UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10‑K10-K
☒⌧
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20172020 |
☐◻
| 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 001‑37350001-37350
INVIVO THERAPEUTICS HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization) | 36‑4528166
36-4528166
(I.R.S. Employer
Identification No.)
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One Kendall Square,
Suite B14402, Cambridge, Massachusetts
(Address of principal executive offices) | 02139
(Zip Code) |
(617) 863‑5500863-5500
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered | | Trading Symbol(s) | | Name of exchange on which registered |
Common Stock, $0.00001 par value | | NVIV | | The Nasdaq GlobalCapital Market |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well‑knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐◻ No ☒⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐◻ No ☒⌧
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑TS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒⌧ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-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‑212b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐ | ◻ | Accelerated filer ☒ | Non‑accelerated◻
| Non-accelerated filer ☐
(Do not check if a
smaller reporting company) | ⌧ | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Act). Yes ☐◻ No ☒⌧
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017,2020, the last business day of the registrant’s most recently completed second fiscal quarter, was $86,007,844$7,671,905 based on a per share price of $2.70,$1.58, which was the closing price of the registrant’s common stockCommon Stock on the Nasdaq GlobalCapital Market on such date.June 30, 2020.
As of March 9, 2018,February 25, 2021, the number of shares outstanding of the registrant’s common stock,Common Stock, $0.00001 par value per share, was 38,054,036.34,184,071.
DOCUMENTS INCORPORATED BY REFERENCE
None.
INVIVO THERAPEUTICS HOLDINGS CORP.
ANNUAL REPORT ON FORM 10‑K10-K
FOR THE YEAR ENDED DECEMBER 31, 20172020
TABLE OF CONTENTS
PART I
SPECIAL NOTE REGARDING FORWARD‑LOOKINGFORWARD-LOOKING STATEMENTS
This Annual Report on Form 10 K10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or 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 Form 10-K, 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 I, Item 1A of this Form 10-K. These forward looking statements are only predictions, are uncertain, and involve substantial known and unknown risks, uncertainties, and other factors which may cause our actual results, levels of activity, or performance to be materially different from any future results, levels of activity, or performance expressed or implied by these forward looking statements. Such factors include, among others, the following:
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● | | our limited operating history and history of net losses; |
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● | | our ability to raise substantial additional capital to finance our planned operations and to continue as a going concern; |
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● | the length and impact of the ongoing COVID-19 pandemic; |
| ● | our ability toinitiate and complete the INSPIRE 2.0 Study to support our existing Humanitarian Device Exemption, or HDE, application; |
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● | | our ability to execute our strategy and business plan; |
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● | | our ability to obtain regulatory approvals for our current and future product candidates, including our Neuro-Spinal Scaffold implant;implant; |
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● | | our ability to successfully commercialize our current and future product candidates, including our Neuro-Spinal Scaffoldimplant; |
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● | | theprogressandtimingofourcurrentandfuturedevelopmentprograms; |
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● | | our ability to successfully open, enroll and complete clinical trials and obtain and maintain regulatory approval of our current and future productcandidates; |
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● | | our ability to protect and maintain our intellectual property and licensing arrangements; |
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● | | our reliance on third parties to conduct testing and clinical trials; |
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● | | market acceptance and adoption of our current and future technology and products; |
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● | | our ability to promote, manufacture and sell our current and future products, either directly or through collaborative and other arrangements with third parties; and |
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● | | our ability to attract and retain key personnel. |
We cannot guarantee future results, levels of activity, or performance. You should not place undue reliance on these forward looking statements, which speak only as of the date of this Annual Report on Form 10 K.10-K. These cautionary
statements should be considered with any written or oral forward looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward looking statements to conform these statements to reflect actual results, later events or circumstances, or to reflect the occurrence of unanticipated events.
As used herein, “we,” “us,” “our,” or the “Company” means InVivo Therapeutics Holdings Corp., together with its consolidated subsidiaries,our wholly owned subsidiary InVivo Therapeutics Corporation, unless otherwise noted.
Risk Factor Summary
| ● | The COVID-19 pandemic has delayed and may continue to delay our ability to complete our ongoing INSPIRE 2.0 clinical trial or may delay the initiation of future clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. In addition, this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business and operations. |
| ● | We have found it difficult and may continue to find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our product candidates, and due to such enrollment delays, we may need to make a determination as to the next steps for our clinical program that could significantly impact our future operations and financial position. |
| ● | We will need additional funding before achieving potential profitability. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate our product development programs or commercialization efforts, engage in one or more potential transactions, or cease our operations entirely. |
| ● | We anticipate that we will continue to incur substantial losses for the foreseeable future and may never achieve or maintain profitability. |
| ● | We are wholly dependent on the success of one product candidate, the Neuro-Spinal Scaffold implant. Even if we are able to complete clinical development and obtain favorable clinical results, we may not be able to obtain regulatory approval for, or successfully commercialize, our Neuro-Spinal Scaffold implant. |
| ● | If we cannot protect, maintain and, if necessary, enforce our intellectual property rights, our ability to develop and commercialize products will be adversely impacted. |
| ● | We will depend upon strategic relationships to develop, exploit, and manufacture our products. If these relationships are not successful, we may not be able to capitalize on the market potential of these products. |
| ● | Our success depends on our ability to retain our management and other key personnel. |
| ● | We may face, and in the past have faced, lawsuits, which could divert management’s attention and harm our business. |
| ● | The price of our common stock has been and may continue to be volatile, which could lead to losses by investors and costly securities litigation. |
Item 1. 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 mission is to redefine the life of the SCI patient, and we seek to develop treatment options intended to provide meaningful improvement in patient outcomes following SCI. 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 (BCH) and the Massachusetts Institute of Technology.Technology (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.
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.
Market Opportunity
Our clinical program is intended to address the lack of successful treatments for SCIs, which can lead to permanent paralysis, sensory impairment, and autonomic (bowel, bladder, and sexual) dysfunction. The current management of acute SCI is a surgical approach consisting of spine stabilization and an external decompression procedure of uncertain value. We believe the market opportunity for our Neuro-Spinal Scaffold implant is significant. It is estimated that approximately 285,000 people are currently living in the United States with paralysis due to SCI (chronic SCI), and approximately 15,000 individuals in the United States will become fully or partially paralyzed each year (acute SCI). We are pursuing regulatory approval from the U.S. Food and Drug Administration, or FDA, through the Humanitarian Device Exemption, or HDE, pathway. When this pathway was initiated for the Neuro-Spinal Scaffold implant, it was limited to populations of 4,000 or less patients per year. We were granted a Humanitarian Use Device, or HUD, designation for the Neuro-Spinal Scaffold implant, which includes thoracic and cervical patients afflicted with complete (no motor or sensory function in the lowest sacral segments) SCI, such as paraplegia or tetraplegia, and excludes gunshot or other penetrating wounds. Recently, theThe 21st Century Cures Act increased the upper population limit for an HDE from 4,000 to 8,000, which allows us to potentially request an expansion of our current HUD to include additional SCI patients, i.e., incomplete (partial sensory or sensory/motor function below the injury site, including the lowest sacral segments) SCI patients. Future products, which may include use of stem cells or drug ingredients, may enable the treatment of a broader population such as patients with chronic paralysis and would require separate regulatory approval.
Since 1973, the National Spinal Cord Injury Statistical Center, or NSCISC, at the University of Alabama has been commissioned by the U.S. government to maintain a national database of SCI statistics. The financial impact of SCIs, as reported by the NSCISC, is substantial. Direct costs, which include hospital and medical expenses, modification of the home, and personal assistance, are highest in the first year after injury. According to the fact sheet published in 2017 by NSCISC titled “Spinal Cord Injury—Facts and Figures at a Glance”, (i) during the first year, average cost of care ranges from $352,279 to $1,079,412, depending on the severity of the injury, (ii) the net present value, or NPV, to maintain a quadriplegic injured at age 25 for life is $4,789,384, and (iii) the NPV to maintain a paraplegic injured at age 25 for life is $2,341,988. These costs place a tremendous financial burden on families, insurance providers, and government agencies. Moreover, despite such a significant financial investment, the patient often remains disabled for life because current medical interventions address only the symptoms of SCI rather than the underlying neurological cause. We believe our approach could represent an important advance in the treatment of SCIs.
The American Spinal Injury Association, or ASIA, in collaboration with the International Spinal Cord Society, or ISCoS, has developed a neurologic examination tool for assessing SCI known as the International Standards for Neurological Classification of Spinal Cord Injury, or ISNCSCI. Results of the ISNCSCI examination are used to determine the ASIA Impairment Scale, or AIS, classification.
Patients with complete SCI are classified as AIS A. Patients with incomplete SCI, who have partial sensory and/or motor function below the level of injury, including the lowest sacral segments, are classified as AIS B (partial sensory function), AIS C (partial sensory and motor function), or AIS D (partial sensory and increased motor function, i.e., can move at least half of the muscles against gravity). Patients who have a complete return of sensory and motor function are classified as AIS E.
These classifications are based upon the ISNCSCI examination in which an examiner performs a neurologic examination to assess sensory function of the entire body and motor function of the upper and lower extremities.
Our Clinical Program
We currently have one1 clinical development program for the treatment of acute SCI.
Neuro-Spinal Scaffold Implant for acute SCI
Our Neuro-Spinal Scaffold implant is an investigational bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord. The Neuro-Spinal Scaffoldimplant 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 two2 biocompatible and bioresorbable polymers that are cast to form a highly porous investigational product:
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● | | 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 |
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● | | Poly-L-Lysine,apositivelychargedpolymercommonlyusedtocoatsurfacesinordertopromotecellularattachment. |
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 bythrough multiple combination strategies involving electrostimulation devices, additional biomaterials, drugs approved by the FDA, or growth factors. We expect the Neuro-Spinal Scaffold implant to be regulated by the FDA as a Class III medical device.
Preclinical and Non-clinical Studies relating to the Neuro-Spinal Scaffold
SCI can result in permanent paralysis, sensory impairment, and autonomic (bowel, bladder, and sexual) dysfunction. These functional deficits result from damage to or loss of cells (neurons and glia) in the affected region of the spinal cord, either from the initial mechanical trauma or through secondary mechanisms that persist for several weeks. The ability of potential treatments for SCI to mitigate loss of function or promote recovery can be evaluated with non-clinical models using different species and different methods of inducing SCI. In our preclinical studies, we utilized rat, non-human primate, and pig models because each exhibits a pattern of neuropathology following SCI that is similar to human SCI. Hemicordectomy injury models, in which sections of spinal cord are surgically removed, are useful in the evaluation of treatment strategies that involve device implantation. Unilateral hemicordectomy models preserve function on one side of the cord, resulting in improved recovery of bladder and bowel function. We, therefore, evaluated the bioresorbable polymer scaffold device in both rats and non-human primates with unilateral hemicordectomy injury. Because most human SCIs are non-penetrating contusion injuries resulting from rapid compression of spinal tissue by intrusion of bone or disc material following mechanical disruption of the vertebral column, we also evaluated the bioresorbable polymer scaffold device in rat and pig models of spinal contusion injury.
Our first non-clinical study was conducted by founding scientists of our wholly-owned subsidiary in rats with surgically induced unilateral spinal cord hemicordectomy injury. This study (see Teng, Y. D., et al., Functional recovery following traumatic spinal cord injury mediated by a unique polymer scaffold seeded with neural stem cells, Proceedings of the National Academy of Sciences 99, pg. 3024-3029, 2002) demonstrated the baseline safety and efficacy of porous, biodegradable scaffolds fabricated from PLGA-PLL polymer. Subsequently, the safety and efficacy of implantation of the bioresorbable polymer scaffold device was evaluated in rats with spinal cord contusion injury. Initial studies suggest that 24 hours after contusion injury was an appropriate time for device implantation based on both histological evaluation and ex vivo Magnetic Resonance Imaging, or MRI, techniques. Based on these results, we conducted larger rat contusion studies in our laboratory. We evaluated functional recovery with the 21-point Basso, Beattie, and Bresnahan, or BBB, locomotor rating scale to assess open field locomotion. In the first model, the BBB score was not improved by the scaffold device. However, implantation of the bioresorbable polymer scaffold device into the necrotic zone of the injured spinal cord resulted in appositional healing and tissue remodeling that preserved spinal cord architecture. Morphometric analysis of spinal sections stained with hematoxylin & eosin revealed that non-implanted rats with contusion injury developed large cavities surrounded by a thin rim of spared white matter. In contrast, rats treated with the implanted bioresorbable polymer scaffold device demonstrated decreased cavity volume along with increased amounts of spared and remodeled tissue at the lesion epicenter. Immunofluorescence labeling within the remodeled tissue identified high levels of laminin, an absence of GFAP-positive astrocytes, as well as beta-3 tubulin positive axons. This indicated that the bioresorbable polymer scaffold device supports tissue formation and remodeling favorable for axon regrowth. Following spinal contusion injury, myelin-producing nerve cells called Schwann cells arise from either injured nerve roots or endogenous sources within the central nervous system. The Schwann cells migrate into the injury region, promoting axonal growth and remyelinating segmentally demyelinated axons. In rats implanted with the bioresorbable polymer scaffold device, we observed that Schwann cell myelination was extensive within preserved penumbra white matter and also that Schwann cell myelination was detected within the remodeled tissue. These results indicate that implantation of the bioresorbable polymer scaffold device in the acutely injured rat spinal cord can provide the benefit of preserving spinal cord architecture through reduced cavitation, and promotion of white matter sparing and tissue remodeling supportive to axon sprouting and spinal cord activity.
The spinal cord anatomy of non-human primates is very similar to that of humans. We performed a series of studies in African green monkeys to evaluate the bioresorbable polymer scaffold device in a non-human primate. Our first study in African green monkeys established that unilateral thoracic hemicordectomy SCI (a new model in this species) produced a consistent functional deficit, and we observed a consistently positive response to scaffold implantation (see Pritchard, et al., Establishing a model spinal cord injury in the African green monkey for the preclinical evaluation of biodegradable polymer scaffolds seeded with human neural stem cells, Journal of Neuroscience Methods 188, pg. 258- 269, 2010). We then conducted two larger studies evaluating the safety and efficacy of the bioresorbable polymer scaffold device in the African green monkey (see Slotkin, J.R., Pritchard, et al., Biodegradable scaffolds promote tissue remodeling and functional improvement in non-human primates with acute spinal cord injury. Biomaterials, 123, pp. 63-76). The extent and time course of functional recovery in biopolymer implant-treated primates was assessed with video capture and KinemaTracer evaluation of locomotor behavior with synchronous electromyography recording along with locomotor observation rating. When the results of these two studies were combined and analyzed together, we found that implantation of the bioresorbable polymer scaffold device resulted in an increase in remodeled tissue in the region of the hemicordectomy compared to non-implant controls, and improved recovery of locomotion in subjects with full unilateral hemicordectomy lesions (see Slotkin, J.R., et al., Biodegradable scaffolds promote tissue remodeling and functional improvement in non-human primates with acute spinal cord injury, Biomaterials, 123, pg. 63-76, 2017).
The pig has been used as a large animal model of spinal cord contusion injury due to similarities in size and structure to the human spinal cord. We evaluated the surgical feasibility of implanting the bioresorbable polymer scaffold device in a spinal cord after a contusion injury in a pig model. Severe contusion injuries were created in Gottingen pigs with a weight drop apparatus. At approximately 4, 6, and 24 hours after contusion injury, the pigs underwent the bioresorbable polymer scaffold device surgical implantation procedure. At each time point, a large volume of necro-hemorrhagic fluid and debris rapidly effluxed from the injury site, releasing built-up pressure and resulting in a substantial cavity in the center of the spinal cord. Increased spinal tissue pressure after contusion injury results in reduced blood perfusion and ischemia in damaged spinal tissue, and is an important contributor to the pathophysiology of SCI. As part of our study, we placed bioresorbable polymer scaffold devices into the resulting contusion-induced spinal cord cavity. We measured intraspinal pressure (using catheter pressure probes) at the contusion epicenter in the pigs before, during, and after the surgical procedure. As expected, contusion injury elevated intraspinal
tissue pressure compared to normal values. Surgical implantation of the bioresorbable polymer scaffold device resulted in a return of intraspinal tissue pressure to physiologically normal levels.
Taken together, these non-clinical studies in two rat SCI models, the African green monkey unilateral hemicordectomy injury model, and the pig contusion injury model demonstrate that the bioresorbable polymer scaffold device, surgically implanted at the epicenter of the wound after an acute SCI, acts by appositional healing to help spare spinal cord tissue, decrease post-traumatic cyst formation, decrease spinal cord tissue pressure, and promote tissue remodeling supportive to axon sprouting and spinal cord activity.
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 five subjects in up to six 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 five 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: 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 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 Neuro-Spinal Scaffold implant in a total of 19 patients in The INSPIRE Study, 16 of whom reached the six month primary endpoint visit, and three 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.
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 (NLI) SCI. The primary endpoint was defined as the proportion of patients achieving an improvement of at least one AIS grade at six 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 an 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 one AIS grade at the six 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 six-month primary endpoint visit. Of these 16, seven had improved from complete AIS A SCI to incomplete SCI (two patients to AIS C and five patients to AIS B) at the six-month primary endpoint visit and nine had not demonstrated improvement at that visit. Three of the seven patients who improved were assessed to have AIS B SCI at the six-month primary endpoint and were later assessed to have improved to AIS C SCI at the 12 or 24-month
visits. Two 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 six-month examination. One of these two was then assessed at the six-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
Our Neuro-Spinal Scaffold implant. In addition, as one source of comparator data, we initiated the Contemporary Thoracic SCI Registry Study, or the CONTEMPO Registry Study. The CONTEMPO Registry Study will utilize existing databases and registries to develop a historical comparator that, to the extent possible, matches patients to those patients enrolled in The INSPIRE Study. The CONTEMPO Registry Study is designed to provide comprehensive natural history benchmarks for The INSPIRE Study results that include SCI patients with similar baseline characteristics treated since 2006. The CONTEMPO Registry Study includes data from the Christopher & Dana Reeve Foundation North American Clinical Trials Network Registry, as well as the Model Systems Registry and the European Multicenter Study about Spinal Cord Injury. We anticipate that there will be between 100 to 200 patients in the CONTEMPO Registry Study. We have submitted a protocol for the CONTEMPO Registry Study to the FDA. 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 Investigational Device Exemption, or IDE in the INPSIREINSPIRE 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 arm,arms, which we refer to as the Scaffold Arm and the Comparator Arm. Patients in the Comparator Arm will receive the standard of care, which is spinal stabilization without dural opening or myelotomy. The INSPIRE 2.0 Study is a single blind study, meaning that the patients and assessors are blinded to treatment assignments. The FDA approved the enrollment of up to 35 patients in this study so that there would be at least 20 evaluable patients (10 in each study arm) at the primary endpoint analysis, accounting for events such as screen failures or deaths that would prevent a patient from reaching the primary endpoint visit. We may conduct the INSPIRE 2.0 Study at up to 26 sites in the United States. Enrolling As of February 25, 2021, 11 patients have been enrolled in the INSPIRE 2.0 Study will also require the approvaland 18 sites are activated for enrollment. As of February 25, 2021, 17 of the IRBs at each18 clinical site.sites are open for enrollment, and 1 clinical site is currently not open for enrollment due to reasons unrelated to the COVID-19 pandemic. We estimate that from study initiation,have found the enrollment will take an approximately 18 months, and the total time to completion ofrates for the INSPIRE 2.0 study is estimated to be two years fromvariable and inconsistent. For example, the 3 most recent patients enrolled into the study initiation.were enrolled over the course of four weeks between early December 2020 and early January 2021. Given the recent unpredictable enrollment patterns, we are unable at this time to estimate when enrollment for the study may be complete. We aim to continue to provide quarterly updates regarding the number of patients enrolled into the study.
The primary endpoint is defined as the proportion of patients achieving an improvement of at least one1 AIS grade at six6 months post-implantation. Assessments of AIS grade are at hospital discharge, three3 months, six6 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 one1 grade on AIS assessment at the six-month6-month primary endpoint follow-up visit between the Scaffold Arm and the Comparator Arm must be equal to or greater than 20%. In one example, if 50% of subjects in the Scaffold Arm have an improvement of AIS grade at the six-month6-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 six-month6-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, (a disability scale for patients with SCI), and quality of life.
We received approvalOur Neuro-Spinal Scaffold was previously studied in The INSPIRE Study: the “InVivo Study of Probable Benefit of the Neuro- Spinal Scaffold for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A Spinal Cord Injury,” under an IDE application for the INSPIRE 2.0 Study in early March. We believe this sets us in a direction towards a path to approval under the HDE regulatory program, and we are focused on exploring financing mechanisms to support the INSPIRE 2.0 Study.
treatment of neurologically complete thoracic traumatic acute SCI. Although The INSPIRE Study iswas structured with thean Objective Performance Criterion, or 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 planned 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. We cannot be certain what additional information or studies will be required by the FDA to approve our HDE submission.
In 2016, the FDA accepted our proposed HDE modular shell submission and review process for the Neuro-Spinal Scaffoldimplant. The HDE modular shell is comprised of three3 modules: a preclinical studies module, a manufacturing module, and a clinical data module. As part of its review process, the FDA reviews modules,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 the final module,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 are working on responses tosubmitted an updated first module in the FDA’s questionsfourth quarter of 2019 and planreceived feedback in September 2020. We expect to submit ananother updated preclinical module in 2018.the first quarter of 2021. The HDE submission will not be complete until the manufacturing and clinical modules are also submitted.
