The following discussion should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this Annual Report
on Form 10-K. The following discussion contains forward-looking statements that
involve risks and uncertainties that could cause actual results or events to
differ materially from those expressed or implied by such forward-looking
statements as a result of many important factors, including those set forth in
Part I of this Annual Report on Form 10-K under the caption "Risk Factors".
Please see also the "Special Note Regarding Forward-Looking Statements" in Part
I above. We do not undertake any obligation to update forward-looking statements
to reflect events or circumstances occurring after the date of this Annual
Report on Form 10-K.
Introduction
This Management's Discussion and Analysis of our financial condition and results
of operations is based on our financial statements, which management has
prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires management 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 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 management believes 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.
Business 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 BCH and MIT. 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.
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. However, expenditures
on research and development programs are subject to many uncertainties,
including whether we develop our products with a partner or independently, or
whether we acquire products from third parties. At this time, due to the
uncertainties and inherent risks involved in our business, we cannot estimate in
a meaningful way the duration of, or the costs to complete, our research and
development programs or whether, when or to what extent we will generate
revenues or cash inflows from the commercialization and sale of any of our
products. While we are currently focused on advancing our Neuro-Spinal Scaffold
implant, our future research and development expenses will depend on the
determinations we make as to the scientific and clinical prospects of each
product candidate, as well as our ongoing assessment of regulatory requirements
and each product's commercial potential. In addition, we may make acquisitions
of businesses, technologies or intellectual property rights that we believe
would be necessary, useful or complementary to our current business. Any
investment made in a potential acquisition could affect our results of
operations and reduce our limited capital resources, and any issuance of equity
securities in connection with a potential acquisition could be substantially
dilutive to our stockholders.
There can be no assurance that we will be able to successfully develop or
acquire any product, or that we will be able to recover our development or
acquisition costs, whether upon commercialization of a developed product or
otherwise. We cannot provide assurance that any of our programs under
development or any acquired technologies or products will result in products
that can be marketed or marketed profitably. If our development-stage programs
or any acquired products or technologies do not result in commercially viable
products, our results of operations could be materially adversely affected.
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We were incorporated on April 2, 2003, under the name Design Source, Inc. On
October 26, 2010, we acquired the business of InVivo Therapeutics Corporation,
which was founded in 2005, and continued the existing business operations of
InVivo Therapeutics Corporation as our wholly-owned subsidiary.
Critical Accounting Policies and Estimates
Our consolidated financial statements, which appear in Item 8 of this Annual
Report on Form 10-K, have been prepared in accordance with accounting principles
generally accepted in the United States, which require that our management make
certain assumptions and estimates and, in connection therewith, adopt certain
accounting policies. Our significant accounting policies are set forth in
Note 2, "Significant Accounting Policies", in the Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K. Of those
policies, we believe that the policies discussed below may involve the highest
degree of judgment and may be the most critical to an accurate reflection of our
financial condition and results of operations.
Stock-Based Compensation
Our stock options are granted with an exercise price set at the fair market
value of our common stock on the date of grant. Our stock options generally
expire 10 years from the date of grant and vest upon terms determined by our
Board of Directors.
We recognize compensation costs resulting from the issuance of stock-based
awards to employees, non-employees and directors as an expense in our statements
of operations over the service period based on a measure of fair value for each
stock-based award. The fair value of each option grant is estimated as of the
date of grant using the Black-Scholes option pricing model and the fair value of
each restricted stock award or restricted stock unit, which we refer to
collectively as restricted securities, is determined based on the fair market
value of our common stock on the date of grant. The fair value is amortized as a
compensation cost on a straight-line basis over the requisite service period of
the award, which is generally the vesting period. The expected term of any
options granted under our stock plans is based on the average of the contractual
term (generally, 10 years) and the vesting period (generally, 48 months). The
risk-free rate is based on the yield of a U.S. Treasury security with a term
consistent with the expected term of the option. The restricted securities
generally vest over a three-year period, contingent on the recipient's continued
employment. See Note 9, "Shared-Based Compensation, Stock Options and Restricted
Securities," in the Notes to Consolidated Financial Statements in Item 8 of this
Annual Report on Form 10-K for more information about the assumptions underlying
these estimates.
