 evaluable patients at the primary endpoint analysis, accounting for events such as screen failures or deaths that would prevent a patient from reaching the primary endpoint visit. Of the 19 patients implanted in The INSPIRE Study, 16 patients have reached the 6 month primary endpoint visit. Of these 16, 7 had improved from complete AIS A SCI to incomplete SCI (2 patients to AIS C and 5 patients to AIS B) at the 6 month primary endpoint visit and 9 had not demonstrated improvement at that visit. 3 of the 7 patients who improved were assessed to have AIS B SCI at the 6 month primary endpoint and were later assessed to have improved to AIS C SCI at the 12 or 24-month visits. 2 of the 16 patients were initially assessed to have improved from complete AIS A SCI to incomplete AIS B SCI, but each was later assessed to have reverted to complete AIS A SCI prior to the 6 month examination. 1 of these 2 was then assessed at the 6 month visit to have improved again to AIS B and the other remained AIS A. Since we have closed enrollment, the target of enrolling 20 evaluable patients into The INSPIRE Study will not be reached.

 

The FDA had previously recommended that we include a randomized, concurrent control arm in The INSPIRE Study.  Acting on the FDA’s recommendation, we proposed and received approval for the INSPIRE 2.0 Study (described below) to supplement the existing clinical evidence for the Neuro-Spinal Scaffold implant.  In addition, as 1 source of comparator data, we completed the Contemporary Thoracic SCI Registry Study, or the CONTEMPO Registry Study. The CONTEMPO Registry Study utilized existing databases and registries to develop a historical comparator that, to the extent possible, matched patients to those patients enrolled in The INSPIRE Study. The CONTEMPO Registry Study was designed to provide comprehensive natural history benchmarks for The INSPIRE Study results that included SCI patients with similar baseline characteristics treated since 2006. The CONTEMPO Registry Study included data from the Christopher & Dana Reeve Foundation North American Clinical Trials Network Registry, or NACTN, as well as the Model Systems Registry and the European Multicenter Study about Spinal Cord Injury, or EMSCI. We announced top-line findings from CONTEMPO in March 2018 from a total of 170 patients from the 3 registries consisting of: 12 individuals from NACTN, 64 from EMSCI, and 94 from the Model Systems Registry. AIS conversion rates at approximately 6 months post-injury varied from 16.7% – 23.4% across the 3 registries. In 2 of the registries, there was a skew of the patient population to low (T10- T12) thoracic injuries, representing 46-47% of the registry population. This compares to just 4 out of 16 patients (25%) in follow-up in the INSPIRE study with low thoracic injuries. Patients with low thoracic injuries are known to have the best prognoses, and the conversion rates were the highest in the low thoracic group in all 3 registries and the INSPIRE study. When all 3 registries were normalized to the INSPIRE patient population distribution across T2-T5, T6-T9 and T10-T12 injury groups, the normalized conversion rate for CONTEMPO registries ranged from 15.5%-20.6%. We cannot be certain what additional information or studies will be required by the FDA to approve our HDE submission.

 

INSPIRE 2.0 Study

 

Our Neuro-Spinal Scaffold implant has been approved to be studied under our approved IDE in the INPSIRE 2.0 Study, which is titled the “Randomized, Controlled, Single-blind Study of Probable Benefit of the Neuro-Spinal Scaffold™ for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A Spinal Cord Injury as Compared to Standard of Care.”   The purpose of the INSPIRE 2.0 Study is to assess the overall safety and probable benefit of the Neuro-Spinal Scaffold for the treatment of neurologically complete thoracic traumatic acute SCI.  The INSPIRE 2.0 Study is designed to enroll 10 subjects into each of the 2 study arms, which we refer to as the Scaffold Arm and the Comparator Arm. Patients in the Comparator Arm will receive the standard of care, which is spinal stabilization without dural opening or myelotomy.  The INSPIRE 2.0 Study is a single blind study, meaning that the patients and assessors are blinded to treatment assignments. The FDA approved the enrollment of up to 35 patients in this study so

23


 

that there would be at least 20 evaluable patients (10 in each study arm) at the primary endpoint analysis, accounting for events such as screen failures or deaths that would prevent a patient from reaching the primary endpoint visit.  We expect to conduct the INSPIRE 2.0 Study at up to 25 sites in the United States.  Enrolling patients in the INSPIRE 2.0 Study will also require the approvals of the institutional review boards, or IRBs, at each clinical site. We estimate that from study initiation, enrollment will take approximately 18 months, and the total time to completion of the INSPIRE 2.0 Study is estimated to be 2 years from study initiation. We anticipate that the first patient in the INSPIRE 2.0 Study will be enrolled in the second quarter of 2019.