Impact of COVID-19 Pandemic
On January 30, 2020, the World Health Organization, or the WHO, announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China, or the COVID-19 pandemic, and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 pandemic as a pandemic, based on the rapid increase in exposure globally. Although all our clinical sites except one are currently enrolling patients, we are aware that a significant number of our clinical sites had previously temporarily suspended enrollment into the INSPIRE 2.0 Study at their institution due to the COVID-19 pandemic. As such, the COVID-19 pandemic has affected and may continue to affect the potential for enrollment in our INSPIRE 2.0 Study as clinical sites suspend studies in order to manage the pandemic. Aside from the impact on enrollment in our INSPIRE 2.0 Study, we did not experience any significant impact from the COVID-19 pandemic on our financial condition, liquidity, other operations, suppliers, industry, and workforce during the year ended December 31, 2020. As of February 25, 2021, we have 17 clinical sites open for enrollment and 1 clinical site that is currently not open for enrollment due to reasons unrelated to the COVID-19 pandemic. The full impact of the COVID-19 pandemic continues to evolve as of the date of filing this Annual Report on Form 10-K, and we cannot be certain what future impact the COVID-19 pandemic may have on our clinical sites and their respective abilities to enroll patients. As the pandemic continues to evolve, there may be additional government actions or disruptions that could cause our clinical sites to suspend or alter operations in a manner that would impact enrollment in the INSPIRE 2.0 Study. We are actively monitoring the impact of the global situation on our financial condition, liquidity, operations, suppliers, industry, and workforce, although there remains significant uncertainty related to the public health situation globally. Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not able to estimate the ultimate effects of the COVID-19 pandemic on our results of operations, financial condition, or liquidity in the future. However, as the COVID-19 pandemic continues, it will likely continue to have an adverse effect on enrollment in our INSPIRE 2.0 Study, and may also have an adverse effect on our results of future operations, financial position, and
liquidity, and even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.
Intellectual Property
We rely on a combination of patents, licenses, trade secrets, and non-disclosure agreements to develop, protect, and maintain our intellectual property. Our patent portfolio includes patents and patent applications. We seek to develop or obtain intellectual property that we believe might be useful or complementary with our products and technologies, including by way of licenses or acquisitions of other companies or intellectual property from third parties.
We hold an exclusive worldwide license to a broad suite of patents co-owned by BCH and MIT covering the use of a wide range of polymers to treat SCI, and to promote the survival and proliferation of human stem cells in the spinal cord, or the BCH License. Issued patents and pending patent applications licensed under the BCH License cover the technology underlying our Neuro- Spinal Scaffold implant and the use of a wide range of biomaterial scaffolding for treating SCI by itself or in combination with drugs, growth factors, or human stem cells. The BCH License covers eight6 issued United States patents and 1619 issued international patents expiring between 20182021 and 2027, and one pending United States patent application and seven pending international patent applications.2027.
The BCH License has a term of 15 years from the effective date of July 2, 2007, or as long as the life of the last expiring patent right under the license, whichever is longer, unless terminated earlier by BCH. In connection with our acquisition of the BCH License, we submitted to a 5-year development plan to BCH and MIT that includes certain targets and projections related to the timing of product development and regulatory approvals. We are required to either meet the stated targets and projections in the plan or notify BCH and revise the plan. BCH has the right to terminate the BCH License for failure by us to either meet the targets and projections in the plan or our failure to submit an acceptable revision to the plan within a 60-day cure period after notification by BCH that we are not in compliance with the plan. We are currently in compliance with the development plan.
We have the right to sublicense the patents covered by the BCH License and have full control and authority over the development and commercialization of any products that use the licensed technology, including clinical trial design, manufacturing, marketing, and regulatory filings. We also own the rights to the data generated pursuant to the BCH License, whether generated by us or a sublicensee. We have the first right of negotiation with BCH and MIT for a 30-day30 day period to any improvements to the intellectual property covered by the BCH License.
We are required to pay certain fees and royalties under the BCH License. We paid an initial fee upon execution of the BCH License and are required to pay an amendment fee if we expand the field of use under the BCH License. We are also required to make milestone payments upon completing various phases of product development, including upon (i) filing with the FDA of the first investigational new drug application and IDE application for a product that uses the licensed technology; (ii) enrollment of the first patient in Phase II testing for a product that uses the licensed technology; (iii) enrollment of the first patient in Phase III testing for a product that uses the licensed technology; (iv) FDA approval of the first new drug application or related application for a product that uses the licensed technology; and (v) first market approval in any country outside the United States for a product that uses the licensed technology. Each year prior
to the release of a licensed product, we are also required to pay a maintenance fee for the BCH License. Further, we are required to make ongoing payments based on any sublicenses we grant to manufacturers and distributors. Following commercialization, we are required to make ongoing royalty payments equal to a percentage in the low single digits of net sales of any product that uses the licensed technology.
In addition to the rights we license under the BCH License, we have additional rights relating to the Neuro-Spinal Scaffoldimplant. implant. Together with MIT, we co-own U.S. patent application No. U.S. 14/232,52510,131,786 (“Poly((lactic-co-glycolic acid)-b-lysine) and process for synthesizing a block copolymer of PLGA and PLL- (poly-e-cbz-l-lysine)”)., which expires in 2033.
Government Regulation
The testing, manufacturing, and potential labeling, advertising, promotion, distribution, import, and marketing of our products are and would be subject to extensive regulation by governmental authorities in the United States and in other countries. In the United States, the FDA, under the Public Health Service Act, the Federal Food, Drug and Cosmetic Act, or FDCA, and their implementing regulations, regulates biologics and medical device products. In addition, our products under development are subject to extensive regulation by other U.S. federal and state regulatory bodies and comparable authorities in other countries. To ensure that medical products distributed domestically are safe
and effective for their intended use, the FDA and comparable authorities in other countries have imposed regulations that govern, among other things, the following activities that we or our partners perform or will perform:
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● | | product design and development; |
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● | | premarket clearance, approval, or CE marking of products; |
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● | | advertising and promotion; |
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● | | product marketing, sales, and distribution; and |
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● | | post‑marketpost-market surveillance reporting, including reporting of death or serious injuries.
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The labeling, advertising, promotion, marketing, and distribution of biopharmaceuticals, or biologics, and medical devices also must be in compliance with the FDA requirements which include, among others, standards and regulations for off-label promotion, industry-sponsored scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising. In addition, the Federal Trade Commission, or FTC, also regulates the advertising of many medical devices. The FDA and the FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing us to correct deviations from regulatory standards and enforcement actions that can include seizures, injunctions, and criminal prosecution. In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims.
The FDA has broad premarket, post-market, and regulatory enforcement powers. As with medical devices, manufacturers of biologics and combination products are subject to unannounced inspections by the FDA to determine compliance with applicable regulations, and these inspections may include the manufacturing facilities of some of our subcontractors. Failure by manufacturers or their suppliers to comply with applicable regulatory requirements can result in enforcement action by the FDA or other regulatory authorities. Potential FDA enforcement actions include:
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● | | warning letters, fines, injunctions, consent decrees, and civil penalties; |
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● | | unanticipated expenditures to address or defend such actions; |
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● | | customer notifications for repair, replacement, or refunds; |
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● | | recall, detention, or seizure of our products; |
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● | | operating restrictions or partial suspension or total shutdown of production; |
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● | | refusing or delaying our requests for 510(k) clearance on HDE or premarket approval applications, or PMA, of new products or modifiedproducts; |
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● | | operating restrictions; |
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● | | withdrawing 510(k) clearances on HDE or PMA approvals that have already been granted; |
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● | | refusal to grant export approval for our products; or |
FDA Regulation—Medical Device Products
FDA’s Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device we wish to commercially distributedistributed in the United States will require either priorrequires one of the following: (i) approval of a de-novo classification petition; (ii) clearance under a 510(k) clearancepremarket notification; (iii) approval under a PMA application; or prior premarket(iv) approval fromunder an HDE. During public health emergencies, FDA also may grant emergency use authorizations to allow commercial distribution of devices intended to address the FDA. The FDA classifiespublic health emergency. Under the FDCA, medical devices are classified into one of three classes.classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturing and regulatory control needed to ensure its safety and effectiveness.
Devices deemedClass I devices include those with the lowest risk to pose lower riskthe patient and are placed in eitherthose for which safety and effectiveness can be reasonably assured by adherence to the FDA’s “general controls” for medical devices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events and malfunctions through the submission of Medical Device Reports, or MDRs, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some Class I or low risk devices also require premarket clearance by the FDA through the 510(k) premarket notification process described below.
Class II which requiresdevices are moderate risk devices subject to the FDA’s general controls, and any other “special controls” deemed necessary by the FDA to ensure the safety and effectiveness of the device, such as performance standards, product-specific guidance documents, special labeling requirements, patient registries or post-market surveillance. Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification process, though certain Class II devices are exempt from this premarket review process. When required, the manufacturer tomust submit to the FDA a premarket notification, or 510(k), submission demonstrating that the device is “substantially equivalent” to a legally marketed predicate device, which must be cleared byin some cases may require submission of clinical data. If the FDA beforedetermines that the medical device, may be distributed commercially. This processor its intended use, is known as 510(k) clearance. Mostnot substantially equivalent to a legally marketed device, the FDA will place the device, or the particular use of the device, into Class IIII, and the device sponsor must then fulfill more rigorous premarket approval requirements.
Class III devices are exempt from this requirement. Devicesinclude devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices orand devices deemed not substantially equivalent to a previously clearedpredicate device following a 510(k) device, are placed insubmission. The safety and effectiveness of Class III requiring premarket approvaldevices cannot be reasonably assured solely by general or special controls. Submission and FDA approval of an HDE. We expect the Neuro-Spinal Scaffold implant will be regulated by the FDA asa PMA application is required before marketing of a Class III medical device.device can proceed. The PMA process is much more demanding than the 510(k) premarket notification process. A PMA application, which is intended to demonstrate that the device is reasonably safe and effective for its intended use and must be supported by extensive data, typically including data from preclinical studies and clinical trials. A Class III device may qualify for FDA approval to be distributed under an HDE rather than a PMA. HDEs are very similar to PMAs but are not required to demonstrate a reasonable assurance of effectiveness. Rather HDE applications require demonstration of “probable benefit.” Devices marketed under an HDE must also first be designated as a HUD. Our Neuro-Spinal Scaffold implant is a Class III device, and we are initially seeking HDE approval. Following our receipt of HDE approval, we intend to pursue a PMA for our Neuro-Spinal Scaffold for use in a broader patient population.
Premarket Approval Pathway
AClass III devices that do not qualify as HUDs require a PMA mustbefore they can be submitted ifmarketed, although some
pre-amendment Class III devices for which the device cannot beFDA has not yet required a PMA are cleared through the 510(k) process. AIn addition, HDE approved Class III devices require a PMA if the manufacturer desires to expand indications for use or patient populations, or to otherwise treat more than 8000 patients per year and avoid the other limitations imposed on HDE approved devices. The PMA process is more demanding than the HDE and 510(k) processes. In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including but not limited to, technical,data from preclinical studies and other non-clinical,human clinical and manufacturing and labeling information to demonstrate to the FDA’s satisfaction the safety and effectivenesstrials. The PMA must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for its intended use.
manufacturing, and proposed labeling. Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review. If the FDA determines that a PMA submission is sufficiently complete, the FDA will acceptaccepts the application for filing and begin an in-depth review, of the submitted information. By statute, the FDAit has 180 days under the FDCA to review the “accepted application,” although, generally,complete
its review of a PMA, although in practice, the applicationFDA’s review often takes significantly longer, and can take between one and three years, and it may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. Also during the review period,up to several years. In some cases, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a preapprovalpre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. PMA devices are also subject to the payment of user fees.
The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality system regulations. New PMAscontrol procedures, or PMA supplements are required for modifications thatchanges in the design performance specifications, which may affect the safety or effectiveness of the device, including, for example, certain typesrequire submission of modifications to the device’s indication for use, manufacturing process, labeling, and design. Premarket approvala PMA supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel. Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.
Humanitarian Device Exemption (HDE)
Alternatively, a Class III device may qualify for FDA approval to be distributed under an HDE rather than a PMA. For a device to be eligible for an HDE, it must be first designated by the FDA as ana HUD intended to benefit patients in the treatment or diagnosis of a disease or condition that affects fewer than 8,000 individuals in the United States per year (increased by the 21st Century Cures Act from 4,000 to 8,000). The HDE pathway also requires that there must be no other comparable device available to provide therapy for this condition. An HDE application is similar in form and content to a PMA and, although exempt from the effectiveness requirements of a PMA, an HDE does require sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. In addition, ana HUD may only be used in facilities that have established a local institutional review board, or IRB, to supervise clinical testing of devices, and after an IRB has approved the use of the device to treat or diagnose the specific disease.
In addition, except in certain circumstances, products approved under an HDE cannot be sold for an amount that exceeds the costs of research and development, fabrication, and distribution of the device (i.e., for profit). Currently, a product is only eligible to be sold for profit after receiving HDE approval if the device (1) is intended for the treatment or diagnosis of a disease or condition that occurs in pediatric patients or in a pediatric subpopulation, and such device is labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs; or (2) is intended for the treatment or diagnosis of a disease or condition that does not occur in pediatric patients or that occurs in pediatric patients in such numbers that the development of the device for such patients is impossible, highly impracticable, or unsafe. If an HDE-approved device does not meet either of the eligibility criteria, the device cannot be sold for profit. We expect our Neuro-Spinal Scaffold implant may meet the eligibility criteria to be sold for a profit.
Clinical Trials
Clinical trials are almost always required to support a PMA or HDE application. If the device presents a “significant risk” to human health as defined by the FDA, the FDA requires the device sponsor to submit an IDE to the FDA and obtain IDE approval prior to commencing the human clinical trials. The IDE must be supported by appropriate
data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a “non-significant risk” device, in which case an IDE approval from the FDA would not be required, although the clinical trial would need to meet other requirements including IRB approval. Clinical trials for a significant risk device may begin once an IDE is approved by the FDA and the appropriate IRB at each clinical trial site. Future clinical trials may require that we obtain an IDE from the FDA prior to commencing any such clinical trial and that the trial be conducted with the oversight of an IRB at the clinical trial site.
Our clinical trials must be conducted in accordance with FDA regulations and federal and state regulations concerning human subject protection, including informed consent and healthcare privacy. A clinical trial may be suspended by the FDA or at a specific site by the relevant IRB at any time for various reasons, including a belief that the risks to the trial participants outweigh the benefits of participation in the clinical trial. Even if a clinical trial is completed, the results of our clinical testing may not demonstrate the safety and efficacy of the device, or may be equivocal or otherwise not be sufficient for us to obtain approval of our product.
Pervasive and Continuing FDA Regulation
After a device is placed on the market, numerous regulatory requirements continue to apply. These include:
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● | | product listing and establishment registration, which helps facilitate FDA inspections and other regulatory action; |
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● | | Quality System Regulation or QSR, which requires manufacturers, including third‑partythird-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the manufacturing process; |
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● | | labeling regulations and FDA prohibitions against the promotion of products for uncleared or unapproved indications or other off‑labeloff-label uses; |
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● | | clearance of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use of one1 of our cleared devices; |
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● | | approval of product modifications that affect the safety or effectiveness of one1 of our approved devices; |
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● | | medical device reporting regulations, which require that manufacturers comply with FDA requirements to report if their device may have caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or a similar device were to recur; |
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● | | post‑approvalpost-approval restrictions or conditions, including post‑approvalpost-approval study commitments;
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● | | post‑marketpost-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device;
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● | | the FDA’s recall authority, whereby it can ask, or under certain conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations; |
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● | | regulations pertaining to voluntary recalls; and |
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● | | notices of corrections or removals. |
Class III devices that obtain HDE approval are subject to the additional restrictions discussed above, including:
| ● | the treatment of no more than 8,000 individuals in the United States per year; |
| ● | a HUD may only be used if approved by an IRB to supervise clinical testing of devices, and after an IRB has approved the use of the device to treat or diagnose the specific disease; and |
| ● | limitations on whether the device may be sold for a profit, subject to certain exceptions. |
We, and any third party manufacturers that we use, must register with the FDA as medical device manufacturers and must obtain all necessary state permits or licenses to operate our business. As manufacturers, we, and any third party manufacturers that we use, are subject to announced and unannounced inspections by the FDA to determine our compliance with quality system regulation and other regulations. We have not yet been inspected by the FDA. We believe that we are in substantial compliance with quality system regulation and other regulations.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
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● | | untitled letters, warning letters, fines, injunctions, consent decrees, and civil penalties; |
●unanticipated expenditures to address or defend such actions;
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| | unanticipated expenditures to address or defend such actions;
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●customer notifications for repair, replacement, or refunds;
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| | customer notifications for repair, replacement, or refunds;
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●recall, detention, or seizure of our products;
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| | recall, detention, or seizure of our products;
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●operating restrictions or partial suspension or total shutdown of production;
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| | operating restrictions or partial suspension or total shutdown of production;
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●refusing or delaying our requests for 510(k) clearance on HDE or PMA of new products or modified products;
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| | refusing or delaying our requests for 510(k) clearance on HDE or PMA of new products or modified products;
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●operating restrictions;
●withdrawing 510(k) clearances on HDE or PMA approvals that have already been granted;
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| | withdrawing 510(k) clearances on HDE●refusal to grant export approval for our products; or PMA approvals that have already been granted;
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| | refusal to grant export approval for our products; or
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●criminal prosecution.
Regulatory Pathway for the Neuro-Spinal Scaffold Implant
We expect the Neuro-Spinal Scaffold implant will be regulated by the FDA as a Class III medical device. The FDA granted HUD designation for our Neuro-Spinal Scaffold implant in 2013 for use in complete SCI (defined as less
than 4,000 patients per year at the time), thus allowing us to potentially qualify for FDA approval under an HDE. In 2015, we received conditional approval from the FDA to convert our ongoing pilot study into a pivotal probable benefit study (the(The INSPIRE Study). Full approval of such conversion was subsequently granted in January 2016. In early March 2018, we received FDA approval for a randomized controlled trial (the INSPIRE 2.0 Study) to supplement the existing clinical evidence for the Neuro-Spinal Scaffold implant that we obtained from The INSPIRE Study.
In the future, if our Neuro-Spinal Scaffold implant is approved via either the PMA or HDE pathway, modifications or enhancements that could significantly affect the safety or effectiveness of the device or that constitute a major change to the intended use of the device will require new PMA or HDE application and approval.
Other changes may require a supplement or other change notification that must be reviewed and approved by the FDA. Modified devices for which a new PMA or HDE application, supplement, or notification is required cannot be distributed until the application is approved by the FDA. An adverse determination or a request for additional information could delay the market introduction of new products, which could have a material adverse effect on our business, financial condition, and results of operations. We may not be able to obtain PMA or HDE approval in a timely manner, if at all, for the Neuro-Spinal Scaffold implant or any future devices or modifications to Neuro-Spinal Scaffold implant or such devices for which we may submit a PMA or HDE application.
European Economic Area or the EEA
Sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. In order to market our products outside the United States, we must obtain regulatory approvals or CEConformité Européenne (“CE’) Certificates of Conformity and comply with extensive safety and quality regulations. The time required to obtain approval by a foreign country or to obtain a CE Certificate of Conformity may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ. In the EEA, we are required to obtain Certificates of Conformity before drawing up a European Commission, or EC, Declaration of Conformity and affixing the CE mark to our medical devices. Many other countries, such as Australia, India, New Zealand, Pakistan and Sri Lanka, accept CE Certificates of Conformity or FDA clearance or approval although others, such as Brazil, Canada and Japan, require separate regulatory filings. We have not yet applied for a CE Mark for the Neuro-Spinal Scaffold implant.
If any of our products has been CE marked and placed on the market in the EEA, we would need to comply with a number of regulatory requirements relating to:
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● | | registration/notification of medical devices in individual EEA countries; |
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● | | pricing and reimbursement of medical devices; |
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● | | establishment of post‑marketingpost-marketing surveillance and adverse event reporting procedures; |
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● | | Field Safety Corrective Actions, including product recalls and withdrawals; |
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● | | marketing and promotion of medical devices; and |
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● | | interactions with physicians. |
Failure to comply with these requirements at such time could result in enforcement measures being taken against us by the competent authorities of the EEA countries. These measures can include fines, administrative penalties, compulsory product withdraws, injunctions, and criminal prosecution. Such enforcement measures would have an adverse effect on our capacity to market our products in the EEA and, consequently, on our business and financial position. Such failures could also lead to cancelation, suspension, or variation of our CE Certificates of Conformity by the relevant Notified Body, which is an organization designated by the competent authorities of an EEA country to conduct conformity assessments.
Further, the advertising and promotion of our products in the EEA is subject to regulatory directives concerning misleading and comparative advertising, and unfair commercial practices, as well as other national legislation in the individual EEA countries governing the advertising and promotion of medical devices. These laws may limit or restrict
the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.
Recent Development – Completion of strategic restructuring
In August 2017, we announced a strategic restructuring in order to focus on The INSPIRE Study. The strategic restructuring allowed us to concentrate efforts on defining a clinical path forward for the Neuro-Spinal Scaffold.
In conjunction with the strategic corporate restructuring, we completed a reduction in force eliminating approximately 39% of our workforce. See Note 17 in the accompanying notes to the condensed consolidated financial statements for additional information.
Financial Information and Research and Development Expenditures
We have incurred net losses each year since our inception, including net losses of $26.7$9.1 million for the year ended December 31, 2017, $23.42020 and $11.8 million for the year ended December 31, 2016, and $33.3 million for the year ended December 31, 2015.2019. 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 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. Our research and development expenditures, which include research and development related to our product candidates, were $11.1 million, $12.6$3.9 million and $10.1$5.6 million in 2017, 2016,2020 and 2015,2019, respectively.
