SECOND SIGHT MEDICAL PRODUCTS The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited condensed financial
statements and related notes included elsewhere in this Quarterly Report on Form
10-Q as well as our audited 2020 financial statements and related notes included
in our Annual Report on Form 10-K, which was filed with the
Leveraging our 20 years of experience in neuromodulation for vision, we are
developing the Orion® Visual Cortical Prosthesis System ("Orion"), an implanted
cortical stimulation device intended to provide useful artificial vision to
individuals who are blind due to a wide range of causes, including RP, glaucoma,
diabetic retinopathy, optic nerve injury or disease and eye injury. Orion is
intended to convert images captured by a miniature video camera mounted on
glasses into a series of small electrical pulses. The device is designed to
bypass diseased or injured eye anatomy and to transmit these electrical pulses
wirelessly to an array of electrodes implanted on the surface of the brain's
visual cortex, where it is intended to provide the perception of patterns of
light. We are conducting a six- subject Early Feasibility Study of the Orion
device at the
? We have a good safety profile. Five subjects experienced a total of
thirteen adverse events (AEs) related to the device or to the surgery,
through July 2021 . One early AF was considered a serious adverse event
(SAE), and all of the adverse events were in the expected category. The
one SAE occurred at about three months post-implant, was resolved quickly,
and did not require a hospital stay. There have been no serious adverse
events due to the device or surgery since June 2018 .
? The efficacy data is encouraging. We measure efficacy by looking at three
measures of visual function: The first is square localization, where Orion
subjects sit in front of a touch screen and are asked to touch within the
boundaries of a square when it appears. The second is direction of motion,
where subjects are asked to identify the direction and motion of lines on
a screen. The third is grating visual acuity, a measure of visual acuity
that is adapted for very low vision. Four subjects have completed these
tests at 36-months, one subject at 24-months, and one subject at
12-months. Considering the most recent results for each subject, on square
localization, six of six subjects tested in our feasibility study
performed significantly better with the system on than off. On direction
of motion, six of six performed better with the system on than off. On
grating visual acuity, two of six tested had measurable visual acuity on
the scale of this test (versus none who can do it with the device off).
Another efficacy measurement of day-to-day functionality and benefit is
FLORA, an acronym for Functional Low-Vision Observer Rated Assessment.
FLORA is an assessment performed by an independent, third-party low vision
orientation and mobility specialist who spends time with each of the
subjects in their homes. The specialist asks each of the subjects a series
of questions and also observes them performing 15 or more daily living
tasks, such as finding light sources, following a sidewalk, or sorting
laundry. The specialist then determines if the system is providing a
benefit, if it is neutral, or if it is actually hurting the abilities of
subjects to perform these tasks. Due to the Covid-19 pandemic, 4 out of 6
FLORA assessments were not performed at the 24 month timeframe. A
protocol update was made to add FLORA assessments at the 36 month
timeframe. FLORA results to date (the latest for each subject) show
that six out of six completing the FLORA at 36 months had positive or mild
positive results, indicating the Orion system is providing benefit. We
reached agreement with the FDA in the fourth quarter of 2019 to utilize a
revised version of FLORA as our primary efficacy endpoint in our pivotal
trial for Orion, pending successful validation of the instrument.
No peer-reviewed data is available yet for the Orion system. We are currently
negotiating the clinical and regulatory pathway to commercialization with the
FDA as part of the Breakthrough Devices Program. One subject in the Early
Feasibility study had the Orion device explanted on
Our principal offices are located in
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Our first commercially approved product was the Argus® II Retinal Prosthesis
System ("Argus II"). The Argus II was the only retinal prosthesis approved in
? restoring independence through a renewed ability to navigate independently
in unfamiliar environments;
? improving patients' orientation and mobility, such as locating doors and
windows, avoiding obstacles, and following the lines of a crosswalk;
? allowing patients to feel more connected with people in their
surroundings, such as seeing when someone is approaching or moving away;
? providing patients with enjoyment from being "visual" again, such as
locating the moon, tracking groups of players as they move around a field,
and watching moving streams of lights from fireworks;
? enabling some patients to re-enter the workforce through multiple
vocations that become possible because of Argus II; and
? improving patients' well-being and ability to perform activities of daily
living
We began selling the Argus II System in
We also researched multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with 3rd party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we believe will be complimentary to our products include: eye tracking, object recognition and localization, thermal imaging and depth-based decluttering.
Product and Clinical Development Plans
By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The only notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable. We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligible for the Orion based on our clinical trials and the associated results.
Our objective in designing and developing the Orion visual prosthesis system is
to bypass the optic nerve and directly stimulate the part of the brain
responsible for human vision. A six-subject Early Feasibility Study of the Orion
device is currently underway at
In
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Liquidity and Capital Resources
From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of debt, convertible debt, research and clinical grants, and limited product revenue which was generated from the sale of our Argus II product. Funding of our business since 2019 has been primarily provided by:
? On June 25, 2021 , we closed an underwritten public offering of 11,500,000
shares of common stock at a price of $5.00 per share for aggregate net
proceeds of $53.3 million .
? On March 23, 2021 , we closed our private placement to seven institutional
investors of 4,650,000 shares of common stock at an offering price of $6.00
per share for aggregate net proceeds of approximately $24.5 million
? On December 8, 2020 , we borrowed $1 million from Gregg Williams , Chairman
of the Board of Directors of the Company and $1.2 million from two
unaffiliated shareholders. These loans and accrued interest were repaid in
the second quarter of 2021.