 

The primary endpoint is defined as the proportion of patients achieving an improvement of at least 1 AIS grade at 6 months post-implantation. Assessments of AIS grade are at hospital discharge, 3 months, 6 months, 12 months and 24 months. The definition of study success for INSPIRE 2.0 is that the difference in the proportion of subjects who demonstrate an improvement of at least 1 grade on AIS assessment at the 6-month primary endpoint follow-up visit between the Scaffold Arm and the Comparator Arm must be equal to or greater than 20%. In 1 example, if 50% of subjects in the Scaffold Arm have an improvement of AIS grade at the 6-month primary endpoint and 30% of subjects in the Comparator Arm have an improvement, then the difference in the proportion of subjects who demonstrated an improvement is equal to 20% (50% minus 30% equals 20%) and the definition of study success would be met. In another example, if 40% of subjects in the Scaffold Arm have an improvement of AIS grade at the 6-month primary endpoint and 30% of subjects in the Comparator Arm have an improvement, then the difference in the proportion of subjects who demonstrated an improvement is equal to 10% (40% minus 30% equals 10%) and the definition of study success would not be met. Additional endpoints include measurements of changes in NLI, sensory levels and motor scores, bladder, bowel and sexual function, pain, Spinal Cord Independence Measure, and quality of life.

 

Although The INSPIRE Study is structured with the OPC as the primary component for demonstrating probable benefit, the OPC is not the only variable that the FDA would evaluate when reviewing a future HDE application. Similarly, while our INSPIRE 2.0 Study is structured with a definition of study success requiring a minimum difference between study arms in the proportion of subjects achieving improvement, that success definition is not the only factor that the FDA would evaluate in the future HDE application.  Approval is not guaranteed if the OPC is met for The INSPIRE Study or the definition of study success is met for the INSPIRE 2.0 Study, and even if the OPC or definition of study success are not met, the FDA may approve a medical device if probable benefit is supported by a comprehensive review of all clinical endpoints and preclinical results, as demonstrated by the sponsor’s body of evidence.

 

In 2016, the FDA accepted our proposed HDE modular shell submission and review process for the Neuro-Spinal Scaffold implant. The HDE modular shell is comprised of 3 modules: a preclinical studies module, a manufacturing module, and a clinical data module. As part of its review process, the FDA reviews each module, which are individual sections of the HDE submission, on a rolling basis. Following the submission of each module, the FDA reviews and provides feedback, typically within 90 days, allowing the applicant to receive feedback and potentially resolve any deficiencies during the review process. Upon receipt of all 3 modules, which constitutes the complete HDE submission, the FDA makes a filing decision that may trigger the review clock for an approval decision. We submitted the first module in March 2017 and received feedback in June 2017. We plan to submit an updated first module in the fourth quarter of 2019. The HDE submission will not be complete until the manufacturing and clinical modules are also submitted.

 

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, stock-based compensation expense, and the fair value determined for stock purchase warrants classified as derivative liabilities. 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

24


 

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 2018 Annual Report.

 

We believe that full consideration has been given to all relevant circumstances that we may be subject to, and 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 March 31, 2019 and 2018

 

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 March 31, 2019 were $1.1 million, a decrease of $288 thousand compared to the three months ended March 31, 2018. The decrease in research and development expenses for the three months ended March 31, 2019, is attributable to a decrease in facilities and rent expense of $110 thousand as a result of the as a result of the assignment of the commercial lease for our office, laboratory and manufacturing space in Cambridge, Massachusetts, which we refer to as the Cambridge Lease, a decrease in consulting related costs of $103 thousand, a decrease in depreciation expense of $63 thousand, a decrease in stock compensation expense and compensation related expenses and of $54 thousand and $45 thousand respectively, driven by fewer number of employees in the current year and a decrease in administrative and operating costs of $53 thousand as a result of cost cutting measures initiated in 2018. These decreases were partially offset by an increase in clinical trial costs of $140 thousand, related to the opening up of new clinical trial sites in 2019.