Competition
We have many potential competitors, including major drug companies, specialized biotechnology firms, academic institutions, government agencies, and private and public research institutions. Many of these competitors have significantly greater financial and technical resources than us, and superior experience and expertise in research and development, preclinical testing, design and implementation of clinical trials, regulatory processes and obtaining
regulatory approval for products, production and manufacturing, and sales and marketing of approved products. Smaller or early‑stageearly-stage companies and research institutions may also prove to be significant competitors, particularly if they have collaborative arrangements with larger and more established biotechnology companies. We will also face competition from these parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, and registering subjects for clinical trials.
In order to compete effectively, we will have to make substantial investments in development, clinical testing, manufacturing, and sales and marketing, or partner with one1 or more established companies. There is no assurance that we will be successful in having any of our products approved or gaining significant market share for any of our products. Our technologies and products also may be rendered obsolete or noncompetitive as a result of products introduced by our competitors.
Manufacturing
We have developed a proprietary manufacturing process to build our Neuro-Spinal Scaffold implant. We manufacture our implants following FDA regulations for design controls using two2 fully operational manufacturing cleanrooms located at our facility in Cambridge, Massachusetts. These two2 cleanrooms are validated to ISO 14644 1 Class ISO 7 (Class 10-K) and Class ISO 8 (Class 100k) cleanroom standards, respectively. In addition, the manufacturing process contains numerous quality control steps including in process and final inspection. Currently, we are working with two2 vendors for our critical raw materials; however, these materials are also available from other vendors. We are currently manufacturing our Neuro-Spinal Scaffold implant to support the INSPIRE 2.0 Study. If we are able to move toward preparing for commercialization, we intend to be compliant with all applicable regulations on a country specific basis.
Sales and Marketing
If we obtain approval from the FDA, or another foreign regulatory body, to commercialize our products, we plan to establish a direct sales force to sell our products to major markets in the United States, and we may sell direct or
through distributors in major foreign markets. We anticipate the direct sales force, once and if established, would focus its efforts on maximizing revenue through product training, placement, and support. We would also seek to establish strong relationships with neurosurgeons, orthopedic spine surgeons, and trauma surgeons, and would expect to provide a high level of service for any of our approved products including providing on‑siteon-site assistance and service during procedures. In addition, we expect to implement medical education programs intended for outreach to practitioners in physical medicine and rehabilitation centers and patient advocacy groups. We may also seek corporate partners with expertise in commercialization.
Compliance with Environmental, Health and Safety Laws
In addition to the FDA regulations discussed above, we are also subject to evolving federal, state, and local environmental, health, and safety laws and regulations. In the past, compliance with environmental, health, and safety laws and regulations has not had a material effect on our capital expenditures. We believe that we comply in all material respects with existing environmental, health, and safety laws and regulations applicable to us.
Segment and Geographic InformationEmployees
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, we have viewed our operations and managed our business as principally one operating segment, which is developing and commercializing biopolymer scaffolding devices for the treatment of SCIs. As of December 31, 2017, 2016, and 2015, all of our assets were located in one location in the United States.
Employees
As of February 28, 2018,2020, we had 126 full-time employees. None of our employees isare represented by a labor union and we consider our employee relations to be good. We also utilize a number of consultants to assist with financial, research and development, human resources, clinical and regulatory activities. We believe that our future success will depend in part on our continued ability to attract, hire, and retain qualified personnel.
Corporate Information
We were incorporated on April 2, 2003, under the name of Design Source, Inc. as a Nevada corporation. On October 26, 2010, we acquired the business of InVivo Therapeutics Corporation, which was founded in 2005 as a Delaware corporation, and we are continuing the existing business operations of InVivo Therapeutics Corporation as our wholly-owned subsidiary.
Our principal executive offices are located in leased premises at One Kendall Square, Suite B14402, Cambridge, Massachusetts 02139. Our telephone number is (617) 863-5500. We maintain a website at www.invivotherapeutics.com. Information contained on, or accessible through, our website is not a part of, and is not incorporated by reference into this Annual Report on Form 10-K.
Available Information
We make available free of charge on or through the Investor Relations link on our website, www.invivotherapeutics.com, all materials that we file electronically with the Securities and Exchange Commission (“SEC”), including our annual reports on Form 10‑K,10-K, quarterly reports on Form 10‑Q,10-Q, current reports on Form 8‑K,8-K, and amendments to those reports.
You may also read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and you may obtain information on the operation of the Public Reference Room by calling the SEC in the United States at 1‑800‑SEC‑0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy, and information statements and other information that we file electronically with the SEC.
Information appearing on the above websites is not a part of, and is not incorporated in, this Annual Report on Form 10-K. Further, our references to the URLs for these websites are intended to be inactive textual reference only.
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 Annual Report on Form 10‑K,10-K, 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 PositionBusiness
The COVID-19 pandemic, which began in late 2019 and Need for Additional Capital
There is substantial doubt abouthas had impacts worldwide, has delayed and may continue to delay our ability to continuecomplete our ongoing INSPIRE 2.0 clinical trial or delay the initiation of future clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. In addition, this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business and operations.
The COVID-19 pandemic, which began in December 2019, has had impacts worldwide, causing many governments to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border scrutiny, and other measures. The outbreak and government measures taken in response, including widespread emergency orders requiring business and residents to curtail non-essential activities, have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the outbreak and its effects on our business and operations are uncertain. We and our clinical research organizations, as well as clinical trial sites, have faced disruptions related to the INSPIRE 2.0 clinical trial arising from suspension of activity at numerous clinical trial sites due to hospital staff shortages or state or city ‘‘stay at home’’ or ‘‘shelter in place’’ orders, delays in the ability to obtain necessary IRB, or other necessary site approvals, as well as other delays at clinical trial sites. Specifically, we are aware that a going concern, which will affectsignificant number of our clinical sites had previously temporarily suspended enrollment into the INSPIRE 2.0 Study at their institution due to the coronavirus pandemic. As of February 25, 2021, we have 17 clinical sites open for enrollment and 1 clinical site that is currently not open for enrollment due to reasons unrelated to the COVID-19 pandemic. The full impact of the COVID-19 pandemic continues to evolve as of the date of filing this Annual Report on Form 10-K, and we cannot be certain what future impact the COVID-19 pandemic may have on our clinical sites and their respective abilities to enroll patients. As the pandemic continues to evolve, there may be additional government actions or disruptions that could cause our clinical sites to suspend or alter operations in a manner that would impact enrollment in the INSPIRE 2.0 Study. Additionally, the response to the COVID-19 pandemic may redirect resources of regulators in a way that would adversely impact our ability to obtain future financingprogress regulatory approvals. In addition, we may face impediments to regulatory meetings and approvals due to measures intended to limit in-person interactions. Any of these factors could continue to adversely impact our ability to enroll, or delay enrollment in, the INSPIRE 2.0 clinical trial. Additionally, the pandemic has already caused significant disruptions in the financial markets, and may require uscontinue to curtailcause such disruptions, which could impact our ability to raise additional funds through public offerings and may also impact the volatility of our stock price and trading in our stock. Moreover, it is possible the pandemic will significantly impact economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has the potential to adversely affect our business, financial condition, results of operations, and prospects.
We have found it difficult and may continue to find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our product candidates, and due to such enrollment delays, we may need to make a determination as to the next steps for our clinical program that could significantly impact our future operations and financial position. Specifically, if the pace of enrollment in our INSPIRE 2.0 Study does not increase, we may need to make a determination as to the next steps for the INSPIRE 2.0 Study and our clinical program.
Patient enrollment is affected by a number of factors including:
| ● | widespread emergency orders in response to the COVID-19 pandemic requiring business and residents to curtail non-essential activities; |
| ● | 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. |
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 are also experiencing enrollment delays with our INSPIRE 2.0 Study. We may not be able to raiseinitiate or continue clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the fundsclinical studies required by regulatory agencies, and as a result, if the pace of enrollment does not increase, we may need to make a determination as to the next steps for the INSPIRE 2.0 Study and our clinical program.
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 also may consider changes to our current business strategy and future operations. We are reviewing alternatives with a goal of maximizing the value of our company. We could determine to engage in one or more potential transactions, such as the sale of our company, a strategic partnership with one or more parties or the licensing, sale or divestiture of some of our assets or proprietary technologies, or to continue to operate our business in accordance with our existing business strategy.
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 athe clinical path, which may cause us to curtail or cease operations.
studies that are required. In July 2017, enrollment of patients in The INSPIRE Study of our Neuro-Spinal Scaffold implant was placed on hold following the third patient death in the trial, and wetrial. We subsequently closed enrollment in The INSPIRE Study. Following our clinical trial hold in July 2017, we engaged in discussions withStudy and will follow the FDA to define a clinical path forward. As part of the discussions with the FDA, we proposed, andactive patients until completion. The FDA has approved a randomized controlled trial to supplement the existing clinical evidence for the Neuro-Spinal Scaffold implant. We refer to this herein as the INSPIRE 2.0 Study. However, 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, including delays due to the COVID-19 pandemic, the availability of scaffold implants to supply to our clinical sites, failure to demonstrate safety and probable benefit of our Neuro-Spinal Scaffold implant, lack of adequate funding to continue the clinical trial, or unforeseen safety issues. For example, enrollment in our INSPIRE 2.0 Study has been slower than we initially anticipated. 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. |
We could encounter delays if a clinical trial is suspended or terminated by us, by the relevant IRB at the sites at which such trials are being conducted, by the Data Safety Monitoring Board for such trial, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, a problematic inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse events, or changes in laws or regulations. In addition, regulatory agencies may require an audit with respect to the conduct of a clinical trial, which could cause further delays or increase costs. For example, in December 2017, we and several of our clinical sites and our CRO were subject to an FDA inspection in association with The INSPIRE Study. At the close of the inspection at the Company, the FDA issued a Form 483 with 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 be able to raise the funds necessary for the clinical path forward.
Our financial statements as of December 31, 2017 were prepared under the assumption that we will continue as a going concern. At December 31, 2017, we had cash and cash equivalents of $12.9 million. We estimate that our existing cash resources will be sufficient to fund our operations into the fourth quarter of 2018. 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 current cash resources will not be sufficientsubject to completeadditional regulatory action by the FDA. Our remediation efforts have added, and may continue to add, costs to our clinical development ofplans. Any delays in completing our Neuro-Spinal Scaffold implant. If we are unable to raise capital, we may be forced to ceaseclinical trials will increase our operation entirely. Our ability to continue as a going concern will depend oncosts, slow down our product candidate development and regulatory review process, and jeopardize our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce or contain expenditures,approval and ultimately, tocommence product sales and generate revenue.
If we are unable to continue as a going concern, werevenues. Any of these occurrences may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will lose all or part of their investment. If we seek additional financing to fundharm our business, activities in the futurefinancial condition, and there remains substantial doubt about our abilityprospects significantly.
Risks Related to continue as a going concern, investors or other financing sources may be unwilling to provideOur Financial Position and Need for Additional Capital
We will need 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 March 12, 2018 included elsewhere in this Form 10-K.
before achieving potential profitability. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate our product development programs or commercialization efforts,. engage in one or more potential transactions, or cease our operations entirely.
We believe we have sufficient cash resources to continue our business operations through the second quarter of 2023. We expect that our expenses will increase in connection with our ongoing activities, particularly ifas we undertakeconduct our planned INSPIRE 2.0 Study, and as we seek regulatory approval for our Neuro-Spinal Scaffold implant. In addition, ifIf 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 additional capital, we may seek to engage in one or more potential transactions, such as the sale of our company, a strategic partnership with one or more parties or the licensing, sale or divestiture of some of our assets or proprietary technologies, or we may be forced to cease our operations entirely. There can be no assurance that we will be able to enter into such a transaction or transactions on a timely basis or on terms that are favorable to us. If we are unable to raise capital when needed or on attractive terms, or should we engage in one or more potential strategic transactions, we could be forced to delay, reduce, or eliminate our research and development programs or any future commercialization efforts. or to cease operations entirely. If we determine to change our business strategy or to seek to engage in a strategic transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management. Because of the significant uncertainty regarding these events, we are not able to accurately predict the impact of any potential changes in our existing business strategy.
Our future funding requirements, both near‑near and long‑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 Scaffoldimplant and any other product candidates that we may develop or acquire, , including our planned INSPIRE 2.0 study;Study; |
| ·
● | | future clinical trial results of our Neuro-Spinal Scaffoldimplant; |
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● | | 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; |
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● | | 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; |
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● | | the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; |
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● | | the cost of having our product candidates manufactured for clinical trials in preparation for regulatory approval and in preparation for commercialization; |
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● | | 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; |
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● | | the cost and timing of establishing sales, marketing, and distribution capabilities; |
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● | | the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio; |
| ·
● | | the efforts and activities of competitors and potential competitors; |
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● | | the effect of competing technological and market developments; and |
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● | | 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.all.
We have a limited operating history and have incurred significant losses since our inception.
We have incurred net losses each year since our inception, including net losses of $26.7$9.1 million for the year ended December 31, 20172020 and $23.4$11.8 million for the year ended December 31, 2016.2019. As of December 31, 2017,2020, we had an accumulated deficit of $183.9$228.2 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-SpinalNeuro-Spinal Scaffold implant or other products, our future revenues will depend upon the size of any markets in which our products have received approval, our ability to achieve sufficient market acceptance, reimbursement from third-party payers, and other factors.
We anticipate that we will continue to incur substantial losses for the foreseeable future and may never achieve or maintain profitability.
We expect to continue to incur significant expenses and increasing net losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
| ·
● | | continue clinical development of our Neuro-Spinal Scaffold implant; |
| ·
● | | initiate or restart the research and development of other product candidates; |
| ·
● | | have our product candidates manufactured for clinical trials and for commercial sale; |
| ·
● | | establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval; |
| ·
● | | 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.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 youan investor to lose all or part of your investment.their investment.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations, or require us to relinquish rights to our product candidates on unfavorable terms to us.us.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, and other third‑third party funding alternatives includingincluding license and collaboration agreements. To raise additional capital or pursue strategic transactions, we may in the future sell additional shares of our common stock, par value $0.00001 per share (the “common stock”), or other securities convertible into or exchangeable for our common stock, which will dilute the ownership interest of our current stockholders, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our current stockholders. If we raise additional funds through collaborations, strategic alliances, or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs, or grant licenses on terms that may not be favorable to us or that may reduce the value of our common stock. If we are unable to raise
additional funds when needed, we may be required to delay, limit, reduce, or terminate our product development or commercialization efforts for our Neuro-Spinal Scaffoldimplant or any other product candidates that we develop or acquire. or to cease operations entirely.
Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition.
As part of Congress’ response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, was enacted on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was enacted on March 27, 2020. Both contain numerous tax provisions. In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation on the use of NOLs, which was enacted as part of the Tax Act. It also provides that NOLs arising in any taxable year beginning after December 31, 2017 and before January 1, 2021 are generally eligible to be carried back up to five years. The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxes the limitation of the tax deductibility for net interest expense by increasing the limitation from 30% to 50% of adjusted taxable income. The Company has evaluated the impact of the CARES Act and determined it to have an immaterial effect on the Company’s tax position.
Regulatory guidance under the Tax Act, the FFCR Act and the CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition. Congress is also considering and may enact further tax law changes in connection with the COVID-19 pandemic, some of which could have an impact on our company. In addition, state tax legislation or administration guidance conforming to or decoupling from particular provisions of the Tax Act, the FFCR Act and the CARES Act could affect our business or financial condition.
Our ability to use our net operating loss carryforwards and tax credit carryforwards may be limited.
We have generated significant net operating loss carryforwards, or NOLs, and research and development tax credits, or R&D credits, as a result of our incurrence of losses and our conduct of research activities since inception. We generally are able to carry NOLs and R&D credits forward to reduce our tax liability in future years. Federal NOLs generated on or before December 31, 2017 can generallybut certain NOL carryforwards could expire unused and be carried back two years and carried forward for up to twenty years and can be appliedunavailable to offset 100% ofour future income tax liabilities. As described above in “Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition,” the Tax Act, as amended by the CARES Act, includes changes to U.S. federal tax rates and the rules governing NOLs that may significantly impact our ability to utilize our NOLs to offset taxable income in such years. Under newly enacted federal income tax law, however, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely, but may not be carried back and the deductibility of such federal NOLsfuture. Nor is limited to 80% of taxable income in such years. It is uncertainit clear how various states will respond to the newly enacted federalTax Act, the FFCR Act or the CARES Act. In addition, state NOLs generated in one state cannot be used to offset income generated in another state. For these reasons, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax law.attributes.
In addition, our ability to utilize the NOLs and R&D credits is subject to the rules of Sections 382 and 383, respectively, of the Internal Revenue Code of 1986, or the Code, as amended, respectively.Code. Those sections generally restrict the use of NOLs and R&D credits after an “ownership change.” An ownership change occurs if, among other things, the stockholders (or specified groups of stockholders) who own or have owned, directly or indirectly, 5% or more of a corporation’s common stock or are otherwise treated as 5% stockholders under Section 382 of the Code and the United States Treasury Department regulations promulgated thereunder increase their aggregate percentage ownership of that corporation’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders over the applicable testing period. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards and Section 383 imposes an annual limitation on the amount of tax a corporation may offset with business credit (including the R&D credit) carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL or R&D credit carryforwards. We have completed several financings since our inception, which may have resulted in aan ownership change in control as defined by Sections 382 and 383 of the Code, or could result in aan ownership change in control in the future, but we have not completed an analysis of whether a limitation as noted above exists. WeAs of December 31, 2020, we have not performed a Section 382 study yet, but we will complete an appropriate analysis before our tax attributes are utilized.
The recently passed comprehensive tax reform bill could adversely affectIncreases in authorized shares may be required for future financings or other strategic transactions. We have previously experienced difficulties obtaining quorum for our annual meetings and achieving the number of votes required for increases in authorized shares.
We may seek the additional capital necessary to fund our operations through public or private equity offerings, debt financings, and collaborative and licensing arrangements. We have limited capital and in order for us to execute on our business plan and financial condition.
On December 22, 2017, President Trump signed into law new legislation that significantly revisesremain viable as a going concern, we must have the Code. The newly enacted federal income tax law, among other things, contains significant changesflexibility to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35%engage in capital raising transactions until we are able to a flat rate of 21%, limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for NOLs to 80% of current year taxable incomegenerate sufficient revenue and elimination of NOL carrybacks,cash flow. Investors in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such NOLs may be carried forward indefinitely), one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain how various states will respond to the newly enacted federal tax law. The impact of this tax reform on holders ofprior transactions have purchased our common stock is also uncertainor our derivative securities, such as warrants, for which we must reserve unissued common stock. We therefore may need to increase the number of authorized shares of common stock that will enable us to issue common stock or securities convertible or exercisable into common stock to investors and could be adverse. We urgeother strategic partners, and as a result enable us to engage in capital raising transactions and other strategic transactions involving the issuance of equity securities.
Such increases to our authorized common stock require shareholder approval. Our 2019 annual meeting of stockholders was initially postponed due to consult with their legala lack of quorum, and tax advisors with respectwe were able to this legislationsuccessfully achieve quorum and the potential tax consequencesvotes required to pass the proposal to increase the number of investingauthorized shares only after announcing a new record date for the meeting, which was held in January 2020. Our 2020 annual meeting of stockholders was held in August 2020, and we were able to achieve quorum and obtain the number of necessary votes to approve an increase in our authorized common stock, without having to postpone the meeting. Although we were able to achieve quorum and obtain the number of necessary votes for an increase in authorized common stock in our January 2020 meeting and our August 2020 meeting, we cannot guarantee that we won’t experience future difficulties in obtaining quorum for our annual meetings or holdingdifficulties in obtaining the necessary votes required to pass proposals such as increases in authorized shares. In such events, we will be limited in our common stock.efforts to raise additional capital, and our operations, financial condition and our ability to continue as a going concern may be materially and adversely affected.
Acquisitions of companies, businesses, or technologies may substantially dilute our stockholders and increase our operating losses.
We may makecontinue to actively evaluate business partnerships and acquisitions of businesses, technologies, or intellectual property rights that we believe would be necessary, useful, or complementary to our current business. Any such acquisition may require assimilation of the operations, products or product candidates, and personnel of the acquired business and the training and integration of its employees, and could substantially increase our operating costs, without any offsetting increase in revenue. We may also acquire the right to use certain intellectual property through licensing agreements, which could substantially increase our operating costs. Acquisitions and licensing agreements may not provide the intended technological, scientific or business benefits and could disrupt our operations and divert our limited resources and management’s attention from our current operations, which could harm our existing product development efforts. While we may use cash or equity to finance a future acquisition or licensing agreement, it is likely we would issue equity securities as a significant portion or all of the consideration in any acquisition. The issuance of equity securities for an acquisition could be substantially dilutive to our stockholders. Any investment made in, or funds advanced to, a potential acquisition target could also significantly, adversely affect our results of operations and could
further reduce our limited capital resources. Any acquisition or action taken in anticipation of a potential acquisition or other change in business activities could substantially depress the price of our stock. In addition, our results of operations may suffer because of acquisition related costs, or the post-acquisition costs of funding the development of an acquired technology or product candidates or operations of the acquired business, or due to amortization or impairment costs for acquired goodwill and other intangible assets.
Risks Related to the Development, Regulatory Approval, and Commercialization of Our Product Candidates
We are wholly dependent on the success of one1 product candidate, the Neuro-Spinal Scaffold implant. Even if we are able to complete clinical development and obtain favorable clinical results, we may not be able to obtain regulatory approval for, or successfully commercialize, our Neuro-Spinal Scaffold implant.