Research and Development Expense
Our research and development expenses consist primarily of costs incurred for
the development of our product candidates, which include:
? employee related expenses, including salaries, benefits, travel, and stock
based compensation expense;
? expenses incurred under agreements with contract research organization
("CROs"), and clinical sites that conduct our clinical studies;
facilities, depreciation, and other expenses, which include direct and
? allocated expenses for rent and maintenance of facilities, insurance, and other
supplies;
? costs associated with our research platform and preclinical activities;
? costs associated with our regulatory, quality assurance, and quality control
operations; and
? amortization of intangible assets.
Our research and development costs are expensed as incurred. We are required to
estimate our accrued research and development expenses. This process involves
reviewing open contracts and purchase orders, communicating with our personnel
to identify services that have been performed on our behalf and estimating the
level of service performed and the associated costs incurred for the services
when we have not yet been invoiced or otherwise notified of the actual
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costs. We make estimates of our accrued expenses as of each balance sheet date
in our consolidated financial statements based on facts and circumstances known
to us at that time. If the actual timing of the performance of services or the
level of effort varies from our estimate, we adjust the accrued expense
accordingly. Although we do not expect our estimates to be materially different
from amounts actually incurred, our understanding of the status and timing of
services performed relative to the actual status and timing of services
performed may vary and may result in us reporting amounts that are too high or
too low in any particular period. To date, we have not made any material
adjustments to our prior estimates of accrued research and development expenses.
New Accounting Pronouncements
In May 2021 the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260),
Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of
the Emerging Issues Task Force, which amends the FASB Accounting Standards
Codification ("ASC") to provide explicit guidance, and, thus, reduce diversity
in practice, on accounting by issuers for modifications or exchanges of
freestanding equity-classified written call options that remain equity
classified after the modification or exchange. This amendment provides that for
an entity that presents earnings per share (EPS) in accordance with Topic 260,
the effects of a modification or an exchange of a freestanding equity-classified
written call option that is recognized as a dividend should be an adjustment to
net income (or net loss) in the basic EPS calculation. The amended guidance
becomes mandatorily effective for all entities for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years, and
should be applied prospectively to modifications or exchanges occurring on or
after the effective date. ASU No. 2021- 04 is effective for us beginning in
fiscal 2022. We will adopt ASU 2021-04 effective January 1, 2022, and we do not
expect that the adoption will have a material impact on our consolidated
financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities
(Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and
Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the
interaction between the accounting for investments in equity securities,
investment in equity method and certain derivatives instruments. The ASU is
expected to reduce diversity in practice and increase comparability of the
accounting for these interactions. The pronouncement is effective for fiscal
years, and for interim periods within those fiscal years, beginning after
December 15, 2021. ASU No. 2020-01 is effective for us beginning in fiscal 2022.
We will adopt ASU 2020-01 effective January 1, 2022, and we do not expect that
the adoption will have a material impact on our consolidated financial
statements.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
Research and Development Expenses
Research and development expenses increased by $0.5 million to $4.4 million for
the year ended December 31, 2021 from $3.9 million for the year ended
December 31, 2020. The increase in research and development expenses for the
year ended December 31, 2021 is primarily due to higher incentive compensation
costs in 2021 of $0.3 million, an increase in scaffold manufacturing costs of
$0.2 million primarily as a result of higher clinical demand, an increase in
legal costs of $0.1 million primarily due to increased fees associated with the
submission of our second module to the FDA in 2021 and an increase of $0.1
million in other net immaterial accounts. These increases were offset by a
decrease of $0.2 million in consulting costs mainly due to lower costs
associated with clinical trial oversight activities.
General and Administrative Expenses
General and administrative expenses increased by $0.3 million to $5.5 million
for the year ended December 31, 2021 from $5.2 million for year ended
December 31, 2020. The increase in general and administrative expenses for the
year ended December 31, 2021 is primarily due to higher compensation costs in
2021 of $0.4 million and higher consulting costs in 2021 of $0.1 million
attributable to one time business development initiatives. These increases were
offset by decreases in legal costs of $0.1 million and other net immaterial
accounts of $0.1 million mainly due to cost containment initiatives.