 

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 March 31, 2019 were $1.7 million, a decrease of $1.8 million compared to the three months ended March 31, 2018. The decrease in general and administrative expenses for the three months ended March 31, 2019 is attributable to a decrease in compensation related and stock compensation expense of $1.1 million and $186 thousand respectively, driven by fewer number of employees in the current year, a decrease in facilities and rent expenses of $386 thousand as a result of the assignment of the Cambridge Lease, a decrease in legal fees of $237 thousand and a decrease in administrative and operating costs of $102 thousand as a result of cost cutting measures initiated in 2018. These decreases were offset by an increase in consulting expenses of $228 thousand.

 

Other Income and Expense

 

Other income for the three months ended March 31, 2019 was $143 thousand, which was comprised of other income of $44 thousand and interest income of $99 thousand.  Other income for the three months ended March 31, 2018 was $48 thousand, which was comprised of interest income of $32 thousand, interest expense of $14 thousand, gain on sale of assets of $25 thousand, other income of $17 thousand and a derivative loss of $12 thousand.

 

Liquidity and Capital Resources

 

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. At March 31, 2019, our accumulated deficit was $210.0 million. Since our inception, we have historically financed our operations primarily through the sale of equity‑related securities.

 

At March 31, 2019, we had total assets of $17 million, total liabilities of $3.5 million, and total stockholders’ equity of $13.5 million. During the three months ended March 31, 2019, we recorded a net loss of $2.6 million. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating losses. The financing we closed in June 2018, described in more detail below, provided necessary funding to fund operations into the first quarter of 2020.  This estimate is based on assumptions that may prove to be wrong; expenses could prove

25


 

to be significantly higher, leading to a more rapid consumption of our existing resources. We have limited liquidity and capital resources and must obtain significant additional capital resources in order to fund our operations and sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses and for other working capital requirements. We also expect that we will need to raise additional capital through a combination of equity offerings, debt financings, other third party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Based on these factors, as of March 31, 2019, management determined that there is substantial doubt regarding the Company’s ability to continue as a going concern.

 

Financings Transactions

 

In June 2018, we closed an underwritten public offering of an aggregate of 1,378,400 Common Units, at an offering price of $2.00 each, each comprised of 1 share of our Common Stock, par value $0.00001 per share and 1 Series A warrant to purchase 1 share of Common Stock. The public offering also included 6,242,811 pre-funded units at an offering price of $1.99 each, each comprised of 1 pre-funded Series B Warrant and 1 Series A warrant to purchase 1 share of Common Stock. Each Series A warrant has an exercise price of $2.00 per share, exercisable immediately from the date of issuance and expires 5 years from the date of issuance. Each Series B warrant has an exercise price of $0.01 per share, exercisable immediately from the date of issuance and expires 20 years from the date of issuance. The net proceeds to us, after deducting the underwriting discounts and commissions and other offering expenses, were $13.5 million. During the year ended December 31, 2018, we issued an aggregate of 6,242,811 shares of Common Stock upon the exercise of Series B warrants for aggregate proceeds of $62 thousand. During the year ended December 31, 2018, we issued an aggregate of 34,500 shares of Common Stock upon the exercise of Series A warrants for aggregate proceeds of $69 thousand. During the three months ended March 31, 2019, the Company did not issue any shares as a result of warrant exercise activity. There are no outstanding Series B warrants as of March 31, 2019.

 

In September 2018, we entered into an Amendment to Warrant Agency Agreement and Warrants, or the Ladenburg Warrant Amendment, with Continental Stock Transfer & Trust Company,  or Continental, that amends the Warrant Agency Agreement, by and between us and Continental, as Warrant Agent, dated June 25, 2018, and the Series A Common Stock Purchase Warrant, and the Series B Pre-Funded Common Stock Purchase Warrant both dated June 25, 2018, and we refer to the Series A and Series B Warrant collectively as the 2018 Warrants. See Notes 10 and 11 to our Consolidated Financial Statements in Item 1 of this report for more information about the Ladenburg Warrant Amendment.