We currently have only one1 product candidate, the Neuro-Spinal Scaffold implant, in clinical development, and our business depends almost entirely on the successful clinical development, regulatory approval, and commercialization of that product candidate, which may never occur. We currently have no products available for sale, generate no revenues from sales of any products, and we may never be able to develop marketable products. Our Neuro-Spinal Scaffold implant will require substantial additional clinical development, testing, manufacturing process development, and regulatory approval before we are permitted to commence its commercialization. Before obtaining regulatory approval via the HDE pathway for the commercial sale of any product candidate, we must demonstrate through extensive preclinical testing and clinical trials that the product candidate does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use, taking into account the probable risks and benefits of currently available devices or alternative forms of treatment. Alternatively, if we were to seek premarket approval, or PMA, for our product candidate, that would require demonstration that the product is safe and effective for use in each target indication. This process can take many years. Of the large number of medical devices in development in the United States, only a small percentage successfully complete the FDA regulatory approval process required by the U.S. Food and Drug Administration, or the FDA and are commercialized. Accordingly, even if we are able to obtain the requisite capital to continue to fund our development and clinical programs, we may be unable to successfully develop or commercialize our Neuro-Spinal Scaffold implant or any other product candidate.
The clinical trials of any of our current or future product candidates are, and the manufacturing and marketing of any such product candidates will be, subject to extensive and rigorous review and regulation by the FDA and other government authorities in the United States and in other countries where we intend to test and, if approved, market such product candidates.
We 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. We have proposed, and the FDA has approved the INSPIRE 2.0 Study. 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. If we initiate the INSPIRE 2.0 Study to supplement the existing clinical evidence for the Neuro-Spinal Scaffold implant, it 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 scaffolds to supply to our clinical sites, failure to demonstrate safety and probable benefit of our Neuro-Spinal Scaffold implant, lack of adequate funding to continue the clinical trial, or unforeseen safety issues. Enrolling patients in any clinical trial of our Neuro-Spinal Scaffold implant will also require the approval of the 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, two of the 16 evaluable patients were initially assessed to have improved from complete AIS A SCI to incomplete AIS B SCI, but each was later assessed to have reverted to complete AIS A SCI prior to the patient’s six-month examination. Of these two patients, one patient had converted back to AIS B and the other remained at AIS A at the six-month examination. There is known and published variability in some of the measures used to assess AIS improvement and these measures can vary over time or depending upon the examiner. While we implemented procedures in The INSPIRE Study and will also implement procedures in any future clinical study, including the INSPIRE 2.0 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:
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| | obtain regulatory approval to commence future clinical trials;
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| | 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;
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| | obtain IRB approval at each site;
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| | recruit, enroll, and retain patients through the completion of clinical trials;
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| | maintain clinical sites in compliance with trial protocols through the completion of clinical trials;
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| | address patient safety concerns that arise during the course of the trial;
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| | initiate or add a sufficient number of clinical trial sites; or
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| | 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 two observations relating to our over oversight of clinical trial sites in The INSPIRE Study. We sought, and will continue to seek, 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. We anticipate that our remediation efforts will 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 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:
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| | severity of the disease, injury, or condition under investigation;
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| | design of the study protocol;
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| | size and nature of the patient population;
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| | perceived risks and benefits of the product candidate under study;
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| | proximity and availability of clinical study sites for prospective patients;
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| | availability of competing therapies and clinical studies;
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| | efforts to facilitate timely enrollment in clinical studies;
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| | patient referral practices of physicians; and
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| | 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 planned 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.
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier nonclinical studies and clinical trials may not be predictive of future trial results.
The results of preclinical studies and early clinical trials of new medical devices do not necessarily predict the results of later-stage clinical trials. The design of our clinical trials is based on many assumptions about the expected effects of our product candidates, and if those assumptions are incorrect, the trials may not produce results to support regulatory approval. We are currently pursuing marketing approval via ourthe HDE regulatory pathway which requires us to show the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit of health outweighs the risk of injury or illness from its use. Preliminary results may not be confirmed upon full analysis of the detailed results of an early clinical trial. Product candidates in later stages of clinical development may fail to show safety and probable benefit sufficient to support intended use claims despite having progressed through initial clinical testing. The data collected from clinical trials of our product candidates may not be sufficient to obtain regulatory approval in the United States or elsewhere. It is also possible that patients enrolled in clinical trials will experience adverse events or unpleasant side effects that are not currently part of the product candidate’s profile. Because of the uncertainties associated with clinical development and regulatory approval, we cannot determine if or when we will have an approved product ready for commercialization or achieve sales or profits.
We must obtain FDA approval before we can sell any of our products in the United States and approval of similar regulatory authorities in countries outside the United States before we can sell our products in such countries. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our products if such approval is denied or delayed.
The development, manufacture, and marketing of our products are subject to government regulation in the United States and other countries. In the United States and most foreign countries, we must complete rigorous preclinical testing and extensive human clinical trials that demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product. If the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution. Expanded or additional indications for approved devices may not be approved, which could limit our potential revenues. Foreign regulatory authorities may apply similar or additional limitations or may refuse to grant any approval. Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for our products, the FDA and foreign regulatory authorities may not ultimately grant approval for commercial sale in any jurisdiction. If our product candidates are not approved, our ability to generate revenues will be limited and our business will be adversely affected.
We are currently pursuing an HDE regulatory pathway in the United States for our Neuro-Spinal Scaffold implant. The HDE requires that there is no other comparable device available to provide therapy for a condition and requires sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. The amended protocol for The INSPIRE Study, which was approved in February 2016, established an OPC, which is a measure of study success used in clinical studies designed to demonstrate safety and probable benefit in support of an HDE approval. The OPC for The INSPIRE Study is currently defined as 25% or more of the patients in the study demonstrating an improvement of at least one1 AIS grade by six6 months post-implantation. While we expect The INSPIRE Study to serve as one1 source of data used to support HDE approval in the future, we will not complete full enrollment of that study. In addition, 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.
The FDA had previously recommended that we include a randomized, concurrent control arm in the study and we have proposed and received approval for the INSPIRE 2.0 Study. The primary endpoint is defined as the proportion of patients achieving an improvement of at least one1 AIS grade at six6 months post-implantation. The definition of study success is that the difference in the proportion of subjects who demonstrate an improvement of at least one1 grade on AIS assessment at the six-month6-month primary endpoint follow-up visit between the Scaffold Arm and the Comparator Arm must be equal to or greater than 20%. While our planned INSPIRE 2.0 Study is structured with a definition of study success requiring a minimum difference between groups in the percentage of subjects achieving improvement, that success definition is not the only factor that the FDA would evaluate in the future HDE application. Moreover, there can be no assurance that the INSPIRE 2.0 Study will be successfully completed.
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 addition, as one1 source of comparator data, we initiatedcompleted the CONTEMPO Registry Study, utilizing existing databases and registries to develop a historical comparator that, to the extent possible, matches patients to those patients enrolled in The INSPIRE Study. There can be no assurance that either our planned INSPIRE 2.0 Study orAnalysis of data from the CONTEMPO Registry Study will be successfully completed. may suggest a higher threshold for evidencing probable benefit. For example, ASIA Impairment Scale (AIS) conversion rates at approximately 6 months post-injury across the three registries used in CONTEMPO varied from 16.7% – 23.4%, which are higher than the approximately 15.5% conversion rate from the historical registries that were the basis for the selection of the current OPC for The INSPIRE Study.
Even if we successfully complete the INSPIRE 2.0 Study and the CONTEMPO Registry Study, we cannot be certain that the FDA will agree that these additional studies providethis study, together with the CONTEMPO Registry Study, provides sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. Moreover, analysis
In the event our clinical data is not acceptable to the FDA, our ability to obtain approval under the HDE pathway may be delayed or may not be feasible. If the FDA does not approve our product candidates in a timely fashion, or at all, our business and financial condition will be adversely affected.
The 21st Century Cures Act recently increased the upper population limit for an HDE from 4,000 to 8,000, which allows us to potentially request an expansion of our current HUD to include additional patient populations beyond our current HUD for complete SCI. If we choose to pursue such an expansion, this may cause our application to be delayed or cause the FDA to request additional information. In addition, our current study is not designed to support approval beyond complete SCI. Thus, expansion would require additional studies. We cannot be certain that we will be able to increase the potential population that we might be able to treat based on the HDE pathway. If any of these events occur, our business and financial condition will be adversely affected.
There are risks associated with pursuing FDA approval via an HDE pathway, including the possibility that the approval could be withdrawn in the future if the FDA subsequently approves another device for the same intended use, as well as limitations on the ability to profit from sales of the product.
If the FDA subsequently approves a PMA or clears a 510(k) for the HUD or another comparable device with the same indication, the FDA may withdraw the HDE. Once a comparable device becomes legally marketed through PMA approval or 510(k) clearance to treat or diagnose the disease or condition in question, there may no longer be a need for the HUD and so the HUD may no longer meet the requirements of section 520(m)(2)(B) of the FDCA.
Except in certain circumstances, products approved under an HDE cannot be sold for an amount that exceeds the costs of research and development, fabrication, and distribution of the device (i.e., for profit). Currently, under section 520(m)(6)(A)(i) of the FDCA, as amended by the Food and Drug Administration Safety and Innovation Act, ana HUD is only eligible to be sold for profit after receiving HDE approval if the device (1) is intended for the treatment or diagnosis of a disease or condition that occurs in pediatric patients or in a pediatric subpopulation, and such device is labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs; or (2) is intended for the treatment or diagnosis of a disease or condition that does not occur in pediatric patients or that occurs in pediatric patients in such numbers that the development of the device for such patients is impossible, highly impracticable, or unsafe. If an HDE-approved device does not meet either of the eligibility criteria, the device cannot be sold for profit. With enactment of the FDA Reauthorization Act of 2017, Congress provided that the exemption for HUD / HDE profitability is available as long as the request for an exemption is submitted before October 1, 2022.
Some of our future products may be viewed by the FDA as combination products and the review of combination products is often more complex and more time consuming than the review of other types of products.
Our future products may be regulated by the FDA as combination products. For a combination product, the FDA must determine which center or centers within the FDA will review the product candidate and under what legal authority the product candidate will be reviewed. The process of obtaining FDA marketing clearance or approval is lengthy, expensive, and uncertain, and we cannot be sure that any of our combination products, or any other products, will be cleared or approved in a timely fashion, or at all. In addition, the review of combination products is often more complex and more time consuming than the review of a product candidate under the jurisdiction of only one1 center within the FDA. We cannot be sure that the FDA will not select to have our combination products reviewed and regulated by only one1 FDA center and/or different legal authority, in which case the path to regulatory approval would be different and could be lengthier and more lengthy and costly. If the FDA does not approve or clear our products in a timely fashion, or at all, our business and financial condition will be adversely affected.
We may face substantial competition, which may result in others discovering, developing, or commercializing products before or more successfully than we do.
In general, the biotechnology industry is subject to intense competition and rapid and significant technological change. We have many potential competitors, including major drug companies, specialized biotechnology firms, academic institutions, government agencies, and private and public research institutions. Many of these competitors have significantly greater financial and technical resources than us, and superior experience and expertise in research and development, preclinical testing, design and implementation of clinical trials, regulatory processes and approval for products, production and manufacturing, and sales and marketing of approved products. Large and established companies compete in the biotechnology market. In particular, these companies have greater experience and expertise in
securing government contracts and grants to support their research and development efforts, conducting testing and clinical trials, obtaining regulatory approvals to market products, manufacturing such products on a broad scale, and marketing approved products. Smaller or early-stage companies and research institutions may also prove to be significant competitors, particularly if they have collaborative arrangements with larger and more established biotechnology companies. We will also face competition from these parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, and registering subjects for clinical trials.
In order to effectively compete, we will have to make substantial investments in development, clinical testing, manufacturing, and sales and marketing, or partner with one1 or more established companies. There is no assurance that we will be successful in having our products approved or gaining significant market share for any of our products. Our technologies and products also may be rendered obsolete or noncompetitive as a result of products introduced by our competitors.
The results of our clinical trials may not support our product candidate claims or may result in the discovery of adverse side effects.
Our ongoing research and development, preclinical testing, and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities both in the United States and abroad. Clinical studies must be conducted in compliance with FDA regulations or the FDA may take enforcement action. The data collected from these clinical studies may ultimately be used to support market clearance for these products. Even if our clinical trials are completed as planned, we cannot be certain that their results will support our product candidate claims or that the FDA will agree with our conclusions regarding them. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and preclinical studies. The clinical trial process may fail to demonstrate that our product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’s profile.
If approved, our products will require market acceptance to be successful. Failure to gain market acceptance would impact our revenues and may materially impair our ability to continue our business.
Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of our products will depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurance companies, and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. Physicians and hospitals will need to establish training and procedures to utilize and implement our Neuro-Spinal Scaffold implant, and there can be no assurance that these parties will adopt the use of our device or develop sufficient training and procedures to properly utilize it. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, both within and outside of our control. Payers may view new products or products that have only recently been launched or with limited clinical data available, as investigational, unproven, or experimental, and on that basis may deny coverage of procedures involving use of our products. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business.
If we or our suppliers fail to comply with FDA regulatory requirements, or if we experience unanticipated problems with any approved products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain regulatory approval, and the manufacturing processes, reporting requirements, post-approval clinical data, and promotional activities for such product, will be subject to continued regulatory review and oversight by the FDA. In particular, we and our third-party suppliers will be required to comply with the FDA’s Quality System Regulations, or QSRs. These FDA regulations cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of products. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to QSR requirements, this could delay production of our product candidates and lead to fines, difficulties in obtaining regulatory clearances, recalls,
enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a material adverse effect on our financial condition and results of operations.
In addition, we and our suppliers are required to comply with Good Manufacturing Practices and Good Tissue Practices with respect to any human cells and biologic products we may develop, and International Standards Organization regulations for the manufacture of our products, and other regulations which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage, and shipping of any product for which we obtain clearance or approval. Manufacturing may also be subject to controls by the FDA for parts of the combination products that the FDA may find are controlled by the biologics regulations.
The FDA audits compliance with the QSR and other similar regulatory requirements through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us or one1 of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in any of the following enforcement actions:
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● | | customer notifications or repair, replacement, refunds, recall, detention, or seizure of our products; |
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● | | refusing or delaying our requests for premarket approval of new products or modified products; |
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Any of these sanctions could have a material adverse effect on our reputation, business, results of operations, and financial condition.
Our products and operations are subject to extensive governmental regulation both in the United States and abroad, and our failure to comply with applicable requirements could cause our business to suffer.
Our medical device and biologic products and operations are subject to extensive regulation by the FDA and various other federal, state, and foreign governmental authorities. For example, we expect to initiate a clinical trial in Canada and will be subject to applicable Canadian regulations as we initiate and conduct that trial. Government regulation of medical devices and biologic products is meant to assure their safety and effectiveness, and includes regulation of, among other things:
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● | | product import and export. |
The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could impede our ability to carry on or expand our operations and could result in higher than anticipated costs or lower than anticipated sales.
Before we can market or sell a new regulated medical device product in the United States, we must obtain clearance under Section 510(k) of the FDCA, approval of a PMA, or approval of an HDE, unless the device is specifically exempt from premarket review. Our Neuro-Spinal Scaffold implant is expected to be regulated by the FDA as a Class III medical device, requiring either PMA or HDE approval. AnA HUD designation was granted for the Neuro-Spinal Scaffold implant in 2013, opening the HDE pathway.
In the PMA approval process, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing, and labeling data.
Modifications to products that are approved through aan HDE or PMA generally need FDA approval. The process of obtaining aan HDE or PMA is costly and generally takes from one1 to three3 years, or even longer, from the time the application is submitted to the FDA until an approval is obtained.
An HDE application is similar in form and content to a PMA and, although exempt from the effectiveness requirements of a PMA, an HDE does require sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. Like a PMA, changes to HDE devices generally need FDA approval.
Biological products must satisfy the requirements of the Public Health Services Act and its implementing regulations. In order for a biologic product to be legally marketed in the U.S., the product must have a BLAbiologics license applicable approved by the FDA. The testing and approval process requires substantial time, effort, and financial resources, and each may take several years to complete.
The FDA can delay, limit, or deny clearance or approval of a product for many reasons, including:
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● | | we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended uses; |
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● | | the data from our preclinical studies and clinical trials may be insufficient to support clearance or approval, where required; and |
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● | | the manufacturing process or facilities we use may not meet applicable requirements. |
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions that may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently approved or cleared products on a timely basis.
Further, even after we have obtained the proper regulatory clearance or approval to market a product, the FDA may require us to conduct post-marketing studies. Failure to conduct required studies in a timely manner could result in
the revocation of approval for the product that is subject to such a requirement and could also result in the recall or withdrawal of the product, which would prevent us from generating sales from that product in the United States.
Failure to comply with applicable laws and regulations could jeopardize our ability to sell our products and result in enforcement actions such as:
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● | | termination of distribution; |
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● | | recalls or seizures of products; |
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● | | delays in the introduction of products into the market; |
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● | | total or partial suspension of production; |
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● | | refusal of the FDA or other regulators to grant future clearances or approvals; |
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● | | withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products; and/or |
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● | | in the most serious cases, criminal penalties. |
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, results of operations, and financial condition.
If our products, or the malfunction of our products, cause or contribute to a death or a serious injury before or after approval, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers with approved products are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one1 of our similar devices were to recur. Any such serious adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. In the context of our ongoing clinical trial, we report adverse events to the FDA in accordance with IDE regulations and to other relevant regulatory authorities in accordance with applicable national and local regulations. Any corrective action, whether voluntary or involuntary, and either pre- or post-market, needed to address any serious adverse events will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
Our products, once approved, may in the future be subject to product recalls. A recall of our products, either voluntarily or at the direction of the FDA, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
If our products are approved for commercialization, the FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the decision to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious injury or death. A government-mandated or voluntary recall by us or one1 of our partners could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects, or other deficiencies and issues. Recalls of any of our commercialized
products would divert managerial and financial resources and have an adverse effect on our reputation, results of operations, and financial condition, which could impair our ability to manufacture our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be subject to liability claims, be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate profits.
If we obtain approval for our products, we may be subject to enforcement action if we engage in improper marketing or promotion of our products.
We are not permitted to promote or market our investigational products. After approval, our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of unapproved, or off-label, use. Surgeons may use our products off-label, as the FDA does not restrict or regulate a surgeon’s choice of treatment within the practice of medicine. However, if the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine, or criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the products could be impaired. In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in substantial damage awards against us, and harm our reputation.
If we obtain approval for our products, their commercial success will depend in part upon the level of reimbursement we receive from third parties for the cost of our products to users.
The commercial success of any product will depend, in part, on the extent to which reimbursement for the costs of our products and related treatments will be available from third-party payers such as government health administration authorities, private health insurers, managed care programs, and other organizations. Adequate third-party insurance coverage may not be available for us to establish and maintain price levels that are sufficient for us to continue our business or for realization of an appropriate return on investment in product development.
Legislative or regulatory reform of the healthcare systems in which we operate may affect our ability to commercialize our product candidates and could adversely affect our business.
The government and regulatory authorities in the United States, the European Union, and other markets in which we plan to commercialize our product candidates may propose and adopt new legislation and regulatory requirements relating to the approval, CE or European Union marking, manufacturing, promotion, or reimbursement of medical device and biologic products. It is impossible to predict whether legislative changes will be enacted or applicable regulations, guidance, or interpretations changed, and what the impact of such changes, if any, may be. Such legislation or regulatory requirements, or the failure to comply with such, could adversely impact our operations and could have a material adverse effect on our business, financial condition, and results of operations.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory clearance or approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Certain policies of the current or future administrations may impact our business and industry. For example, the Trump administration took several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions will be implemented (to the extent they are not reversed by the new Biden Administration), and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
For example, in the United States, legislative changes have been enacted in the past and further changes are proposed that would impact the Patient Protection and Affordable Care Act, or the Affordable Care Act. These new laws may result in additional reductions in Medicare and other healthcare funding. Beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2025. It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. The Affordable Care Act has faced ongoing legal challenges, including litigation seeking to invalidate some of or all of the law or the manner in which it has been implemented. With the newcurrent Presidential administration and Congress, there have been, and may be additional, legislative changes affecting the Affordable Care Act, including repeal of certain provisions of the Affordable Care Act. It remains to be seen, however, precisely what impact legislation to date and any future legislation will have on the availability of healthcare and containing or reducing healthcare costs. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. We cannot quantify or predict with any certainty the likely impact of the Affordable Care Act, its amendment or repeal, or any alternative or related legislation, or any implementation of any such legislation, on our business model, prospects, financial condition, and results of operations.
These and other legislative and regulatory changes that have been or may be proposed in the future may impact our ability to successfully commercialize our product candidates.
We have limited experience manufacturing our Neuro-Spinal Scaffold implant for clinical-study scale and no experience for commercial scale.
To date, we have manufactured our Neuro-Spinal Scaffold implant on a small scale, including sufficient supply that is needed for our clinical studies. We may encounter unanticipated problems in the scale-up process that will result in delays in the manufacturing of the Neuro-Spinal Scaffold implant and therefore delay our clinical studies. During our clinical trials, we are subject to FDA regulations requiring manufacturing of our scaffolds with the FDA requirements for design controls and subject to inspections by regulatory agencies. Our failure to comply with applicable regulations may result in delays and interruptions to our product supply while we seek to secure another supplier that meets all regulatory requirements. If we are unable to scale up our manufacturing to meet requirements for our clinical studies, we may be required to rely on contract manufacturers. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product ourselves, including the possible breach of the manufacturing agreements by the third parties because of factors beyond our control, and the possibility of termination or nonrenewal of the agreements by the third parties because of our breach of the manufacturing agreement or based on their own business priorities.
Risks Related to Our Intellectual Property
We license certain technology underlying the development of our Neuro-Spinal Scaffold implant from BCH and MIT, and the loss of the license would result in a material adverse effect on our business, financial position, and operating results and cause the market value of our common stock to decline.