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Interest Income / (Expense), Net
Interest income decreased by $16 thousand to $3 thousand for the year ended
December 31, 2021 from $19 thousand for the year ended December 31, 2020. The
decrease in interest income was primarily due to lower yields in our cash and
cash equivalents in 2021.
Other Income
Other income for the years ended December 31, 2021 and 2020 was $2 thousand and
$4 thousand, respectively.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements,
including planned capital expenditures. As of December 31, 2021, the Company had
approximately $16.5 million in working capital. 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 December 31, 2021, our accumulated deficit was $238.1
million.
At December 31, 2021, we had total assets of $21.8 million, total liabilities of
$3.7 million, and total stockholders' equity of $18.1 million. We recorded a net
loss of $9.9 million for the year ended December 31, 2021. We have not achieved
profitability and may not be able to realize sufficient revenue to achieve or
sustain profitability in the future. We do not expect to be profitable in the
next several years, but rather expect to incur additional operating losses.
We believe that our cash and cash equivalents at December 31, 2021 will provide
necessary funding to fund operations through the second quarter of 2023. We will
need additional funding after that date in order to continue our operations.
This estimate is based on assumptions that may prove to be wrong; expenses could
prove to be significantly higher, leading to a more rapid consumption of our
existing resources. We have limited liquidity and capital resources and must
obtain significant additional capital resources in order to fund our operations
and sustain our product development efforts, for acquisition of technologies and
intellectual property rights, for preclinical and clinical testing of our
anticipated products, pursuit of regulatory approvals, acquisition of capital
equipment, laboratory and office facilities, establishment of production
capabilities, for selling, general and administrative expenses and for other
working capital requirements. We will need to raise additional capital through a
combination of equity offerings, debt financings, other third-party funding,
marketing and distribution arrangements and other collaborations, strategic
alliances and licensing arrangements. Additionally, the COVID-19 pandemic could
have a continued adverse impact on economic and market conditions and extend the
period of global economic slowdown, which would impair our ability to raise
needed funds. In addition, our liquidity is impacted by the limited number of
shares authorized under our certificate of incorporation, and the resulting
constraints on financing options and alternatives.
We may pursue various other dilutive and nondilutive funding alternatives
depending upon our clinical path forward and the extent to which we require
additional capital to proceed with development of some or all of our product
candidates on expected timelines. The source, timing and availability of any
future financing will depend principally upon market conditions and the status
of our clinical development programs, both of which may be negatively impacted
by the COVID-19 pandemic. Funding may not be available when needed, at all, or
on terms acceptable to us. Lack of necessary funds may require us to, among
other things, delay, scale back or eliminate some or all of our research and
product development programs, planned clinical trials, and capital expenditures
or to license our potential products or technologies to third parties. We may
alternatively engage in cost-cutting measures in an attempt to extend our cash
resources as long as possible. If we are unable to raise additional capital, we
may be forced to cease operations entirely.