 

In January 2018, we entered into a purchase agreement (“Purchase Agreement”) and registration rights agreement (“RRA”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), under which we had the right to sell up to $15 million, in shares of our Common Stock, to Lincoln Park over a 24 month period, subject to certain limitations and conditions set forth in the Purchase Agreement and RRA. On May 30, 2018, our stockholders approved to increase the issuance and sale by us to Lincoln Park , including our prior issuances and sales of shares of Common Stock to Lincoln Park since January 2018, of up to 1,200,000 shares of Common Stock. In accordance with the terms of the Purchase Agreement, at the time the we signed the Purchase Agreement and the RRA, we issued 17,192 shares to Lincoln Park as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement and recorded $627 thousand in deferred offering costs of which the full amount was capitalized into additional paid-in capital as of December 31, 2018. During the year ended December 31, 2018, we sold an aggregate of 256,804 shares to Lincoln Park, for aggregate proceeds of $3.1 million net of issuance costs. During the three months ended March 31, 2019, we did not sell any shares to Lincoln Park. In May 2019, we terminated the Purchase Agreement with Lincoln Park.

 

In May 2018, we entered into the Warrant Amendment, (as defined in Note 10 in the accompanying notes to our Consolidated Financial Statements in Item 1 of this report), which removed provisions that had previously precluded equity classification treatment of the 2014 Warrants on our balance sheet. The fair value of the amended 2014 Warrants was re-measured immediately prior to the date of amendment with changes in fair value recorded as a loss of $1 thousand in the consolidated statement of operations and $1 thousand was reclassified to equity.

 

We may pursue various other dilutive and non dilutive funding alternatives depending upon our clinical path forward and the extent to which we require additional capital to proceed with development of some or all of our product candidates on expected timelines. The source, timing and availability of any future financing will depend principally

26


 

upon market conditions and the status of our clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and capital expenditures or to license our potential products or technologies to third parties. We may alternatively engage in cost-cutting measures in an attempt to extend our cash resources as long as possible.

 

Facility Changes

 

In May 2018, we assigned the Cambridge Lease to a third party, who assumed from us all of our remaining rights and obligations under the lease.  Concurrently with the lease assignment, we entered into a sublease for 5,104 square feet of the space, originally part of the Cambridge Lease, from the third party to which we assigned the lease. The sublease ends on October 31, 2023 and contains rent holidays and rent escalation clauses. In order to obtain the consent of our lender for these facility changes and the sale of certain assets, we repaid $300 thousand of principal on our loan and recorded an impairment charge of $48 thousand. On January 1, 2019 we adopted ASU No. 2016-02, Leases (Topic 842). The adoption of this standard resulted in the recognition of operating lease liabilities and right-of-use assets of $1.5 million and $1.5 million, respectively, on our balance sheet. For more information, see Notes 1 and 5 to the notes to our unaudited Consolidated Financial Statements in Item 1 of this report.

 

Cashflows 

 

Net cash used in operating activities for the three months ended March 31, 2019 was $3.4 million, as compared to net cash used in operating activities of $3.7 million for the three months ended March 31, 2018. The change in net cash used in operating activities for the three months ended March 31, 2019, as compared to the same period in the prior year was primarily due to an decrease in our net loss of $2.1 million, a decrease in accrued expenses and other liabilities of $1.3 million, a decrease in share-based compensation expense of $0.2 million and a decrease in the change in prepaid expenses and other assets of $0.2 million.

 

The Company did not generate or use cash in investing activities during the three months ended March 31, 2019 This compares to net cash from investing activities for the three months ended March 31, 2018 of $25 thousand attributable to gain on sale of lab equipment.

 

Net cash provided by financing activities for the three months ended March 31, 2019, was $99 thousand consisting primarily $100 thousand in loan repayments and offset by employee stock purchase plan issuances of $1 thousand. This compares to net cash provided by financing activities for the three months ended March 31, 2018 of $2.4 million consisting of proceeds from issuance of Common Stock associated with the Lincoln Park agreement of $2.5 million, proceeds from the exercise of a stock option and employee stock purchase plan issuances of $3 thousand, offset by loan repayments of $110 thousand.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

 

Contractual Obligations

 

As of March 31, 2019, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2018 Annual Report.