We license technology from Boston Children’s Hospital, or BCH and the Massachusetts Institute of Technology, or MIT that is integrated into our Neuro-Spinal Scaffold implant under an exclusive license. Under the license agreement, we have agreed to milestone payments and to meet certain reporting obligations. In the event that we were to breach any of the obligations under the agreement and fail to cure timely, cure, BCH and MIT would have the right to terminate the agreement upon notice. In addition, BCH and MIT have the right to terminate our license upon the bankruptcy or receivership of the Company. If we are unable to continue to use or license this technology on reasonable terms, or if this technology fails to operate properly, we may not be able to secure alternatives in a timely manner and our ability to develop our products could be harmed.
If we cannot protect, maintain and, if necessary, enforce our intellectual property rights, our ability to develop and commercialize products will be adversely impacted.
Our success, in large part, depends on our ability to protect and maintain the proprietary nature of our technology. We and our licensors must prosecute and maintain our existing patents and obtain new patents. Some of our proprietary information may not be patentable, and there can be no assurance that others will not utilize similar or superior solutions to compete with us. We cannot guarantee that we will develop proprietary products that are patentable,
and that, if issued, any patent will give a competitive advantage or that such patent will not be challenged by third parties. The process of obtaining patents can be time consuming with no certainty of success, as a patent may not issue or may not have sufficient scope or strength to protect the intellectual property it was intended to protect. We cannot assure you that our means of protecting our proprietary rights will suffice or that others will not independently develop competitive technology or design around patents or other intellectual property rights issued to us. Even if a patent is issued, it does not guarantee that it is valid or enforceable. Any patents that we or our licensors have obtained or obtain in the future may be challenged, invalidated, or unenforceable. If necessary, we may initiate actions to protect our intellectual property, which can be costly and time consuming.
If third parties successfully claim that we infringe their intellectual property rights, our ability to continue to develop and commercialize products could be delayed or prevented.
Third parties may claim that we or our licensors are infringing on or misappropriating their proprietary information. Other organizations are engaged in research and product development efforts that may overlap with our products. Such third parties may currently have, or may obtain in the future, legally blocking proprietary rights, including patent rights, in one1 or more products or methods under development or consideration by us. These rights may prevent us from commercializing products, or may require us to obtain a license from the organizations to use the technology. We may not be able to obtain any such licenses that may be required on reasonable financial terms, if at all, and cannot be sure that the patents underlying any such licenses will be valid or enforceable. There may be rights that we are not aware of, including applications that have been filed but not published that, when issued, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research and development of the product that is the subject of the suit. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our trade secrets or other confidential information could be compromised by disclosure during this type of litigation.
Risks Related to our Dependence on Third Parties
We will depend upon strategic relationships to develop, exploit, and manufacture our products. If these relationships are not successful, we may not be able to capitalize on the market potential of these products.
The near and long-term viability of our products will depend, in part, on our ability to successfully establish new strategic collaborations with biotechnology companies, hospitals, insurance companies, and government agencies.
Establishing strategic collaborations is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory, or intellectual property position. If we fail to establish a sufficient number of collaborations on acceptable terms, we may not be able to commercialize our products or generate sufficient revenue to fund further research and development efforts.
Even if we establish new collaborations, these relationships may never result in the successful development or commercialization of any of our product candidates for reasons both within and outside of our control.
There are a limited number of suppliers that can provide materials to us. Any problems encountered by such suppliers may detrimentally impact us.
We rely on third-party suppliers and vendors for certain of the materials used in the manufacture of our products or other of our product candidates. Any significant problem experienced by one1 of our suppliers could result in a delay or interruption in the supply of materials to us until such supplier resolves the problem or an alternative source of supply is located. Any delay or interruption could negatively affect our operations.
If the third parties on which we rely to conduct our laboratory testing, animal, and human clinical trials do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our products.
We have been, and will continue to be, dependent on third-party CROs, medical institutions, investigators, and contract laboratories to conduct certain ofactivities related to our laboratory testing and animal and human clinical studies. We are responsible for confirming that each of our clinical trials is conducted in accordance with our approved plan and
protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on these third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended, or terminated, and we may not be able to obtain regulatory approval or successfully commercialize our products on a timely basis, if at all, and our business, operating results, and prospects may be adversely affected.
If the third parties on which we rely to conduct our laboratory testing, animal, and human clinical trials do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our products.
We have been, and will continue to be, dependent on third‑party CROs, medical institutions, investigators, and contract laboratories to conduct certain of our laboratory testing, animal and human clinical studies. We are responsible for confirming that each of our clinical trials is conducted in accordance with our approved plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on these third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended, or terminated, and we may not be able to obtain regulatory approval or successfully commercialize our products on a timely basis, if at all, and our business, operating results, and prospects may be adversely affected.
Risks Related to Employee Matters and Managing Growth
Our success depends on our ability to retain our management and other key personnel.
We depend on our senior management as well as key scientific personnel. We have implemented restructurings that have significantly reduced our workforce, over the last few months, leaving only key positions filled. On February 2, 2018, we appointed Richard Toselli M.D. as President, Chief Executive Officer, and a director. On January 14, 2019, we appointed Richard Christopher as Chief Financial Officer and Treasurer. The loss of any members
of senior management or key scientific personnel could harm our business and significantly delay or prevent the achievement of research, development, or business objectives. Competition for qualified employees is intense among biotechnology companies, and the loss of qualified employees, or an inability to attract, retain, and motivate additional highly skilled employees could hinder our ability to successfully develop marketable products.
Our future success also depends on our ability to identify, attract, hire, train, retain, and motivate other highly skilled scientific, technical, marketing, managerial, and financial personnel. Although we will seek to hire and retain qualified personnel with experience and abilities commensurate with our needs, there is no assurance that we will succeed despite our collective efforts. The loss of the services of any of our senior management or other key personnel could hinder our ability to fulfill our business plan and further develop and commercialize our products and services. Competition for personnel is intense, and any failure to attract and retain the necessary technical, marketing, managerial, and financial personnel would have a material adverse effect on our business, prospects, financial condition, and results of operations.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary information from collaborators, prospective licensees, and other third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. We may also be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
Risks Related to Litigation and Legal Compliance
We are,may face, and in the past have been, subject tofaced, lawsuits, which could divert management’s attention and harm our business.
We are involved in litigation with our former Chairman, Chief Executive Officer, and Chief Financial Officer. We were previously the subject of a securities derivative lawsuit and a securities class action lawsuit, both of which were dismissed in January 2017. We may face, additionaland in the past have faced, lawsuits, including class action or securities derivative lawsuits. The amount of time that is required to resolve these lawsuits is unpredictable and any lawsuits may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of
operations, and cash flows. Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation. See “Legal Proceedings” for further information regarding our litigation.
We face potential product liability claims, and, if successful claims are brought against us, we may incur substantial liability and costs.
We will have exposure to claims for product liability. Product liability coverage for the healthcare industry is expensive and sometimes difficult to obtain. We may not be able to maintain such insurance on acceptable terms or be able to secure increased coverage if the commercialization of our products progresses, nor can we be sure that existing or future claims against us will be covered by our product liability insurance. Moreover, the existing coverage of our insurance policy or any rights of indemnification and contribution that we may have may not be sufficient to offset existing or future claims. A successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms, if at all. Even if a claim is not successful, defending such a claim would be time-consuming and expensive, may damage our reputation in the marketplace, and would likely divert our management’s attention.
We are subject to environmental, health, and safety laws. Failure to comply with such environmental, health, and safety laws could cause us to become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to various environmental, health, and safety laws and regulations, including those relating to safe working conditions, laboratory, and manufacturing practices, the experimental use of animals and humans, emissions and wastewater discharges, and the use and disposal of hazardous or potentially hazardous substances used in connection with our research. Any of these laws or regulations could cause us to incur additional expense or restrict our operations. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research and development efforts.
Our relationships with customers and third party payers will be subject to applicable anti-kickback, fraud and abuse, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm, and diminished profits and future earnings.
Healthcare providers, physicians, and third party payers will play a primary role in the recommendation and use of our products and any other product candidates for which we obtain marketing approval. Our future arrangements with healthcare providers, physicians, and third party payers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell, and distribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
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● | | the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order, or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid; |
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● | | the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties; |
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● | | the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
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● | | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information; |
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● | | the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report payments and other transfers of value to physicians and teaching hospitals; and |
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● | | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency statutes, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payers, including private insurers. |
Some state laws require device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require product manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment, or restructuring of our operations could adversely affect our financial results. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal, and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil, or administrative sanctions, including exclusions from government funded healthcare programs.
Our operations and reputation may be impaired if our information technology systems fail to perform adequately or if we are the subject of a data breach or cyber-attack.
Our information technology systems are important to operating our business. We rely on our information technology systems, some of which are or may be managed or hosted by or out-sourced to third party service providers, to manage our business data and other business processes. If we do not allocate and effectively manage the resources necessary to build, sustain, and protect appropriate information technology systems and infrastructure, or we do not effectively implement system upgrades or oversee third party service providers, our business or financial results could be negatively impacted. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction or reporting errors and processing inefficiencies causing our business and results of operations to suffer.
Furthermore, our information technology systems may be vulnerable to cyber-attacks or other security incidents, service disruptions, or other system or process failures. Such incidents could result in unauthorized access to information including vendor, consumer or other company confidential data as well as disruptions to operations. We have experienced in the past, and expect to continue to experience, cybersecurity threats and incidents, although to date none has been material. To address the risks to our information technology systems and data, we maintain an information security program that includes updating technology, developing security policies and procedures, implementing and assessing the effectiveness of controls, conducting risk assessments of third-party service providers and designing business processes to mitigate the risk of such breaches. There can be no assurance that these measures will prevent or limit the impact of a future incident. Moreover, the development and maintenance of these measures
requires continuous monitoring as technologies change and efforts to overcome security measures evolve. If we are unable to prevent or adequately respond to and resolve an incident, it may have a material, negative impact on our operations or business reputation, and we may experience other adverse consequences such as loss of assets, remediation costs, litigation, regulatory investigations, and the failure by us to retain or attract customers following such an event. Additionally, we rely on services provided by third-party vendors for certain information technology processes and functions, which makes our operations vulnerable to a failure by any one of these vendors to perform adequately or maintain effective internal controls.
Risks Related to Investment in Our Securities
The price of our common stock has been and may becomecontinue to be volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
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● | | the status, completion, and/or results of our clinical trials; |
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● | | actual or anticipated variations in our operating results; |
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● | announcement of the commencement or completion of securities offerings by us; |
| ● | announcements of developments by us or our competitors; |
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● | | regulatory actions regarding our products; |
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● | | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments; |
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● | | adoption of new accounting standards affecting our industry; |
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● | | additions or departures of key personnel; |
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● | | sales of our common stock or other securities in the open market; and |
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● | | other events or factors, many of which are beyond our control. |
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
IfIn the foreseeable future, we do not intend to pay cash dividends on shares of our common stock so any investor gains will be limited to the value of our shares.
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any gains to stockholders will therefore be limited to the increase, if any, in our share price.
In the event that we fail to meetsatisfy any of the listing requirements forof the Nasdaq Capital Market, our common stock may be delisted, which could affect our market price and liquidity.
Our common stock is listed on the Nasdaq Capital Market. For continued listing on the Nasdaq GlobalCapital Market, our common stock couldwe will be delisted from trading, which would decrease the liquidity of our common stock and our ability to raise additional capital.
Our common stock is currently listed for quotation on the Nasdaq Global Market. We are required to meet specified financialcomply with the continued listing requirements, in orderincluding the minimum market capitalization standard, the corporate governance requirements and the minimum closing bid price requirement, among other requirements. For example, we have received deficiency letters due to the failure to maintain our listing on the Nasdaq Global Market. One such requirement is that we maintain a minimum bid price of at least $1.00 per share for our common stock. On January 23, 2018 weand the failure to meet stockholder equity requirements, including the deficiency letter from the Listings Qualifications
Department of the Nasdaq Stock Market letter we received on July 17, 2019 notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market. On January 10, 2020, under Nasdaq Listing Rule 5810(c)(3)(A)(ii), the Company provided written notice to Nasdaq of its intention to cure the deficiency, and on January 14, 2020, in accordance with Nasdaq Listing Rule 5810(c)(2)(B), we were provided an additional 180 calendar day compliance period, or until July 13, 2020, to regain compliance with the bid price requirement. On February 11, 2020, to address the 2019 July deficiency letter, we implemented a 1-for-30 reverse stock split of our common stock and a proportionate reduction in our authorized common stock. On February 28, 2020, we received a letter (the “Compliance Letter”) from the Listing Qualifications department of Nasdaq notifying us that we have regained compliance with the Minimum Bid Price Requirement, and therefore, Nasdaq considered the matter closed. On December 4, 2020, we received a deficiency letter from the Listings Qualifications Department of the Nasdaq Stock Market notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market, orCapital Market. On February 1, 2021, we received a letter (the “February 2021 Compliance Letter”) from the Listing Qualifications department of Nasdaq notifying us that we have regained compliance with the Minimum Bid Price Rule. We have been provided an initial periodRequirement, and therefore, Nasdaq considered the matter closed. Even if we remain in compliance with the Minimum Bid Price Requirement, we may decide to implement a reverse stock split to further ensure that we remain in compliance with the Minimum Bid Price Requirement. Regardless, there can be no assurance that we will maintain compliance with the bid price requirement, or that we will continue to be in compliance with the other continued listing requirements of 180 calendar days, or until July 23, 2018, or the Compliance Date,Nasdaq Capital Market.
In the event that we fail to regain compliance with the Bid Price Rule. If we do not regain compliance with the Bid Price Rule by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to transferor satisfy any of the listing of our common stock to the Nasdaq Capital Market, provided that we meet the continued listing requirement for the market value of publicly held shares and all other initial listing standardsrequirements of the Nasdaq Capital Market, withour common stock may be delisted. If our securities are delisted from trading on the exception of its bid price requirement, or, ifNasdaq Capital Market, and we failare not able to meet its listing requirements,list our securities on another exchange our securities could be quoted on the OTC Bulletin Board. Any potential delisting of our common stock fromBoard or on the Nasdaq Global Market would make it more difficult for our stockholders to sell our stock in the public market and would likely“pink sheets.” As a result, in decreased liquidity and increased volatility for our common stock.we could face significant adverse consequences including:
| ● | a limited availability of market quotations for our securities; |
| ● | a determination that our common stock is a “penny stock,” which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| ● | a limited amount of news and analyst coverage; |
| ● | a limited ability to raise capital to continue to fund our operations by selling shares; and |
| ● | a limited ability to acquire other companies or technologies by using our shares as consideration. |
Anti‑Anti‑takeover effects of certain provisions of our articles of incorporation and Nevada state law may discourage or prevent a takeover.
Our articles of incorporation divide our Board of Directors into three3 classes, with three-year3-year staggered terms. The classified board provision could increase the likelihood that, in the event an outside party acquired a controlling block of our stock, incumbent directors nevertheless would retain their positions for a substantial period, which may have the effect of discouraging, delaying, or preventing a change in control. In addition, Nevada has a business combination law, which prohibits certain business combinations between Nevada publicly traded corporations, or Nevada corporations that elect to be subject to the law, and “interested stockholders” for two2 years after the interested stockholder first becomes an interested stockholder, unless the corporation’s board of directors approves the transaction by which the stockholder becomes an interested stockholder in advance, or the proposed combination in advance of the stockholder becoming an interested stockholder.
The proposed combination may be approved after the stockholder becomes an interested stockholder with preapproval by the board of directors and a vote at a special or annual meeting of stockholders holding at least 60% of the voting power not owned by the interested stockholder or his/her/ its affiliates or associates. After the two-year2 year moratorium period, additional stockholder approvals or fair value requirements must be met by the interested shareholder up to four4 years after the stockholder became an interested stockholder. In addition, we may become subject to Nevada’s control share laws. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and if the corporation does business in Nevada,
including through an affiliated corporation. This control share law may have the effect of discouraging corporate takeovers. Currently, we believe that we have less than 100 stockholders of record who are residents of Nevada, and are therefore not subject to the control share laws.
The provisions of our articles of incorporation and Nevada’s business combination and control share laws make it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction were in our stockholders’ interest or might result in a premium over the market price for our common stock.
Failure to maintain an effective system of internal controls could result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations or fail to prevent fraud in which case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.
We are required to comply with the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) and management is required to report annually on our internal control over financial reporting. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of SOX until the date we have a public float of $75 million or greater and $100 million or greater in revenue.
If we fail to maintain effective internal controls and procedures for financial reporting, it could result in material misstatements in the annual or interim financial statements that would not be prevented or detected in a timely manner. We cannot assure you that material weaknesses or significant deficiencies will not occur in the future and that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.
We are a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We are considered a “smaller reporting company” under Rule 12b-2 of the Exchange Act. We are therefore entitled to rely on certain reduced disclosure requirements, such as an exemption from providing selected financial data and executive compensation information. These exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company also mean our auditors are not required to review our internal control over financial reporting and may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our common stock prices may be more volatile. We will remain a smaller reporting company until our public float exceeds $250 million or our annual revenues exceed $100 million with a public float greater than $700 million.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
We lease approximately 26,342sublease 5,104 square feet of office, laboratory, and manufacturing space in Cambridge, Massachusetts, which is used primarily for corporate, manufacturing, and research and development functions. The leasesublease commenced in November 2011,May 2018 and is for an initiala term of six5 years and three months, with one five-year extension exercisable by us (the “Cambridge Lease”). On August 21, 2017,6 months.
Item 3. LEGAL PROCEEDINGS
In the Company exercised its option forordinary course of business, we may be subject to litigation from time to time. There is no current, pending or, to our knowledge, threatened litigation or administrative action to which we are a party or of which our property is the five-year extension on the Cambridge Lease. The five-year renewal lease term commences on November 1, 2018 and ends on October 31, 2023. We believe this facilitysubject (including litigation or actions involving our officers, directors, affiliates, or other key personnel, or holders of record or beneficially of more than 5% of any class of our voting securities, or any associate of any such party) which in our opinion has, or is adequateexpected to meethave, a material adverse effect upon our current needs and that additional space could be available on commercially reasonable terms as needed.business, prospects financial condition or operations.
On June 13, 2017, the Company entered into a short-term lease, as subtenant, to sublease 5,233 square feet of the facility. The lease term is from July 1, 2017 through October 26, 2018.Item 4. MINE SAFETY DISCLOSURES
Not applicable.
We are in ongoing discussions to assign the Cambridge Lease, and sublease back a portion of the space thereunder for our manufacturing and quality functions. On February 16, 2018 the Company entered into a month to month membership agreement with WeWork to lease office space. This space will be used primarily for administrative functions.
Item 3. LEGAL PROCEEDINGS
In November 2013, we filed a lawsuit against Francis Reynolds, our 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 $500,000 worth of personal and/or exorbitant expenses that we allege Mr. Reynolds inappropriately caused us to pay while he was serving as our Chief Executive Officer, Chief Financial Officer, President, and Chairman of our Board of Directors. On December 6, 2013, Mr. Reynolds answered the complaint, and filed counterclaims against us and our 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 relate to Mr. Reynolds’s allegations that we and our 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, we, along with the directors named in the counterclaims, filed our 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. The trial is scheduled to begin on June 16, 2018.
We intend to continue to defend ourselves against the remaining counter claims and, to date, we have not recorded any provision for losses that may arise.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is currently listed for trading on the Nasdaq GlobalCapital Market under the symbol “NVIV.” From October 29, 2010 through April 16, 2015, our common stock was quoted on the OTCQB under the same symbol. The following table shows the high and low sales prices for our common stock for each full quarterly period in the two most recent fiscal years:
| | | | | | | |
Fiscal Quarter Ended | | High | | Low | |
December 31, 2017 | | $ | 2.25 | | | 0.72 | |
September 30, 2017 | | $ | 2.79 | | | 1.10 | |
June 30, 2017 | | $ | 4.30 | | | 1.90 | |
March 31, 2017 | | $ | 4.95 | | | 3.80 | |
| | | | | | | |
Fiscal Quarter Ended | | High | | Low | |
December 31, 2016 | | $ | 6.77 | | $ | 4.00 | |
September 30, 2016 | | $ | 7.94 | | $ | 5.42 | |
June 30, 2016 | | $ | 7.10 | | $ | 5.38 | |
March 31, 2016 | | $ | 10.36 | | $ | 3.50 | |
Dividends
We have never declared or paid cash dividends. We do not intend to pay cash dividends on our common stock for the foreseeable future, but currently intend to retain any future earnings to fund the development and growth of our business. The payment of cash dividends, if any, on our common stock, will rest solely within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements, financial condition, and other relevant factors.
Holders
As of March 5, 2018,February 25, 2021, we had approximately 30175 stockholders of record. This figure does not reflect persons or entities that hold their stock in nominee or “street” name through various brokerage firms.
Recent Sales of Unregistered Securities
None.
Issuer Repurchases of Equity Securities
None.
Performance Graph
The following performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” withWe are a smaller reporting company as defined by Rule 12b-2 of the SEC, nor shall such information be deemed incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, exceptand are not required to provide the extent that we specifically incorporate it by reference into any such filing.information under this item.
The graph below compares the cumulative total returns of our common stock to the cumulative returns of the NASDAQ Composite index and the NASDAQ Biotechnology index for the period from December 31, 2012 through December 31, 2017. This graph assumes an investment of $100 on December 31, 2012 in our common stock and in each of the comparative indices and assumes reinvestment of dividends, if any.