Financing Transactions
In October 2020, we completed a registered public offering (the "October 2020
Offering") in which we sold an aggregate of (i) 11,785,000 shares of our common
stock, (the "October 2020 Shares") and Series A Warrants exercisable for an
aggregate of 11,785,000 shares of our common stock (the "October 2020 Series A
Warrants") at a combined public offering price of $0.80 per share and associated
warrant and (ii) pre-funded Series B warrants exercisable for an aggregate of
6,965,000 shares of common stock (the "October 2020 Series B Pre-funded
Warrants") and Series A Warrants exercisable for an aggregate of 6,965,000
shares of our common stock (also the "October 2020 Series A
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Warrants") at a combined public offering price of $0.80 per pre-funded warrant
and associated warrant. Each October 2020 Series A Warrant has an exercise price
of $0.80 per share, is exercisable immediately and expires in October 2025. Each
October 2020 Series B Pre-funded Warrant has an exercise price of $0.00001 per
share, is exercisable immediately, and expires when exercised in full, subject
to certain conditions. In connection with the October 2020 Offering, we issued,
to designees of H.C. Wainwright & Co., LLC ("Wainwright"), the placement agent
for the October 2020 Offering, warrants (the "October 2020 Placement Agent
Warrants") to purchase an aggregate of 1,218,750 shares of our common stock,
which represents a number of shares of common stock equal to 6.5% of the
aggregate number of shares of common stock and October 2020 Series B Pre-funded
Warrants sold in the October 2020 Offering. The October 2020 Placement Agent
Warrants have an exercise price of $1.00 per share, are immediately exercisable
and expire in October 2025. The net proceeds to us, after deducting Wainwright's
placement agent fees and other offering expenses payable by us, were
approximately $13.5 million. There are no outstanding October 2020 Series B
Pre-funded Warrants as of December 31, 2021. During the year ended December 31,
2021, we issued an aggregate of 10,620,682 and 12,188 shares of common stock
upon the exercise of certain of the October 2020 Series A Warrants and October
2020 Placement Agent Warrants, respectively, for aggregate proceeds of $8.5
million. During the year ended December 31, 2020, we issued an aggregate of
6,965,000 shares of our common stock upon the exercise of all of the October
2020 Series B Pre-funded Warrants for an immaterial amount, as they were
substantially pre-funded. During the year ended December 31, 2020, we did not
issue any shares as a result of October 2020 Series A Warrants or October 2020
Placement Agent Warrants exercise activity.
In April 2020, we entered into a securities purchase agreement (the "April 2020
Purchase Agreement") with certain institutional investors (the "April 2020
Purchasers"), pursuant to which we agreed to sell and issue, in a registered
direct offering, an aggregate of 1,715,240 shares of our common stock, at a
purchase price per share of $1.75 (the "April 2020 Shares"). The April 2020
Shares were offered by us pursuant to a shelf registration statement on Form
S-3, which was declared effective by SEC on November 14, 2019 (File No.
333-234353) and a prospectus supplement thereunder. Pursuant to the April 2020
Purchase Agreement, in a concurrent private placement, we also issued to the
April 2020 Purchasers warrants (the "April 2020 Series C Warrants") to purchase
up to 1,715,240 shares of our common stock (the "Private Placement" and together
with the April 2020 Registered Offering, the "April 2020 Offerings"). The April
2020 Series C Warrants are exercisable immediately at an exercise price of $1.62
per share of common stock, subject to adjustment in certain circumstances, and
expire on October 17, 2025. In connection with the April 2020 Offerings, we also
issued to Wainwright warrants to purchase an aggregate of 111,491 shares of our
common stock (the "April 2020 Placement Agent Warrants") which represents a
number of shares of common stock equal to 6.5% of the aggregate number of April
2020 Shares sold in the April 2020 Registered Offering, at an exercise price of
$2.1875 per share with a term expiring on April 15, 2025. The net proceeds to
us, after deducting Wainwright's placement agent fees and other offering
expenses payable by us, were approximately $2.6 million. During the year ended
December 31, 2021, we did not issue any shares as a result of April 2020 Series
C Warrants exercise activity. During the year ended December 31, 2020, we issued
an aggregate of 35,000 shares of our common stock upon the exercise of certain
of the April 2020 Series C Warrants for aggregate proceeds of $57 thousand.