 

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.

 

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Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Material Weaknesses on Internal Control over Financial Reporting

Our management, with the participation of its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, and includes those policies and procedures that:

·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

With the participation of our Chief Executive Officer and Chief Financial Officer, our management has assessed the effectiveness of our internal control over financial reporting based on the criteria set forth in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As previously disclosed under "Item 9A. Controls and Procedures" in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018, we identified the following deficiencies that existed as of December 31, 2018 and continued to exist at March 31, 2019.  When aggregated, these deficiencies represented a material weakness in our internal control over financial reporting. A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.

·

We did not perform a timely and ongoing entity-level risk assessment to identify and assess changes that could significantly impact the system of internal control over financial reporting. New risks arising from changes to certain of our systems, personnel and processes during the year were not identified, assessed and responded to in a timely manner. The lack of a timely and ongoing entity-level risk assessment constituted an internal control design deficiency, which resulted in more than a remote likelihood that a material error would not have been prevented or detected.

·

We did not follow appropriate system development lifecycle controls when implementing a new general ledger accounting system in July 2018. Furthermore, we did not conduct continuous risk assessments and monitoring activities, or adequately identify and analyze risks of financial misstatements due to error and/or fraud and, therefore we did not adequately identify and assess the changes that impacted the system of internal control. Additionally, we did not have adequate information technology general controls (“ITGCs”) in the areas of user access, change management, and computer operations over certain systems that support the financial reporting process. These deficiencies could result in occurrences of unmonitored access to certain applications, unsupervised  changes being implemented, and an absence of information to enable us to

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implement adequate detective controls. These deficiencies may have adversely impacted the functionality of key applications, and the integrity of underlying data that supports the effectiveness of system-generated data and reports used in financial reporting.

·

We did not formally develop or perform evaluations to ascertain whether the components of internal control were present and functioning through the period ended September 30, 2018. This affected our ability to identify, evaluate and communicate internal control deficiencies in a timely manner to those parties responsible for taking corrective action, including senior management and the Board of Directors, as appropriate. The lack of timely evaluations of the components of internal control constituted an internal control design deficiency, which resulted in more than a remote likelihood that a material error would not have been prevented or detected.

Because of the deficiencies noted above, our management, with the participation of our Chief Executive Officer and Chief Financial Officer concluded that we did not maintain effective internal control over financial reporting as of both December 31, 2018 and March 31, 2019, based on the criteria in Internal Control - Integrated Framework (2013) issued by COSO.

Despite the existence of the material weakness described above, our consolidated financial statements as of both December 31, 2018 and March 31, 2019, are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.

Plans for Remediation

We have devel oped a remediation plan and are currently taking actions to remediate the deficiencies noted above. The remediation plan ensures that each area affected by the material control weakness is put through a comprehensive remediation process. During the year ended December 31, 2018 and the three months ended March 31, 2019, our internal control remediation efforts include the following:

·

In the three months ended December 31, 2018 and subsequent interim period, we performed an entity-level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud-related risks and the risks related to non-routine transactions, if any, on internal control over financial reporting. We plan to make this a continuous process in 2019 and thereafter.

·

We identified and are in the process of implementing a new general ledger accounting system that would address some of the limitations inherent in the current general ledger accounting system. As part of the implementation process, we engaged and will continue to engage information technology and financial reporting personnel to perform a risk and control assessment of the new general ledger accounting system. In the interim and prior to the full general ledger system implementation, we designed and identified compensating controls to address the limitations inherent with our existing general ledger accounting system.

·

In December 2018, we engaged a third-party to perform an evaluation to ascertain whether the components of internal control were present and functioning throughout the three months ended December 31, 2018. We have retained this third-party in 2019 and plan to make this a continuous process through 2019 to ensure that internal control deficiencies are evaluated and communicated in a timely manner to those parties responsible for taking corrective action, including senior management and the Board of Directors, as appropriate. The third-party will also assist management in designing and evaluating the ITGCs over all financially-significant systems.

The a bove noted remediation efforts are being administered by our Chief Financial Officer with the involvement of key stakeholders. We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the deficiencies described above and employ any additional tools and resources deemed necessary to ensure that our consolidated financial statements are fairly stated in all material respects.