Item 6. SELECTED FINANCIAL DATA
The comparisons shown in
We are a smaller reporting company as defined by Rule 12b-2 of the graph belowExchange Act and are based on historical data. We caution thatnot required to provide the stock price performance showing in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.information under this item.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among InVivo Therapeutics Holdings Corp, the NASDAQ Composite Index,
and the NASDAQ Biotechnology Index
*$100 invested on December 31, 2012 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | |
InVivo Therapeutics Holdings Corp | | $ | 131.95 | | $ | 75.86 | | $ | 103.45 | | $ | 60.34 | | $ | 11.06 | |
NASDAQ Composite | | $ | 141.63 | | $ | 162.09 | | $ | 173.33 | | $ | 187.19 | | $ | 242.29 | |
NASDAQ Biotechnology | | $ | 174.05 | | $ | 230.33 | | $ | 244.29 | | $ | 194.95 | | $ | 228.29 | |
Item 6. SELECTED FINANCIAL DATA
The selected financial data presented below is derived from our audited consolidated financial statements. You should read the data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this Annual Report on Form 10-K and in the financial statements, related notes, and other financial information included elsewhere in this Annual Report on Form 10-K. Unless otherwise indicated, all amounts in this Item 6 are presented in thousands, except share and per share data. All share amounts give effect to the 1-for-4 reverse stock split of our outstanding shares of common stock that occurred on April 8, 2015.
InVivo Therapeutics Holdings Corp.
| | | | | | | | | | | | | | | | |
| | Year Ended December 31, | |
Consolidated Statement of Operations (in thousands) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | $ | 11,083 | | $ | 12,557 | | $ | 10,058 | | $ | 10,273 | | $ | 10,533 | |
General and administrative | | | 13,510 | | | 11,506 | | | 12,340 | | | 7,566 | | | 8,472 | |
Total operating expenses | | | 24,593 | | | 24,063 | | | 22,398 | | | 17,839 | | | 19,005 | |
Operating loss | | | (24,593) | | | (24,063) | | | (22,398) | | | (17,839) | | | (19,005) | |
Other income (expense): | | | | | | | | | | | | | | | | |
Interest income | | | 189 | | | 187 | | | 60 | | | 5 | | | 15 | |
Interest expense | | | (74) | | | (155) | | | (172) | | | (136) | | | (130) | |
Modification of warrants | | | — | | | — | | | — | | | — | | | (765) | |
Derivatives gain (loss) | | | (2,267) | | | 593 | | | (10,804) | | | (376) | | | (18,871) | |
Other income (expense), net | | | (2,152) | | | 625 | | | (10,916) | | | (507) | | | (19,751) | |
Net income (loss) | | $ | (26,745) | | $ | (23,438) | | $ | (33,314) | | $ | (18,346) | | $ | (38,756) | |
Net income (loss) per share, basic and diluted | | $ | (0.81) | | $ | (0.76) | | $ | (1.26) | | $ | (0.83) | | $ | (2.10) | |
Weighted average number of common shares outstanding, basic and diluted | | | 32,950,068 | | | 31,025,585 | | | 26,461,374 | | | 22,080,761 | | | 18,497,922 | |
| | | | | | | | | | | | | | | | |
| | | As of December 31, |
Condensed Consolidated Balance Sheet (in thousands) | | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Cash, cash equivalents and marketable securities | | $ | 12,910 | | $ | 33,041 | | $ | 20,194 | | $ | 13,459 | | $ | 13,980 | |
Working capital | | | 10,694 | | | 29,005 | | | 17,427 | | | 6,169 | | | 12,334 | |
Total assets | | | 14,045 | | | 34,784 | | | 21,792 | | | 16,693 | | | 17,096 | |
Long-term liabilities | | | 823 | | | 987 | | | 1,551 | | | 1,991 | | | 1,938 | |
Derivative warrant liability | | | 4 | | | 1,314 | | | 1,907 | | | 7,224 | | | — | |
Accumulated deficit | | | (183,907) | | | (157,007) | | | (133,569) | | | (100,255) | | | (81,909) | |
Stockholder's equity | | | 10,110 | | | 28,949 | | | 16,929 | | | 5,918 | | | 12,890 | |
We have derived our statements of operations data for the years ended December 31, 2014 and 2013 and our balance sheet data as of December 31, 2015, 2014, and 2013 from our audited financial statements which are not included in this Annual Report on Form 10-K. We have derived our statements of operations data for the years ended December 31, 2017, 2016 and 2015 and our balance sheet data as of December 31, 2017 and 2016 from our audited financial statements appearing elsewhere in this Annual Report on Form 10‑K. Our audited financial information is prepared and presented in accordance with generally accepted accounting principles in the U.S. (U.S. GAAP).
Supplementary Quarterly Financial Data (Unaudited—In thousands)
| | | | | | | | | | | | | |
| | Quarter Ended | |
| | December 31, | | September 30, | | June 30, | | March 31, | |
| | 2017 | | 2017 | | 2017 | | 2017 | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | | $ | 1,560 | | $ | 2,928 | | $ | 3,211 | | $ | 3,384 | |
General and administrative | | | 3,122 | | | 3,388 | | | 3,715 | | | 3,285 | |
Total operating expenses | | | 4,682 | | | 6,316 | | | 6,926 | | | 6,669 | |
Operating loss | | | (4,682) | | | (6,316) | | | (6,926) | | | (6,669) | |
Other income (expense): | | | | | | | | | | | | | |
Interest income | | | 37 | | | 43 | | | 52 | | | 57 | |
Interest expense | | | (16) | | | (18) | | | (20) | | | (20) | |
Derivatives gain (loss) | | | (3) | | | (3,059) | | | 554 | | | 241 | |
Other income (expense), net | | | 18 | | | (3,034) | | | 586 | | | 278 | |
Net loss | | $ | (4,664) | | $ | (9,350) | | $ | (6,340) | | $ | (6,391) | |
| | | | | | | | | | | | | |
| | Quarter Ended | |
| | December 31, | | September 30, | | June 30, | | March 31, | |
| | 2016 | | 2016 | | 2016 | | 2016 | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | | $ | 3,900 | | $ | 3,294 | | $ | 2,795 | | $ | 2,568 | |
General and administrative | | | 2,932 | | | 2,584 | | | 2,991 | | | 2,999 | |
Total operating expenses | | | 6,832 | | | 5,878 | | | 5,786 | | | 5,567 | |
Operating loss | | | (6,832) | | | (5,878) | | | (5,786) | | | (5,567) | |
Other income (expense): | | | | | | | | | | | | | |
Interest income | | | 47 | | | 50 | | | 36 | | | 54 | |
Interest expense | | | (31) | | | (32) | | | (29) | | | (63) | |
Derivatives gain (loss) | | | 1,381 | | | (336) | | | 595 | | | (1,047) | |
Other income (expense), net | | | 1,397 | | | (318) | | | 602 | | | (1,056) | |
Net loss | | $ | (5,435) | | $ | (6,196) | | $ | (5,184) | | $ | (6,623) | |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.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‑lookingforward-looking statements as a result of many important factors, including those set forth in Part I of this Annual Report on Form 10‑K10-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.
All share amounts presented in this Item 7 give effect to the 1-for-41-for-30 reverse stock split of ourthe outstanding shares of our common stock that occurred on April 8, 2015.February 11, 2020.
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 mission is to redefine the life of the SCI patient, and we seek to develop treatment options intended to provide meaningful improvement in patient outcomes following SCI. 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 HospitalBCH and the Massachusetts Institute of Technology.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‑stagedevelopment-stage programs or any acquired products or technologies do not result in commercially viable products, our results of operations could be materially adversely affected.
We were incorporated on April 2, 2003, under the name of 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‑ownedwholly-owned subsidiary.
Critical Accounting Policies and Estimates
Our consolidated financial statements, which appear in Item 8 of this Annual Report on Form 10‑K,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‑BasedStock-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 ten10 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‑basedstock-based awards to employees, non‑employeesnon-employees and directors as an expense in our statementstatements of operations over the service period based on a measure of fair value for each stock‑basedstock-based award. The fair value of each option grant is estimated as of the date of grant using the Black‑ScholesBlack-Scholes option pricing model.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‑linestraight-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‑freerisk-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 12, “Stock9, “Shared-Based Compensation, Stock Options and Restricted Securities,” in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10‑10 K for more information about the assumptions underlying these estimates.
Derivative Instruments
Certain of our issued and outstanding warrants to purchase common stock contain anti‑dilution provisions. These warrants do not meet the requirements for classification as equity and are recorded as derivative warrant liabilities. We use valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk‑free interest rate, volatility, expected life and dividend rates consistent with those discussed in Note 11, “Derivative Instruments”, in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10‑K, in estimating the fair value for these warrants. Such derivative warrant liabilities are initially recorded at fair value, with subsequent changes in fair value charged (credited) to operations in each reporting period. The fair value of such derivative warrant liabilities is most sensitive to changes in the fair value of the underlying common stock and the estimated volatility of our common stock.
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 |
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● | | 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 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.
RecentRecently Adopted Accounting PronouncementsStandards
In MarchJune 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation2016-13, “Financial Instruments-Credit Losses (Topic 718)326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Employee Share-Based Accounting (“Topic 326, Financial Instruments-Credit Losses”, ASU 2016-09”)2019-04 “Codification Improvements to require changesTopic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU 2019-05 “Financial Instruments-Credit Losses”, ASU 2019-11 “Codification Improvements to several areasTopic 326, Financial Instruments - Credit Losses”, ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842) and ASU 2020-03 Codification Improvements to Financial Instruments, (collectively, “Topic 326”). Topic 326 requires measurement and recognition of employee share-based payment accounting in an effort to simplify share-based reporting. The update revises requirements in the following areas: minimum statutory withholding, accountingexpected credit losses for income taxes, forfeitures, and intrinsic value accounting for private entities. ASU 2016-09financial assets held. Topic 326 is effective for annualall public business entities, excluding smaller reporting companies, for periods beginning after December 15, 2016, including interim reporting periods within each annual reporting period.2019 and all other entities beginning after December 15, 2022. We early adopted this standardASU No. 2016-13 and the related amending ASU’s on January 1, 2017. Prior to adoption, we recognized share-based compensation, net of estimated forfeitures, over the vesting period of the grant. Upon adoption of ASU 2016-09, we elected to change our accounting policy to recognize forfeitures as they occur. We continue to recognize share-based compensation expense over the vesting period of the grant. The new forfeiture policy election was adopted using a modified retrospective approach with a cumulative effect adjustment of $155 recorded to accumulated deficit on the balance sheet as of January 1, 2017. Prior to January 1, 2017, we recognized the excess tax benefits of stock-based compensation expense as additional paid-in capital2020, and tax deficiencies of stock-based compensation expense in the income tax provision or as additional paid-in capital to the extent that there were sufficient recognized excess tax benefits previously recognized. Previously, the excess tax benefits reduced taxes payable prior to being recognized as an increase in additional paid-in capital, and therefore we had not recognized certain deferred tax assets that could be attributed to tax deductions. As a result of the adoption the deferred tax assets associated with certain net operating losses increased, which was offset by a corresponding increase in the valuation allowance and therefore the adoption of the tax-related guidance in this standard did not have an impacta material effect on our consolidated financial statements for the period ended December 31, 2017.position, results of operations or disclosures.
In February 2016,August 2018, the FASB issued ASU No. 2016-02, Leases2018-13 - Fair Value Measurement (Topic 842).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 guidanceamendments 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 sheeteffective 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. The new standard is effectiveentities for annual reportingfiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, including2019. 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 reportingor annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods within each annual reporting period.presented upon their effective date. Early adoption is permitted upon issuance of this ASU. We are currently evaluating the impact ofadopted ASU No. 2018-13 on January 1, 2020, and the adoption did not have a material effect on our financial position, results of this ASU on the financial statements.operations or disclosures.
In August 2016,November 2019, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows in an effort to reduce existing diversity in practice. The update includes eight specific cash flow issues and provides guidance on the appropriate cash flow presentation for each. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. We do not expect the adoption of this guidance to have a material impact on the financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash to clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows.
Under this new update, entities are required to show the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. This guidance will be applied retrospectively and is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. We do not expect the adoption of this guidance to have a material impact on the financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation –2019-08 “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”) to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. We do not expect the adoption of this guidance to have a material impact on the financial statements.
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 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within each annual reporting period. We have concluded that the adoption of this ASU will not have a material impact on the financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results, in order to better align an entity’s risk management activities and financial reporting for hedging relationships. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. FASB ASU No. 2017-12 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. We are currently evaluating the impact of the adoption of this ASU on the financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) to provide updated guidance on revenue recognition. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies may need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral ofCodification Improvements - Share-Based Consideration Payable to a Customer.” ASU No. 2019-08 amends and clarifies ASU No. 2018-07, which we adopted on January 1, 2019, to require that an entity measure and classify share-based payment awards granted to a customer by applying the Effective Date, which deferredguidance in Topic 718. For entities that have already adopted the effective date ofamendments in ASU 2014-09 by one year. Accordingly,No. 2018-07, the amendments in this ASU 2014-09 isare effective for public business entities for annual reporting periodsfiscal years beginning after December 15, 2017, including2019, and for interim reporting periods within each annual reporting period. those fiscal years, with early adoption permitted. We adopted ASU No. 2019-08 on January 1, 2020, and the adoption did not have any impact on our financial position, results of operations or disclosures.
In March 2016,December 2019, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers2019-12, Simplifications to Accounting for Income Taxes (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross Versus Net), which clarifies740). The amendments in this ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. This ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. This ASU is effective for all entities for fiscal years beginning after December 15, 2020, and early adoption is permitted. We adopted ASU No. 2019-12 on January 1, 2020, and the implementation guidanceadoption did not have any impact on principal versus agent considerations. our financial position, results of operations or disclosures.
New Accounting Pronouncements Not Yet Adopted
In April 2016,January 2020, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers2020-01, Investments—Equity Securities (Topic 606): Identifying Performance Obligations321), Investments—Equity Method and LicensingJoint Ventures (Topic 323), which clarifiesand 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 aspectsderivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of identifying performance obligationsthe accounting for these interactions. The pronouncement is effective for fiscal years, and licensing implementation guidance. 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 are currently in the process of evaluating the effects of this pronouncement on our financial statements.
In May 2016,August 2020, the FASB issued ASU No. 2016-12, Revenue from2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts with Customers (Topic 606): Narrow-Scope Improvementsin Entity’s Own Equity”, related to the measurement and Practical Expedients, which relates to disclosuresdisclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration,convertible instruments and the presentation of sales and other similar taxes collected from customers. These standards aresettlement assessment for contracts in an entity's own equity. This pronouncement is effective for annual reporting periods beginning after December 15, 2017, includingfiscal years, and for interim reporting periods within each annual reporting period. Currently,those fiscal years, beginning in fiscal 2022. We are currently in the process of evaluating the effects of this guidance is not applicable to us as we do not generate revenue. However, we will adopt the guidance and evaluate the impact of adopting ASU 2014-09pronouncement on the consolidatedour financial statements when we begin to generate revenue.statements.
Results of Operations
Comparison of the Years Ended December 31, 20172020 and 2016 (in thousands, except share and per share amounts)2019
Research and Development Expenses
Research and development expenses decreased by $1,474$1.7 million to $11,083$3.9 million for the year ended December 31, 20172020 from $12,557$5.6 million for the year ended December 31, 2016. This decrease is primarily attributable to a2019. The decrease in compensation relatedresearch and development expenses of $1,629 largely as a result of the strategic restructuring in 2017, a decrease in contract services and laboratory supplies and intellectual property costs of $394 and $112 respectively as a result of our focused strategy, a decrease of $147 in facilities allocation charges partially offset by an increase of $715 in consulting and professional costs and an increase of $239 in clinical trial costs due to additional patient enrollment in The INSPIRE Study and the opening of additional clinical trial sites.
General and Administrative Expenses
General and administrative expenses increased by $2,004 to $13,510 for the year ended December 31, 2017 from $11,506 for the year ended December 31, 2016. This increase in general and administrative expenses2020 is attributable to increases in salaries related expenses including severance of $1,072, an increase of $492 in consulting and professional costs, an increase of $459 in facilities allocation charges and an increase of $376 in legal costs partially offset by a decrease in share-based compensation and recruiting expenses of $303 and $219 respectively.
Interest Income
Interest income remained relatively consistent at $189 for the year ended December 31, 2017 compared to $187 for the year ended December 31, 2016 due to comparable average investment balances in 2017 and 2016.
Interest Expense
Interest expense decreased by $81 to $74 for the year ended December 31, 2017 from $155 for the year ended December 31, 2016. This decrease in interest expense is due to lower average borrowings.
Derivatives Gain (Loss)
The derivatives loss for the year ended December 31, 2017 is $2,267 compared to a gain of $593 for the year ended December 31, 2016. The loss of $2,267 for the year ended December 31, 2017 can be attributed to the impact of the August 2017 warrant exchange and the decrease in the fair value of our derivative warrant liability due primarily to the decrease in the fair value of the underlying common stock.
Comparison of the Years Ended December 31, 2016 and 2015 (in thousands, except share and per share amounts)
Research and Development Expenses
Research and development expenses increased by $2,499 to $12,557 for the year ended December 31, 2016 from $10,058 for the year ended December 31, 2015. This increase is primarily attributable to an increase in clinical trial costs of $811$1.0 million due to an increaselower startup costs in our INSPIRE 2.0 Study in the number of patientscurrent year as compared to the prior year, a decrease in The INSPIRE Study and the opening of additional clinical trial sites, and higher contract servicesscaffold manufacturing costs of $439 associated with research development initiatives. The increase is also$0.2 million primarily as a result of lower clinical demand, a decrease in incentive compensation costs of $0.3 million, a decrease in legal costs of $0.1 million primarily due to compensation-related expensesfewer regulatory tasks requiring legal assistance and a decrease in other net immaterial balances of $656, intellectual property costs of $229, consulting fees of $110, recruiting costs of $102, and packaging and lab-related expenses of $123.$0.1 million mainly due to cost containment initiatives.
General and Administrative Expenses
General and administrative expenses decreased by $834$0.7 million to $11,506$5.2 million for the year ended December 31, 20162020 from $12,340$5.9 million for year ended December 31, 2019. The decrease in general and administrative expenses for the year ended December 31, 2015. This decrease2020 is due to lower incentive compensation costs in general and administrative expenses is attributable to a decrease in legal expensesthe current year of $1,737$0.3 million as well as decreases in public and investor relationslower consulting costs of $116 and overhead expense of $93. These decreases are partially offset by increases$0.4 million. In the prior year, the Company conducted a one-time market analysis which did not recur in compensation-related expenses of $342, stock-based compensation expense of $292, convention and meetingthe current year resulting in lower consulting costs of $178, recruiting related costs of $162, insurance expense of $118, and consulting fees of $54. in the current year.
Interest Income / (Expense), Net
Interest income increaseddecreased by $127$235 thousand to $187$19 thousand for the year ended December 31, 20162020 from $60$254 thousand for the year ended December 31, 2015. This increase is2019. The decrease in interest income was primarily due to a higher average balance of fundslower yields in our short-term investments.cash and cash equivalents in 2020.
InterestWarrant Modification Expense
InterestThe Company did not incur any Warrant Modification Expenses during the year ended December 31, 2020. During the year ended December 31, 2019, the Company incurred $0.7 million in expense decreased by $17related to $155the Second Ladenburg Warrant Amendment (defined below).
Other Income
Other income for the year ended December 31, 2016 from $1722020 was $4 thousand. Other income for the year ended December 31, 2015. This decrease in interest expense is primarily due2019 was $79 thousand mainly attributed to lower average borrowings.income related to the sale of lab equipment.
Derivatives Gain (Loss)
The derivatives gain for the year ended December 31, 2016 is $593 compared to a loss of $10,804 for the year ended December 31, 2015. The gain of $593 for the year ended December 31, 2016 reflects the decrease in the fair value of our derivative warrant liability due primarily to the decrease in the fair value of the underlying common stock, as well as the decreasing term to expiration of the warrants. In 2015, the loss was driven primarily by an increase in the value of our common stock.
Liquidity and Capital Resources (in thousands, except share and per share figures)
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, 2017,2020, our accumulated deficit was $183,907.$228.2 million.
At December 31, 2017,2020, we had total assets of $14,045,$21.9 million, total liabilities of $3,935,$2.7 million, and total stockholders’ equity of $10,110.$19.2 million. We recorded a net loss of $26,745$9.1 million for the year ended December 31, 2017.2020. 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, 2020 combined with the proceeds from the exercise of certain of the October 2020 Series A Warrants subsequent to December 31, 2020, will provide necessary funding to fund operations through the second quarter of 2023. 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 also expect that we will need to raise additional capital through a combination of equity offerings, debt financings, other third partythird-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Since 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 inception, we have historically financed our operations primarily through the sale of equity‑related securities. In January 2015, we closed a registered direct offering of an aggregate of 2,000,000 shares of our common stock, resulting in net proceeds of approximately $11,038. In July 2015, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”) allowing us to issue and sell from time to time up to $50,000 in shares of our common stock through an “at the market” equity offering program (the “ATM”). In 2015, we raised approximately $3,442 through the ATM, net of a 3% commission on the gross proceeds from the sale of shares under the ATM due to Cowen, as our sales agent in the ATM, and other transaction‑related expenses. We did not make any sales under the Sales Agreement in 2016 and the Sales Agreement was terminated in March 2016. In March 2016, we closed an underwritten public offering of an aggregate of 4,293,333 shares of common stock and warrants to purchase an aggregate of 2,146,666 shares of common stock at a price to the public of $7.49 per share of common stock and $0.01 per warrant. The net proceeds to the Company, after deducting underwriting discounts and offering expenses, were approximately $29,905. The warrants have an initial per share exercise price of $10.00, or approximately 133% of the public offering price of the common stock, are exercisable immediately, and expire on March 18, 2021. The Company intends to use the net proceeds from the offering to fund ongoing clinical trials and for general corporate purposes.
At December 31, 2017, our consolidated cash and cash equivalents balance was $12,910. We believe our current cash and cash equivalents are adequate to fund our operations into the fourth quarter of 2018.