? On May 5, 2020 , we closed our underwritten public offering of 7,500,000
shares of common stock at an offering price of $1.00 per share for
aggregate net proceeds of approximately $6.7 million We were awarded a
We were notified by the Nasdaq stock market on
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We are subject to the risks and uncertainties associated with a business with no revenue that is developing a novel medical device. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future. To finance our operations we will need to raise additional capital, which cannot be assured. Our operating plan may change as a result of many factors currently unknown to us, and we will need to seek additional funds through public or private equity offerings or debt financings, grants, collaborations, strategic partnerships or other sources. Separate from a discontinued proposed combination with Pixium, we have engaged in discussions relating to possible strategic transactions, with others, however, no assurances can be given that these discussions will continue, or if continued, that they will result in agreement or a completed transaction. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs, or we may be unable to expand or maintain our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which could materially and adversely affect our business, financial condition and results of operations.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity
with generally accepted accounting principles in
There have been no material changes to our critical accounting policies during
the nine months ended
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Results of Operations
Net sales. Our net sales consisted of revenue primarily from the sale of our Argus II product which is no longer marketed. We have discontinued sales of this product to focus on development of Orion.
Cost of sales. Cost of sales includes the salaries, benefits, material,
overhead, third party costs, warranty, charges for excess and obsolete
inventory, and other costs required to make the Argus II system at our
Operating Expenses. We recognize our operating expenses as incurred in four
general operational categories: research and development, clinical and
regulatory, sales and marketing, and general and administrative. Our operating
expenses also include a non-cash component related to the amortization of
stock-based compensation for research and development, clinical and regulatory,
sales and marketing, and general and administrative personnel. We have received
grants from institutions or agencies, such as the
? Research and development expenses consist primarily of employee
compensation and consulting costs related to the design, development, and
enhancements of our current and potential future products, offset by grant
revenue received in support of specific research projects. We expense our
research and development costs as they are incurred. Due to the recent
downsizing of our business, we are currently evaluating the path forward
for our research and development activities for Orion, including the
potential for collaboration with 3rd parties and/or outsourcing the
engineering work for Orion.
? Clinical and regulatory expenses consist primarily of salaries, travel and
related expenses for personnel engaged in clinical and regulatory
functions, as well as internal and external costs associated with
conducting clinical trials and maintaining relationships with regulatory
agencies offset by grant revenue received in support of specific clinical
research products. We expect clinical and regulatory expenses to be lower
in the short-run as we have closed our clinical study activities related
to Argus II and Orion clinical site visits were temporarily paused due to
COVID-19. In the long-run, we expect clinical and regulatory expenses to
increase if and when we conduct a pivotal clinical study of Orion.
? Sales and marketing expenses consist primarily of salaries, commissions,
travel and related expenses for personnel engaged in sales, marketing,
market access and business development functions, as well as costs
associated with promotional and other marketing activities including the
cost of units consumed as demos or samples. We expect sales and marketing
expenses to be significantly lower in 2021 than in 2020 as we no longer
employ sales and marketing personnel and no longer market the Argus II
product.
? General and administrative expenses consist primarily of salaries and
related expenses for executive, legal, finance, human resources,
information technology and administrative personnel, as well as recruiting
and professional fees, patent filing and annuity costs, insurance costs
and other general corporate expenses, including rent. We expect general
and administrative expenses to be significantly lower in 2021 as we have
significantly reduced staff.
Comparison of the Three Months Ended
Research and development expense. Research and development expense increased by
Clinical and regulatory expense. Clinical and regulatory expense was flat at
General and administrative expense. General and administrative expense increased
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Comparison of the Nine Months Ended
Research and development expense. Research and development expense decreased by
Clinical and regulatory expense. Clinical and regulatory expense decreased
Selling and marketing expense. Selling and marketing expense was zero in the
first nine months of 2021 as compared to
General and administrative expense. General and administrative expense increased
Restructuring charges. We recorded non-cash restructuring charges of
Liquidity and Capital Resources
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our business initiatives and/or raise additional capital, however, there can be no assurances that we will be able to do so.
On
On
On
On
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward- looking statement that involves risks and uncertainties, and actual results could vary materially. Conducting clinical trials is a time- consuming, expensive and uncertain process that takes many years to complete and we may never generate the necessary data or results required to obtain marketing approval. We do not expect revenues until we are successful in completing the development and obtaining marketing approval for Orion. We expect expenses to increase in connection with our ongoing activities, particularly as we continue clinical trials of Orion, initiate new research and development projects and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for Orion, we expect to incur significant additional expenses related to sales, marketing, distribution and other commercial infrastructure to commercialize such product. In addition, our product candidates, if approved, may not achieve commercial success. We incur significant costs associated with operating as a public company in a regulated industry.
Until such time, if ever, we can generate substantial product revenues, we anticipate that we will seek to fund our operations through public or private equity or debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity, convertible debt or other equity-linked securities, the ownership interests of some or all of our common stockholders will be diluted, the holders of new equity securities may have priority rights over our existing stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If adequate funds are not available, we may be required to further curtail operations significantly or to obtain funds by entering into agreements on unattractive terms. If, for example, we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. Our inability to raise capital could have a material adverse effect on our business, financial condition and results of operations.
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Cash and cash equivalents increased by
Cash Flows from Operating Activities
During the first nine months of 2021, we used
Cash Flows from Investing Activities
Cash used for investing activities in the first nine months of 2021 was zero and
cash provided for investing activities was
Cash Flows from Financing Activities
Financing activities provided
Off-Balance Sheet Arrangements
At
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