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Changes in Internal Control over Financial Reporting

Effective January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842), using the effective date method. As part of the adoption, we have implemented changes to our controls related to lease accounting. These changes include enhanced reviews around contracts, the evaluation of contracts to identify any embedded leases, and additional ongoing monitoring activities. These enhanced controls are designed to provide reasonable assurance of the fair presentation of our consolidated financial statements and related disclosures.

Except as described in the prior paragraph and the implementation of the remediation plans described above, there were no other changes in our internal control over financial reporting during the quarter ended March 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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PART II—OTHER INFORMATION

 

Item 1A.         Risk Factors.

 

Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10‑Q, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected.

 

Risks Related to Our Financial Position and Need for Additional Capital

 

We 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 $2.6 million for the three months ended March 31, 2019. As of March 31, 2019, we had an accumulated deficit of $210.0 million. We have a limited operating history on which to base an evaluation of our business and investors should consider the risks and difficulties frequently encountered by early-stage companies in new and rapidly evolving markets, particularly companies engaged in the development of medical devices. To date, we have not commercialized any products or generated any revenues from the sale of products, and we do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable. Moreover, we may allocate significant amounts of capital towards products and technologies for which market demand is lower than anticipated and, as a result, may not achieve expectations or may elect to abandon such efforts.

 

We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities related to our Neuro-Spinal Scaffold implant. Overall, we expect our research and development expenses to be substantial and to increase for the foreseeable future as we continue the development and clinical investigation of our current and future products. We expect that it could be several years, if ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval to market our Neuro-Spinal Scaffold implant or other products, our future revenues will depend upon the size of any markets in which our products have received approval, our ability to achieve sufficient market acceptance, reimbursement from third-party payers, and other factors.

 

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

 

Our consolidated financial statements as of March 31, 2019 were prepared under the assumption that we will continue as a going concern. At March 31, 2019, we had cash and cash equivalents of $13.2 million. We estimate that our existing cash resources will be sufficient to fund our operations into the first quarter of 2020.  This estimate is based on assumptions that may prove to be wrong; expenses could prove to be significantly higher, leading to a more rapid consumption of our existing resources.

 

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.

 

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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 consolidated financial statements, and it is likely that investors will lose all or part of their investment. If we seek additional financing to fund our business activities in the future and there remains 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. 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 April 1, 2019 included in our Annual report on Form 10-K as filed with the SEC on April 1, 2019.

 

We have experienced delays and may experience further delays in our clinical development of our Neuro-Spinal Scaffold implant. Clinical trials for future product candidates may also experience delays or may not be able to commence.

 

Before we can obtain regulatory approval for the sale of our Neuro-Spinal Scaffold implant, we must complete the clinical studies that are required. In July 2017, The INSPIRE Study of our Neuro-Spinal Scaffold implant was placed on hold following the third patient death in the trial.  We subsequently closed enrollment in The INSPIRE Study and will follow the active patients until completion. The FDA has approved the INSPIRE 2.0 Study. However, we may not be able to pursue the currently defined clinical path forward successfully, or in a timely manner or that is aligned with our cash resources.  The INSPIRE 2.0 Study may not be successfully completed or 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 to supply to our clinical sites, failure to demonstrate safety and probable benefit of our N euro-Spinal Scaffold implant, lack of adequate funding to continue the clinical trial, or unforeseen safety issues. Enrolling patients the INSPIRE 2.0 Study and any other clinical trial of our Neuro-Spinal Scaffold implant will continue to require the approval of the institutional review boards, or IRBs at each clinical site.

 

In addition, our results may subsequently fail to meet the safety and probable benefit standards required to obtain regulatory approvals. For example, in The INSPIRE Study, 2 of the 16 evaluable patients were initially assessed to have improved from complete AIS A SCI to incomplete AIS B SCI, but each was later assessed to have reverted to complete AIS A SCI prior to the patient’s 6-month examination. Of these 2 patients, 1 patient had converted back to AIS B and the other remained at AIS A at the 6-month examination. There is known and published variability in some of the measures used to assess AIS improvement and these measures can vary over time or depending upon the examiner. While we implemented procedures in The INSPIRE Study and the INSPIRE 2.0 Study, and will also implement procedures in any future clinical study to limit such variations, we cannot be certain that regulatory authorities will accept the results of our clinical trials or interpret them the way that we do.