We intend to pursue opportunities to obtain additional financing in the future through equity and/or debt financings. We have filed with the SEC, and the SEC has declared effective, a universal shelf registration statement which permits us to issue up to $100,000 worth of registered equity securities, of which we utilized $12,000 in our January 2015 offering and have utilized approximately $3,442 to date under our ATM, which was terminated in March 2016. Under this effective shelf registration, we also have the flexibility to issue registered securities, from time to time, in one or more additional offerings or other transactions with the size, price and terms to be determined at the time of issuance. In March 2016, we closed an underwritten public offering of an aggregate of 4,293,333 shares of common stock and warrants to purchase an aggregate of 2,146,666 shares of common stock, at a price to the public of $7.49 per share of common stock and $0.01 per warrant. The underwriting discount was 6% of the public offering price of the shares, or $0.45 per share and 0.0000006 per warrant. The warrants have an initial per share exercise price of $10.00 (133% of public offering price of the common stock) and will expire on March 18, 2021. Registered securities issued using this shelf may be usedability to raise additional capital to fund our working capital and other corporate needs, for future acquisitions of assets, programs or businesses, and for other corporate purposes.needed funds.
On August 10, 2017, we entered into exchange agreements with certain holders of our warrants, dated May 9, 2014, to exchange such warrants for shares of common stock. We issued an aggregate of 2,021,419 shares of common stock to the warrant holders in exchange for their warrants to purchase an aggregate of 577,548 shares of common stock. The warrants exchanged in this transaction were subsequently cancelled and terminated. As a result of our issuance of common stock in exchange for certain of the warrants, the per share exercise price of the remaining warrants, dated May 9, 2014, was adjusted downwards from $3.87 per share to $0.83 per share and additional warrants were issued such that the remaining warrants were exercisable for an aggregate of 48,507 shares of common stock. We did not receive any cash proceeds from the warrant exchanges.
In the fourth quarter of 2017 and first quarter of 2018, we entered into warrant cancellation agreements with certain remaining holders of our warrants, dated May 9, 2014, to cancel and terminate such warrants for cash consideration. As of December 31, 2017, the remaining warrants were exercisable for an aggregate of 13,429 shares of common stock. The remaining warrants contain anti-dilution provisions that may be triggered by the future issuance by us of shares of our common stock or common stock equivalents at a price per share below the then-exercise price of the warrants, subject to some exceptions.
In January 2018, we entered into a purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the purchase agreement, Lincoln Park agreed to purchase from us up to $15,000 of our common stock (subject to certain limitations) from time to time during the term of the purchase agreement. At the time we signed the purchase agreement and the registration rights agreement, we issued 429,800 shares of common stock (the “Commitment Shares”) to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the purchase agreement. As of March 12, 2018 the Company had drawn $2,252 against the purchase agreement and issued an aggregate of 3,344,769 shares exclusive of the commitment shares.
In August 2017, we announced a reduction in our workforce of approximately 39%. All affected employees received severance pay and outplacement assistance. As a result of the reduction in force and associated costs, we estimate savings of approximately $7.3 million in annual operating expenses, with one-time severance and related costs of $857. Of these one-time severance and related costs, approximately $509 was paid through December 31, 2017.
We may pursue various other dilutive and non‑dilutive funding alternatives depending upon our clinical path forward and the extent to which we require additional capital to proceed with development of some or all of our product candidates on expected timelines. The source, timing and availability of any future financing will depend principally upon market conditions and the status of our clinical development programs.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 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. 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, 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. During the year ended December 31, 2020, we did not issue any shares as a result of April 2020 Placement Agent Warrants exercise activity.
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, 2020, we did not issue any shares as a result of the March 2020 Placement Agent Warrants or March 2020 Series A Warrants exercise activity. During the year ended December 31, 2020, we issued an aggregate of 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.
In November 2019, we closed a public offering of an aggregate of 233,341 shares of our common stock, at an offering price of $3.60 per share (the offering, the “2019 Offering”). The net proceeds to us after deducting the placement agent fees and other offering expenses, were $367 thousand. In connection with the 2019 Offering, we issued to Wainwright, warrants (the “2019 Placement Agent Warrants”) to purchase an aggregate of 15,168 shares of our common stock. The 2019 Placement Agent Warrants have an exercise price of $4.50 per share, are immediately exercisable and expire in November 2024. During the year ended December 31, 2020, we did not issue any shares of common stock as a result of exercise activity related to the 2019 Placement Agent Warrants.
In November 2019, we entered into a Second Amendment to Warrant Agency Agreement and Warrants, (“the Second Ladenburg Warrant Amendment”), by and between us and Continental, as Warrant Agent, dated November 21, 2019, that amended the 2018 Series A warrants issued by us in the June 2018 underwritten public offering to reflect a reduced exercise price per share of $6.98 from $60.00. See Note 10 to our Consolidated Financial Statements for more information about the Second Ladenburg Warrant Amendment. During the year ended December 31, 2020 we issued an aggregate of 40,975 shares of common stock upon the exercise of certain of the 2018 Series A warrants for aggregate proceeds of $286 thousand.
Cashflows
Net cash used in operating activities is comprised of our net losses, adjusted for non-cash expenses, and working capital requirements. Net cash used in operating activities for the year ended December 31, 20172020 was $19,683, the most significant drivers of which were our net loss of $26,745, offset by share-based compensation of $4,106 and derivative losses of $2,267.
Net cash from investing activities was $11,512$9.5 million compared to $10.3 million for the year ended December 31, 2017 attributable to the purchases of marketable securities of $8,256 and capital equipment of $65, offset by sales of marketable securities of $19,833.
Net2019. The $0.8 million decrease in net cash used by financingin operating activities was $383 for the year ended December 31, 20172020 as compared to the same period in the prior year was primarily due to a decrease in our net loss of $2.8 million, a decrease in warrant modification expense of $0.7 million, a decrease in the change in accrued expenses and other liabilities of $0.4 million, a decrease in the change in accounts payable of $0.6 million and a decrease in the change in operating lease right-of-use liability of $0.2 million.
Net cash used in investing activities for the years ended December 31, 2020 and 2019, was $41 thousand and $12 thousand, respectively attributable to purchases of capital equipment.
Net cash provided by financing activities for the year ended December 31, 2020 was $22.4 million consisting of $22.1 million in proceeds from the exercisesissuance of common stock options, exercisesassociated with the offerings in 2020 and $0.3 million in proceeds from the exercise of warrants, and Employee Stock Purchase Plan issuanceswarrants. This compares to net cash of $80. These$0.3 million provided by financing activities for the year ended December 31, 2019 consisting primarily of $0.4 million in proceeds werefrom the issuance of common stock associated with the November 2019 underwritten public offering, offset by the repayment of$0.1 million in loan principal of $423 and payment of $40 due to repurchase of warrants.repayments.
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.
Inflation and Changing Prices
Contractual Obligations
The following summarizes our significant contractual obligations at December 31, 2017, and the effects such obligations are expected toWe do not believe that inflation has had, or will have, a material impact on our liquidityoperating costs and cash flows in future periods:earnings.
| | | | | | | | | | | | | |
| | Payments Due |
| | | | | Less than | | | | | | | More than |
In thousands | | Total | | 1 year | | 1-3 years | | 3-5 years | | 5 years |
Long term debt | | $ | 852 | | $ | 452 | | $ | 400 | | — | | — |
Operating lease payments | | | 11,404 | | | 1,380 | | | 3,977 | | 4,219 | | 1,828 |
Total | | $ | 12,256 | | $ | 1,832 | | $ | 4,377 | | 4,219 | | 1,828 |
We are in ongoing discussions to assign the Cambridge Lease, and sublease back a portion of the space thereunder for our manufacturing and quality functions. If the Cambridge Lease assignment is successfully executed our operating lease payments will be materially reduced.Commitments
Commitments
See Note 16,13, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10‑K10-K for information regarding our commitments.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in thousands)
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We are exposeda smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to market risk related to changes in interest rates. We do not use derivative financial instruments for speculative or trading purposes. Our interest‑earning assets consist of cash and cash equivalents of $12,910, or 92% of our total assets at December 31, 2017, and $33,041, or 95% of our total assets at December 31, 2016. Interest income earned on these assets was $189 in 2017 and $187 in 2016. Our interest income is sensitive to changes inprovide the general level of interest rates, primarily U.S. interest rates. At December 31, 2017, our cash equivalents were primarily composed of money market accounts comprised of U.S. Treasury debt securities and repurchase agreements.information under this item.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
SPECIAL NOTE
All share numbers and share prices presented in this Item 8 have been adjusted to reflect the 1‑for‑4 reverse stock split of the Company’s common stock effected on April 8, 2015.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
InVivo Therapeutics Holdings Corp. and Subsidiary
Cambridge, Massachusetts
OpinionsOpinion on the Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of InVivo Therapeutics Holdings Corp. and Subsidiaryits subsidiary (the Company) as of December 31, 20162020 and 2017, and2019, the related consolidated statements of operations and comprehensive loss, stockholders'changes in stockholders’ equity and cash flows for each of the three years in the periodthen ended, December 31, 2017, and the related notes to the consolidated financial statements (collectively, the financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the three-year periodthen ended, December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Emphasis of Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has limited cash and cash equivalents and has suffered recurring losses from operations. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for OpinionsOpinion
The Company's management is responsible for theseThese financial statements for maintaining effective internal control over financial reporting, and for its assessmentare the responsibility of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.Company’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effectivefraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting was maintained in all material respects.but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.opinion.
Critical Audit Matters
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertainwere communicated or required to be communicated to the maintenance of recordsaudit committee and that: (1) relate to accounts or disclosures that in reasonable detail, accurately and fairly reflectare material to the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and (2) involved our especially challenging, subjective, or complex judgments. We determined that receipts and expenditures of the companythere are being made only in accordance with authorizations of management and directors of the company; and (3) 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 financial statements.
Because of its 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.no critical audit matters.
/s/ RSM US LLP
We have served as the Company's auditor since 2015.
Boston, Massachusetts
March 12, 201801, 2021
InVivo Therapeutics Holdings Corp.
Consolidated Balance Sheets
(In thousands, except share and per-share data)
| | | | | | | | |
| | December 31, | | |
| | 2017 | | 2016 | | |
| | | | | | | | |
| | | | | | | | |
| | | December 31, | |
| | | 2020 | | 2019 | |
| | | | | | | | |
ASSETS: | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 12,910 | | $ | 21,464 | | | $ | 19,493 | | $ | 6,602 | |
Restricted cash | | | 361 | | | 361 | | | | — | | | 4 | |
Marketable securities | | | — | | | 11,577 | | |
Prepaid expenses and other current assets | | | 535 | | | 451 | | | | 163 | | | 177 | |
Total current assets | | | 13,806 | | | 33,853 | | | | 19,656 | | | 6,783 | |
Property, equipment and leasehold improvements, net | | | 157 | | | 510 | | | | 85 | | | 73 | |
Restricted cash - non current | | | | 110 | | | 110 | |
Operating lease right-of-use assets | | | | 928 | | | 1,211 | |
Prepaid clinical trial expenses | | | | 1,122 | | | 1,122 | |
Other assets | | | 82 | | | 421 | | | | 9 | | | 26 | |
Total assets | | $ | 14,045 | | $ | 34,784 | | | $ | 21,910 | | $ | 9,325 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | |
Accounts payable | | $ | 988 | | $ | 1,011 | | | $ | 481 | | $ | 942 | |
Loan payable, current portion | | | 452 | | | 423 | | |
Derivative warrant liability | | | 4 | | | 1,314 | | |
Deferred rent, current portion | | | 30 | | | 141 | | |
Operating lease liabilities | | | | 327 | | | 294 | |
Accrued expenses | | | 1,638 | | | 1,959 | | | | 1,164 | | | 1,427 | |
Total current liabilities | | | 3,112 | | | 4,848 | | | | 1,972 | | | 2,663 | |
Loan payable, net of current portion | | | 400 | | | 852 | | |
Deferred rent, net of current portion | | | 367 | | | 135 | | |
Other liabilities | | | 56 | | | — | | | | 59 | | | 59 | |
Operating lease liabilities - non current | | | | 693 | | | 1,020 | |
Total liabilities | | | 3,935 | | | 5,835 | | | | 2,724 | | | 3,742 | |
Commitments and contingencies (Note 16) | | | | | | | | |
Commitments and contingencies (Note 13) | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | |
Common stock, $0.00001 par value, authorized 100,000,000 shares; 34,274,776 shares issued and outstanding at December 31, 2017; 32,044,087 shares issued and outstanding at December 31, 2016 | | | 1 | | | 1 | | |
Common stock, $0.00001 par value, authorized 50,000,000 shares; 23,631,886 shares issued and outstanding, including 6,302 shares of unvested restricted stock, at December 31, 2020; authorized 16,666,667 shares; 550,736 shares issued and outstanding, including 6,886 shares of unvested restricted stock, at December 31, 2019 | | | | 3 | | | 2 | |
Additional paid-in capital | | | 194,016 | | | 185,955 | | | | 247,417 | | | 224,741 | |
Accumulated deficit | | | (183,907) | | | (157,007) | | | | (228,234) | | | (219,160) | |
Total stockholders’ equity | | | 10,110 | | | 28,949 | | | | 19,186 | | | 5,583 | |
Total liabilities and stockholders’ equity | | $ | 14,045 | | $ | 34,784 | | | $ | 21,910 | | $ | 9,325 | |
See notes to the consolidated financial statements.
(Share and per share data reflects 1-for-30 reverse stock split effective February 11, 2020).
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per-share data)
| | | | | | | | | | | |
| | Year Ended December 31, | | |
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | |
| | | | | | | | | |
| | | Year Ended December 31, | |
| | | | | | | | | |
| | | 2020 | | 2019 | | |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Research and development | | $ | 11,083 | | $ | 12,557 | | $ | 10,058 | | | $ | 3,939 | | $ | 5,602 | | |
General and administrative | | | 13,510 | | | 11,506 | | | 12,340 | | | | 5,158 | | | 5,895 | | |
Total operating expenses | | | 24,593 | | | 24,063 | | | 22,398 | | | | 9,097 | | | 11,497 | | |
Operating loss | | | (24,593) | | | (24,063) | | | (22,398) | | | | (9,097) | | | (11,497) | | |
Other income (expense): | | | | | | | | | | | |
Interest income | | | 189 | | | 187 | | | 60 | | |
Interest expense | | | (74) | | | (155) | | | (172) | | |
Derivatives gain (loss) | | | (2,267) | | | 593 | | | (10,804) | | |
Other income (expense), net | | | (2,152) | | | 625 | | | (10,916) | | |
Other income / (expense): | | | | | | | | | |
Interest income / (expense), net | | | | 19 | | | 254 | | |
Warrant modification expense | | | | — | | | (666) | | |
Other income | | | | 4 | | | 79 | | |
Other income / (expense), net | | | | 23 | | | (333) | | |
Net loss | | $ | (26,745) | | $ | (23,438) | | $ | (33,314) | | | $ | (9,074) | | $ | (11,830) | | |
Net loss per share, basic and diluted | | $ | (0.81) | | $ | (0.76) | | $ | (1.26) | | | $ | (1.31) | | $ | (35.28) | | |
Weighted average number of common shares outstanding, basic and diluted | | | 32,950,068 | | | 31,025,585 | | | 26,461,374 | | | | 6,902,693 | | | 335,350 | | |
Other comprehensive loss: | | | | | | | | | | | |
Net loss | | $ | (26,745) | | $ | (23,438) | | $ | (33,314) | | |
Other comprehensive loss: | | | | | | | | | | | |
Unrealized gain (loss) on marketable securities | | | — | | | — | | | — | | |
Comprehensive loss | | $ | (26,745) | | $ | (23,438) | | $ | (33,314) | | |
See notes to the consolidated financial statements.
(Share and per share data reflects 1-for-30 reverse stock split effective February 11, 2020)
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share and per-share data)
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | Additional | | | | Total | |
| | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | |
| | Shares | | Amount | | Capital | | Deficit | | Equity | |
Balance as of December 31, 2014 | | 23,453,000 | $ | 1 | $ | 106,172 | $ | (100,255) | $ | 5,918 | |
Share-based compensation expense | | — | | — | | 4,666 | | — | | 4,666 | |
Issuance of common stock in public offering | | 2,388,245 | | — | | 14,480 | | — | | 14,480 | |
Issuance of common stock for services | | — | | — | | — | | — | | — | |
Issuance of common stock upon exercise of warrants | | 1,379,575 | | — | | 7,789 | | — | | 7,789 | |
Issuance of common stock upon exercise of stock options | | 316,177 | | — | | 1,068 | | — | | 1,068 | |
Fair value of derivative warrant liability reclassified to additional paid-in capital | | — | | — | | 16,121 | | — | | 16,121 | |
Fractional shares issued due to reverse stock split | | 1,514 | | — | | — | | — | | — | |
Issuance of common stock to 401(k) plan | | 17,437 | | — | | 201 | | — | | 201 | |
Net loss | | — | | — | | — | | (33,314) | | (33,314) | |
Balance as of December 31, 2015 | | 27,555,948 | | 1 | | 150,497 | | (133,569) | | 16,929 | |
Share-based compensation expense | | — | | — | | 5,063 | | — | | 5,063 | |
Issuance of common stock and warrants in public offerings, net of $2,040 issuance costs | | 4,293,333 | | — | | 29,905 | | — | | 29,905 | |
Issuance of common stock for services | | 365 | | — | | — | | — | | — | |
Issuance of common stock upon cashless exercise of warrants | | 4,979 | | — | | — | | — | | — | |
Issuance of common stock upon exercise of stock options | | 135,205 | | — | | 191 | | — | | 191 | |
Issuance of common stock under ESPP | | 16,729 | | — | | 91 | | — | | 91 | |
Fractional shares issued due to reverse stock split | | — | | — | | — | | — | | — | |
Issuance of common stock to 401(k) plan | | 37,528 | | — | | 208 | | — | | 208 | |
Net loss | | — | | — | | — | | (23,438) | | (23,438) | |
Balance as of December 31, 2016 | | 32,044,087 | | 1 | | 185,955 | | (157,007) | | 28,949 | |
Cumulative adjustment on adoption of ASU 2016-09 | | — | | — | | 155 | | (155) | | — | |
Share-based compensation expense | | — | | — | | 4,106 | | — | | 4,106 | |
Issuance of common stock on warrant exchange | | 2,021,419 | | — | | 3,537 | | — | | 3,537 | |
Issuance of common stock for services | | 350 | | — | | — | | — | | — | |
Issuance of common stock upon exercise of warrants | | 3,464 | | — | | 3 | | — | | 3 | |
Issuance of common stock upon exercise of stock options | | 89,387 | | — | | 26 | | — | | 26 | |
Issuance of common stock under ESPP | | 17,750 | | — | | 51 | | — | | 51 | |
Issuance of common stock to 401(k) plan | | 98,319 | | — | | 183 | | — | | 183 | |
Net loss | | — | | — | | — | | (26,745) | | (26,745) | |
Balance as of December 31, 2017 | | 34,274,776 | $ | 1 | $ | 194,016 | $ | (183,907) | $ | 10,110 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | Total | |
| | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | |
| | Shares | | Amount | | Capital | | Deficit | | Equity | |
Balance as of December 31, 2018 | | 310,330 | | $ | 1 | | $ | 223,440 | | $ | (207,330) | | $ | 16,111 | |
Share-based compensation expense | | — | | | — | | | 268 | | | — | | | 268 | |
Issuance of common stock upon vesting of restricted stock units | | 143 | | | — | | | — | | | — | | | — | |
Issuance of restricted common stock | | 6,886 | | | — | | | — | | | — | | | — | |
Issuance of common stock under ESPP | | 36 | | | — | | | 1 | | | — | | | 1 | |
Increase in fair value attributable to warrant modifications | | — | | | — | | | 666 | | | — | | | 666 | |
Issuance of common stock and warrants in public offering | | 233,341 | | | 1 | | | 366 | | | — | | | 367 | |
Net loss | | — | | | — | | | — | | | (11,830) | | | (11,830) | |
Balance as of December 31, 2019 | | 550,736 | | | 2 | | | 224,741 | | | (219,160) | | | 5,583 | |
Share-based compensation expense | | — | | | — | | | 215 | | | — | | | 215 | |
Issuance of common stock upon vesting of restricted stock units | | 100 | | | — | | | — | | | — | | | — | |
Fractional shares issued due to 1 for 30 reverse stock split | | 7,692 | | | — | | | — | | | — | | | — | |
Forfeiture of restricted stock | | (584) | | | — | | | — | | | — | | | — | |
Issuance of common stock and warrants in public offering | | 14,455,853 | | | 1 | | | 22,118 | | | — | | | 22,119 | |
Issuance of common stock upon exercise of warrants | | 8,618,089 | | | — | | | 343 | | | — | | | 343 | |
Net loss | | — | | | — | | | — | | | (9,074) | | | (9,074) | |
Balance as of December 31, 2020 | | 23,631,886 | | $ | 3 | | $ | 247,417 | | $ | (228,234) | | $ | 19,186 | |
See notes to the consolidated financial statements.