In March 2020, we completed a registered public offering (the "March 2020
Offering") in which we sold an aggregate of (i) 955,613 shares of our common
stock, (the "March 2020 Shares") and Series A Warrants exercisable for an
aggregate of 955,613 shares of our common stock (the "March 2020 Series A
Warrants") at a combined public offering price of $2.75 per share and associated
warrant and (ii) pre-funded Series B warrants exercisable for an aggregate of
1,589,842 shares of our common stock (the "March 2020 Series B Warrants") and
Series A Warrants exercisable for an aggregate of 1,589,842 shares of our common
stock (also the "March 2020 Series A Warrants") at a combined public offering
price of $2.75 per pre-funded warrant and associated warrant. Each March 2020
Series A Warrant has an exercise price of $2.75 per share, is exercisable
immediately and expires in March 2025. Each March 2020 Series B Warrant has an
exercise price of $0.00001 per share, is exercisable immediately, and expires
when exercised in full, subject to certain conditions. In connection with the
March 2020 Offering, we issued, to Wainwright, the placement agent for the March
2020 Offering, warrants (the "March 2020 Placement Agent Warrants") to purchase
an aggregate of 165,455 shares of our common stock, which represents a number of
shares of common stock equal to 6.5% of the aggregate number of shares of common
stock and March 2020 Series B Warrants sold in the March 2020 Offering. The
March 2020 Placement Agent Warrants have an exercise price of $3.4375 per share,
are immediately exercisable and expire in March 2025. The net proceeds to us,
after deducting Wainwright's placement agent fees and other offering expenses
payable by us, were approximately $6.0 million. During the year ended
December 31, 2021, we did not issue any shares as a result of either the March
2020 Series A Warrant, March 2020 Series B Warrants or March 2020 Placement
Agent Warrants exercise activity. During the year ended December 31, 2020,, we
issued an aggregate of
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1,577,114 shares of our common stock upon the exercise of certain of the
pre-funded March 2020 Series B warrants for an immaterial amount, as they were
substantially pre-funded.
Cashflows
Net cash used in operating activities for the year ended December 31, 2021,
consisted of net loss of $9.9 million, non-cash items of $0.7 million and cash
provided by working capital of $0.4 million. Adjustments for non-cash items
consisted primarily of $0.3 million each in amortization of operating lease
right-of-use assets and stock-based compensation expense, respectively. The
change in cash from working capital included a $0.5 million increase in accrued
expenses, and a $0.1 million increase in accounts payable. These increases were
offset by a $0.3 million decrease in the operating lease liability and a $0.1
million decrease in prepaid expenses and other assets.
Net cash used in operating activities for the year ended December 31, 2020,
consisted of net loss of $9.1 million, non-cash items of $0.5 million and cash
used in working capital of $1.0 million. Adjustments for non-cash items
consisted primarily of $0.3 million in amortization of operating lease
right-of-use assets and $0.2 million in stock-based compensation expense. The
change in cash from working capital included a decrease of $0.5 million in
accounts payable, a decrease of $0.3 million in accrued expenses and a decrease
of $0.3 million in the operating lease liability.
Net cash used in investing activities for the years ended December 31, 2021 and
2020, was $77 thousand and $41 thousand, respectively, attributable to purchases
of capital equipment.
Net cash provided by financing activities for the year ended December 31, 2021
was $8.5 million related to proceeds from the exercise of warrants. This
compares to net cash provided by financing activities of $22.5 million for the
year ended December 31, 2020 consisting of $22.1 million in proceeds from the
issuance of common stock associated with the offerings in 2020 and $0.3 million
in proceeds from the exercise of warrants.
Inflation and Changing Prices
We do not believe that inflation has had, or will have, a material impact on our
operating costs and earnings.
Material Cash Requirements from Contractual Obligations
Leases
As of December 31, 2021, we reported current and long-term operating lease
liabilities of $0.3 million and $1.0 million, respectively. These balances
represent our contractual obligation to make future payments on our Cambridge
Lease, discounted to reflect our cost of borrowing. In the event that we were to
vacate the Cambridge facility, we may be obliged to continue making payments
under the Cambridge Lease.
Clinical Trial Commitments
We have engaged and executed contracts with clinical research organizations to
assist with the administration of our ongoing INSPIRE 1.0 and INSPIRE 2.0
clinical trials. As of December 31, 2021, approximately $4.3 million remains to
be paid on these contracts. The timelines and related costs necessary to
complete these trials may vary depending on a number of factors, including the
rate of patient enrollment into our INSPIRE 2.0 trial. In the event we were to
close the INSPIRE 2.0 trial, certain financial penalties would become payable to
the clinical research organizations for costs to wind down the closed trial.
See Note 12, "Commitments and Contingencies," in the Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K for
information regarding our commitments.
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