 

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 InVivo, the FDA issued a Form 483 with 2 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.

 

We will need additional funding in the future.  In the future, 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.

 

Our current cash resources will not be sufficient to complete clinical development of our Neuro-Spinal Scaffold implant, including the resources needed to complete our INSPIRE 2.0 Study and to reach submission of the HDE application to the FDA. If we are unable to raise additional capital, we may be forced to cease our operation entirely.  We expect our expenses will increase in connection with our ongoing activities, particularly as we conduct our INSPIRE 2.0 Study, and as we seek regulatory approval for our Neuro-Spinal Scaffold implant.  In addition, if we obtain regulatory approval for any of our current or future product candidates, we expect to incur significant commercialization expenses related to manufacturing, marketing, sales, and distribution. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce, or eliminate our research and development programs or any future commercialization efforts.

 

Our future funding requirements, both near‑ and long‑term, will depend on many factors, including, but not limited to:

 

·

 the scope, progress, results, and costs of preclinical development, laboratory testing, and clinical trials for our  Neuro-Spinal Scaffold  implant and any other product candidates that we may develop or acquire, including our INSPIRE 2.0 Study;

 

·

future clinical trial results of our Neuro-Spinal Scaffold implant;

 

·

the timing of, and the costs involved in, obtaining regulatory approvals for the  Neuro-Spinal Scaffold  implant, and the outcome of regulatory review of the  Neuro-Spinal Scaffold  implant;

 

·

the cost and timing of future commercialization activities for our products if any of our product candidates are approved for marketing, including product manufacturing, marketing, sales, and distribution costs;

 

·

the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

 

·

the cost of having our product candidates manufactured for clinical trials in preparation for regulatory approval and in preparation for commercialization;

 

·

the cost and delays in product development as a result of any changes in regulatory oversight applicable to our product candidates;

 

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·

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.

 

We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our product candidates.

 

Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical studies depends on the speed at which we can enroll patients to participate in testing our product candidates. If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit, or terminate ongoing or planned clinical studies, any of which would have an adverse effect on our business.

 

Patient enrollment is affected by a number of factors including:

 

·

severity of the disease, injury, or condition under investigation;

 

·

design of the study protocol;

 

·

size and nature of the patient population;

 

·

eligibility criteria for and design of the study in question;

 

·

perceived risks and benefits of the product candidate under study;

 

·

proximity and availability of clinical study sites for prospective patients;

 

·

availability of competing therapies and clinical studies;

 

·

efforts to facilitate timely enrollment in clinical studies;

 

·

patient referral practices of physicians; and

 

·

ability to monitor patients adequately during and after treatment.

 

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For a period in 2016, as a result of an FDA pre-specified enrollment hold, we were unable to enroll patients in The INSPIRE Study pending FDA authorization to proceed with additional enrollment, which delayed our ability to open new sites and enroll patients at the pace we had anticipated. In addition, in July 2017 we halted enrollment in the study, and subsequently closed enrollment in the study. We may experience similar delays with our INSPIRE 2.0 Study.  We may not be able to initiate or continue clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit, or terminate ongoing or planned clinical studies, any of which would have an adverse effect on our business.

 

We anticipate that we will continue to incur substantial losses for the foreseeable future and may never achieve or maintain profitability.

 

We expect to continue to incur significant expenses and increasing net losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

 

·

continue clinical development of our  Neuro-Spinal Scaffold  implant;

 

·

initiate or restart the research and development of other product candidates;

 

·

have our product candidates manufactured for clinical trials and for commercial sale;

 

·

establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

 

·

maintain, protect, and expand our intellectual property portfolio; and

 

·

continue our research and development efforts for new product opportunities.

 

To become and remain profitable, we must succeed in developing and commercializing our product candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our current and future product candidates, developing additional product candidates, obtaining regulatory approval for these product candidates, and manufacturing, marketing, and selling any products for which we may obtain regulatory approval. We are only in the initial stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.

 

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings, or even continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.