(Share and per share data reflects 1-for-30 reverse stock split effective February 11, 2020)
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Cash Flows
(In thousands)
| | | | | | | | | | | |
| | Years Ended December 31, | | |
| | 2017 | | 2016 | | 2015 | | |
| | | | | | | | |
| | | Year Ended December 31, |
| | | | | | | | |
| | | 2020 | | 2019 | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | |
Net loss | | $ | (26,745) | | $ | (23,438) | | $ | (33,314) | | | $ | (9,074) | | $ | (11,830) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 395 | | | 548 | | | 684 | | | | 46 | | | 57 | |
Loss on impairment of fixed assets | | | 41 | | | — | | | — | | |
Derivatives (gain) loss | | | 2,267 | | | (593) | | | 10,804 | | |
Non-cash interest expense | | | 5 | | | 5 | | | 5 | | |
Common stock issued to 401(k) plan | | | 183 | | | 208 | | | 201 | | |
Amortization of operating lease right-of-use assets | | | | 283 | | | 265 | |
Warrant modification expense | | | | — | | | 666 | |
Share-based compensation expense | | | 4,106 | | | 5,063 | | | 4,666 | | | | 215 | | | 268 | |
Non-cash investment (income) expense, net | | | — | | | 98 | | | — | | | | — | | | 1 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | |
Restricted cash | | | — | | | — | | | 61 | | |
Prepaid expenses | | | (89) | | | (267) | | | 888 | | | | 14 | | | 267 | |
Other assets | | | 321 | | | (324) | | | 3 | | | | — | | | (123) | |
Accounts payable | | | (23) | | | 489 | | | (48) | | | | (461) | | | 127 | |
Operating lease liability | | | | (294) | | | (144) | |
Accrued expenses and other liabilities | | | (144) | | | 1,471 | | | (279) | | | | (263) | | | 132 | |
Net cash used in operating activities | | | (19,683) | | | (16,740) | | | (16,329) | | | | (9,534) | | | (10,314) | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | |
Purchases of marketable securities | | | (8,256) | | | (18,916) | | | (5,274) | | |
Sales of marketable securities | | | 19,833 | | | 12,515 | | | — | | |
Purchases of property and equipment | | | (65) | | | (107) | | | (5) | | | | (41) | | | (12) | |
Net cash (used in) provided by investing activities | | | 11,512 | | | (6,508) | | | (5,279) | | |
Net cash used in investing activities | | | | (41) | | | (12) | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | 26 | | | 191 | | | 1,068 | | |
Proceeds from issuance of stock under ESPP | | | 51 | | | 91 | | | — | | | | — | | | 1 | |
Proceeds from exercise of warrants | | | 3 | | | — | | | 7,789 | | | | 343 | | | — | |
Repayment of loan payable | | | (423) | | | (395) | | | (250) | | | | — | | | (100) | |
Repayment of note payable | | | — | | | — | | | (18) | | |
Repurchase of warrants | | | (40) | | | — | | | — | | |
Proceeds from issuance of common stock and warrants | | | — | | | 29,905 | | | 14,480 | | |
Net cash (used in) provided by financing activities | | | (383) | | | 29,792 | | | 23,069 | | |
Increase (decrease) in cash and cash equivalents | | | (8,554) | | | 6,544 | | | 1,461 | | |
Cash and cash equivalents at beginning of period | | | 21,464 | | | 14,920 | | | 13,459 | | |
Cash and cash equivalents at end of period | | $ | 12,910 | | $ | 21,464 | | $ | 14,920 | | |
Proceeds from issuance of common stock and warrants, net of commissions and issuance costs | | | | 22,119 | | | 367 | |
Net cash provided by financing activities | | | | 22,462 | | | 268 | |
Increase / (decrease) in cash and cash equivalents and restricted cash | | | | 12,887 | | | (10,058) | |
Cash, cash equivalents and restricted cash at beginning of period | | | | 6,716 | | | 16,774 | |
Cash, cash equivalents and restricted cash at end of period | | | $ | 19,603 | | $ | 6,716 | |
Supplemental disclosure of cash flow information and non-cash investing and financing activities: | | | | | | | | | | | | | | | | | |
Fair value of warrants issued in connection with financing activities | | | | 15,194 | | | 59 | |
Cash paid for interest | | $ | 71 | | $ | 103 | | $ | 121 | | | $ | — | | $ | 1 | |
Cash paid for taxes | | $ | — | | $ | — | | $ | — | | |
Reclassification of derivative warrant liability to additional paid-in capital | | $ | — | | $ | — | | $ | 16,121 | | |
Non-cash issuance of common stock for warrants | | $ | 3,537 | | $ | 90 | | $ | 251 | | |
Right-of-use assets and lease liability recorded upon adoption of ASC 842 | | | $ | — | | $ | 1,475 | |
See notes to the consolidated financial statements.
(Share and per share data reflects 1-for-30 reverse stock split effective February 11, 2020)
InVivo Therapeutics Holdings Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per-share data)
1. NATURE OF OPERATIONS AND GOING CONCERN
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 (BCH) and the Massachusetts Institute of Technology (MIT), as well as intellectual property that has been developed internally in collaboration with its advisors and partners.
Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company has historically financed its operations primarily through the sale of equity-related securities. At December 31, 2017,2020, the Company has unrestricted consolidated cash and cash equivalents of $12,910.$19.5 million. Subsequent to December 31, 2020, and as of February 25, 2021, the Company received $8.4 million upon the exercise of certain October 2020 Series A Warrants and October 2020 Placement Agent Warrants. Given the Company’s development plans, the Company estimates cash resources will be sufficient to fund its operations through the second quarter of 2023. 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 partythird-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances, and licensing arrangements. The Company believes that it can be successful in obtaining additional capital; however, no assurance can be provided that it will be able to do so. There is no assurance, moreover, that any funds raised will be sufficient to enable the Company to attain profitable operations or continue as a going concern.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 pandemic”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 pandemic as a pandemic, based on the rapid increase in exposure globally. The Company is aware that a significant number of its clinical sites had previously temporarily suspended enrollment into the INSPIRE 2.0 Study at their institution due to the COVID-19 pandemic, and as such, the COVID-19 pandemic has affected and may continue to affect the potential for enrollment in the Company’s INSPIRE 2.0 Study as clinical sites suspend studies in order to manage the pandemic. Aside from the impact on enrollment in the Company’s INSPIRE 2.0 Study, the Company did not experience any significant impact from the COVID-19 pandemic on its financial condition, liquidity, other operations, suppliers, industry, and workforce during the year ended December 31, 2020. As of February 25, 2021, we have 17 clinical sites open for enrollment and one clinical site that is currently not open for enrollment due to reasons unrelated to the COVID-19 pandemic. The full impact of the COVID-19 pandemic continues to evolve as of the date of filing this Annual Report on Form 10-K, and we cannot be certain what future impact the COVID-19 pandemic may have on our clinical sites and their respective abilities to enroll patients. As the pandemic continues to evolve, there may be additional government actions or disruptions that could cause our clinical sites to suspend or alter operations in a manner that would impact enrollment of the INSPIRE 2.0 Study. The Company is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce, although there remains significant uncertainty related to the public health situation globally. Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is not able to estimate the ultimate effects of the COVID-19 pandemic on its future results of operations, financial condition, or liquidity in the future. However, as the COVID-19 pandemic continues, it will likely continue to have an adverse effect on enrollment in the Company’s
INSPIRE 2.0 Study, and may also have an adverse effect on the Company’s results of future operations, financial position, and liquidity, and even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in the future.
Going Concern
The Company’s financial statements as of December 31, 20172020 were prepared under the assumption that the Company will continue as a going concern. At December 31, 2017,2020, the Company had cash and cash equivalents of $12,910.$19.5 million. Subsequent to December 31, 2020, and as of February 25, 2021, the Company received $8.4 million upon the exercise of certain October 2020 Series A Warrants and October 2020 Placement Agent Warrants. Given the Company’s development plans, we estimatethe Company estimates cash resources will be sufficient to fund ourits operations intothrough the fourthsecond quarter of 2018. 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.2023.
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 financial statements, and it is likely that investors will lose all or part of their investment. If
Reverse Stock Split
On February 11, 2020, the Company seeks additional financing to fundeffected a reverse stock split of its business activitiescommon stock, par value $0.00001 per share, at a ratio of 1-for-30 (the “2020 Reverse Stock Split”). As a result of the 2020 Reverse Stock Split, (i) every 30 shares of the issued and outstanding common stock were automatically converted into one newly issued and outstanding share of common stock, without any change in the futurepar value per share; (ii) the number of shares of common stock into which each outstanding warrant or option to purchase common stock is exercisable was proportionally decreased, and there remains substantial doubt about its ability(iii) the number of authorized shares of common stock outstanding was proportionally decreased. Shares of common stock underlying outstanding stock options and other equity instruments convertible into common stock were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities.
All of the Company’s historical share and per share information related to continue asissued and outstanding common stock and outstanding options and warrants exercisable for common stock in these consolidated financial statements were adjusted, on a going concern, investors or other financing sources may be unwillingretroactive basis to provide additional fundingreflect the 2020 Reverse Stock Split.
2020 Increase in Authorized Shares
In January 2020, 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 25,000,000 to 500,000,000 (without giving effect to the 2020 Reverse Stock Split). On February 11, 2020, the Company on commercially reasonable terms or at all. Based on these factors, management determined that there is substantial doubt regardingeffected the 2020 Reverse Stock Split and the number of shares of authorized Common Stock was reduced to 16,666,667.
On August 4, 2020, the Company held its 2020 Annual Meeting of Stockholders (the “Annual Meeting”). At the Annual Meeting, the Company’s abilitystockholders approved an amendment to continue as a going concern.the Company’s Articles of Incorporation to increase the number of shares of authorized common stock from 16,666,667 to 50,000,000 shares.
2. SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed by the Company in the preparation of the financial statements is as follows:
Use of estimates
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported
amounts expensed during the reporting period. Actual results could differ from those estimates and changes in estimates may occur.
Basis of presentation and principles of consolidation
The consolidated financial statements include the accounts of InVivo Therapeutics Holdings Corp. and its wholly‑ownedwholly-owned subsidiary, InVivo Therapeutics Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.
Cash and cash equivalents
The Company considers only those investments that are highly liquid, readily convertible to cash, and that mature within three3 months from date of purchase to be cash equivalents.
From time to time, the Company may have cash balances in financial institutions in excess of insurance limits. The Company has not experienced any losses related to these balances. Management believes it is not exposed to significant credit risk. At December 31, 20172020 and 2016,2019, cash equivalents were comprised primarily of money market funds and other short-term investments.funds.
Cash and cash equivalents consist of the following:
| | | | | | | | |
| | December 31, | | |
| | | | | | | | |
| | | December 31, | | December 31, | |
(In thousands) | | 2017 | | 2016 | | | 2020 | | 2019 | |
Cash | | $ | 23 | | $ | 111 | | | $ | (13) | | $ | (15) | |
Money market funds | | | 12,887 | | | 21,353 | | | | 19,506 | | | 6,617 | |
Total cash and cash equivalents | | $ | 12,910 | | $ | 21,464 | | | $ | 19,493 | | $ | 6,602 | |
Marketable securities
The Company invests its excess cash in fixed income instruments denominated and payable in U.S. dollars, including obligations of the U.S. government and its agencies, money market instruments, money market funds, corporate obligations, asset-backed securities, and municipal obligations. As of December 31, 2017, the Company had no marketable securities. As of December 31, 2016, the Company’s investment portfolio consisted of marketable securities with an original maturity of greater than 90 days. The Company has designated all investments as available-for-sale and therefore, such investments are reported at fair value. For securities sold prior to maturity, the cost of securities sold is based on the specific identification method. Realized gains and losses on the sale of investments are recorded in interest income (expense), net. Interest is recorded when earned. Investments with original maturities greater than approximately three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. The Company considers securities with maturities of three months or less from the purchase date to be cash equivalents.
At December 31, 2017, the Company had no marketable securities. At December 31, 2016, the aggregate fair value of the Company’s marketable securities was $11,577. Gross unrealized gains and losses were insignificant for the years ended December 31, 2017 and 2016.
We conduct periodic reviews to identify and evaluate each investment that is in an unrealized loss position in order to determine whether an other-than-temporary impairment exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses on available-for-sale debt securities that are determined to be temporary, and not related to credit loss, are recorded, net of tax, in accumulated other comprehensive income (loss).
Restricted cash
Restricted cash as of December 31, 20172020 and 20162019 was $361$110 thousand and $114 thousand, respectively. Restricted cash as of December 31, 2020 included a $50 thousand security deposit related to the Company’s credit card account and a $311$60 thousand standby letter of credit in favor of a landlord (see Note 16)13).
TableRestricted cash as of ContentsDecember 31, 2019 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 13).
Financial instruments
The carrying amounts reported in the Company’s consolidated balance sheets for cash, cash equivalents marketable securities and accounts payable approximate fair value based on the short‑termshort-term nature of these instruments. The carrying value of the loan payable approximates fair value due to market terms.
Property and equipment
Property and equipment are carried at cost. Depreciation and amortization expense are recorded over the estimated useful lives of the assets using the straight‑linestraight-line method. A summary of the estimated useful lives is as follows:
| | | |
Classification |
| Estimated Useful Life |
|
Computer hardware | | 3 - 5 years | |
Software | | 3 years | |
Office furniture and equipment | | 5 years | |
Research and lab equipment | | 5 years | |
Leasehold improvements | | Remaining life of lease | |
Warrant modifications
The Company treats a modification of the terms or conditions of an equity award in accordance with Accounting Standards Codification (“ASC”) Topic 718-20-35-3 by treating the modification as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument by issuing a new instrument of equal or greater value, incurring additional cost for any incremental value. Incremental cost shall be measured as the excess, if any, of the fair value of the modified award determined in accordance with the provisions of this Topic over the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date.
Research and development expenses
Costs incurred for research and development are expensed as incurred. Certain agreements require the Company to make pre-payments for clinical research organizations (“CROs”) services. As of December 31, 2020, the Company had $1.2 million in prepayments for CRO services of which $110 thousand is included in prepaid expense and other current assets balance on the balance sheet and the remaining $1.1 million is included within the other long term assets section of the balance sheet. As of December 31, 2019, the Company had $1.2 million in prepayments for CRO services of which $120 thousand is included in prepaid expense and other current assets balance on the balance sheet and the remaining $1.1 million is included within the other long term assets balance on the balance sheet.
Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and marketable securities.equivalents. The Company maintains cash in commercial banks, which may at times exceed Federally Insured limits. The Company has not experienced any loss in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Segment information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is developing and commercializing biopolymer scaffolding devices for the treatment of spinal cord injuries. As of December 31, 20172020 and 2016,2019, all of the Company’s assets were located in one location in the United States.
Income taxes
For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, the Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are realizable. Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more‑likely‑than‑not”“more-likely-than-not” of being sustained by the applicable tax authority.
Tax positions not deemed to meet a more‑likely‑than‑notmore-likely-than-not threshold would be recorded as a tax expense in the current year.2020. There were no material uncertain tax positions that required accrual or disclosure to the financial statements as of December 31, 20172020 or 2016.2019. Tax years subsequent to 20132017 remain open to examination by U.S. federal and state tax authorities.
The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. On December
22, 2017, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.
At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law.
Impairment of long‑livedlong-lived assets
The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of long‑livedlong-lived assets may not be recoverable. An impairment loss is recognized when expected cash flows are less than an asset’s carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the
carrying value of such assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. The Company’s policy is to record an impairment loss when it is determined that the carrying value of the asset may not be recoverable. On August 28, 2017, the Company implemented a strategic restructuring and as a result recorded an impairment loss of $41 related to certain fixed assets (Note 4). No impairment charge was recorded for the year ended 2016.
Share‑basedShare-based payments
The Company accounts for all stock-based payment awards granted to employees and nonemployees using a fair value method. The Company’s stock-based payments include stock options and grants of common stock, including common stock subject to vesting. The measurement date for both employee and nonemployee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, which is the vesting period, on a straight-line basis. The measurement date for nonemployee awards is the date the services are completed, resulting in periodic adjustments to stock-based compensation during the vesting period for changes in the fair value of the awards. Stock-based compensation costs for nonemployees are recognized as expense over the vesting period on a straight-line basis. Stock-based compensation is classified in the accompanying consolidated statements of operations and comprehensive loss based on the department to which the related services are provided.
Derivative instruments
The Company generally does not use derivative instruments to hedge exposures to cash‑flowcash-flow or market risks; however,risks. In the past certain of the Company’s issued and outstanding warrants to purchase common stock that dopreviously contained anti dilution provisions. These warrants did not meet the requirements for classification as equity are classifiedand were thus recorded as derivative warrant liabilities. In such instances, net‑cashnet-cash settlement is assumed for financial reporting purposes, even when the terms of the underlying contracts do not provide for a net‑cashnet-cash settlement. Such financial instruments are initially recorded at fair value, with subsequent changes in fair value charged (credited)recorded to operations in each reporting period. If these instruments subsequently meet the requirements for classification as equity, the Company reclassifies the fair value to equity.
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 income per share of common stock has been 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. Diluted net loss per share of common stock has been computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during such period. In a net loss period, options, warrants, unvested restricted stock units and convertible securities are anti‑dilutiveanti-dilutive and therefore excluded from diluted loss per share calculations.
For the year ended December 31, 2017, 2016,2020 and 2015,2019, the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive:
| | 2017 | | 2016 | | 2015 | |
| | | | | |
| | | December 31, |
| | | 2020 | | 2019 |
Warrants | | | 24,714,084 | | 270,940 |
Stock options | | 3,369,245 | | 3,193,785 | | 3,253,310 | | 4,169 | | 4,187 |
Warrants | | 2,166,149 | | 3,391,439 | | 1,156,779 | |
Unvested restricted stock units | | 500,000 | | — | | — | |
| | 6,035,394 | | 6,585,224 | | 4,410,089 | |
Unvested RSUs | | | 100 | | 200 |
Unvested RSAs | | | 6,302 | | 6,886 |
Total potentially dilutive securities | | | 24,724,655 | | 282,213 |
RecentRecently adopted accounting pronouncements
In MarchJune 2016, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation2016-13, “Financial Instruments-Credit Losses (Topic 718)326): Measurement of Credit Losses on Financial Instruments” and subsequent amendments to the initial guidance: ASU No. 2018-19 “Codification Improvements to Employee Share-Based Accounting (“Topic 326, Financial Instruments-Credit Losses”, ASU 2016-09”)No. 2019-04 “Codification Improvements to require changesTopic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, ASU No. 2019-05 “Financial Instruments-Credit Losses”, ASU No. 2019-11 “Codification Improvements to several areasTopic 326, Financial Instruments - Credit Losses”, ASU No. 2020-02 “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)” and ASU No. 2020-03 “Codification Improvements to Financial Instruments, (collectively, “Topic 326”)”. Topic 326 requires measurement and recognition of employee share-based payment accounting in an effort to simplify share-based reporting. The update revises requirements in the following areas: minimum statutory withholding, accountingexpected credit losses for income taxes, forfeitures, and intrinsic value accounting for private entities. ASU 2016-09financial assets held. Topic 326 is effective for annualall public business entities, excluding smaller reporting companies, for periods beginning after December 15, 2016, including interim reporting periods within each annual reporting period. The Company adopted this standard on January 1, 2017. Prior to adoption, the Company recognized share-based compensation, net of estimated forfeitures, over the vesting period of the grant. Upon adoption of ASU 2016-09, the Company elected to change its accounting policy to recognize forfeitures as they occur. The Company continues to recognize share-based compensation expense over the vesting period of the grant. The new forfeiture policy election was adopted using a modified retrospective approach with a cumulative effect adjustment of $155 recorded to accumulated deficit on the balance sheet as of January 1, 2017. Prior to January 1, 2017, the Company recognized the excess tax benefits of stock-based compensation expense as additional paid-in capital2019 and tax deficiencies of stock-based compensation expense in the income tax provision or as additional paid-in capital to the extent that there were sufficient recognized excess tax benefits previously recognized. Previously, the excess tax benefits reduced taxes payable prior to being recognized as an increase in additional paid-in capital, and therefore the Company had not recognized certain deferred tax assets that could be attributed to tax deductions. As a result of the adoption, the deferred tax assets associated with certain net operating losses increased, which was offset by a corresponding increase in the valuation allowance and therefore the adoption of the tax-related guidance in this standard did not have an impact on our consolidated financial statements for the period ended December 31, 2017.
In February 2016, the FASB issued 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. The new standard is effective for annual reporting periodsother entities beginning after December 15, 2018, including interim reporting periods within each annual reporting period.2022. The Company is currently evaluatingearly adopted ASU No. 2016-13 and the impact ofrelated amending ASU’s on January 1, 2020, and the adoption of this ASU on the financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows in an effort to reduce existing diversity in practice. The update includes eight specific cash flow issues and provides guidance on the appropriate cash flow presentation for each. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company doesdid not expect the adoption of this guidance to have a material impacteffect on the Company’s financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statementposition, results of Cash Flows (Topic 230): Restricted Cash to clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. Under this new update, entities are required to show the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. This guidance will be applied retrospectively and is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company does not expect the adoption of this guidance to have a material impact on the financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”) to clarify when to account for a change to the termsoperations or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09disclosures.
is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company does not expect the adoption of this guidance to have a material impact on the financial statements.
In July 2017,August 2018, the FASB issued ASU No. 2017-11, Part I. Accounting2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Certain Financial Instruments with Down Round Features and Part II. Replacement ofFair Value Measurement” which improves the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this 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 isare effective for annual reportingall entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, including2019. 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 reportingor annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods within each annual reporting period.presented upon their effective date. Early adoption is permitted upon issuance of this ASU. The Company has concluded thatadopted ASU No. 2018-13 on January 1, 2020, and the adoption of this ASU willdid not have a material impacteffect on the Company’s financial statements.position, results of operations or disclosures.
In May 2014,November 2019, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) to provide updated guidance on revenue recognition. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies may need to use more judgment2019-08 “Compensation - Stock Compensation (Topic 718) and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral ofCodification Improvements - Share-Based Consideration Payable to a Customer.” ASU No. 2019-08 amends and clarifies ASU No. 2018-07, which we adopted on January 1, 2019, to require that an entity measure and classify share-based payment awards granted to a customer by applying the Effective Date, which deferredguidance in Topic 718. For entities that have already adopted the effective date ofamendments in ASU 2014-09 by one year. Accordingly,No. 2018-07, the amendments in this ASU 2014-09 isare effective for public business entities for annual reporting periodsfiscal years beginning after December 15, 2017, including2019, and for interim reporting periods within each annual reporting period. those fiscal years, with early adoption permitted. The Company adopted ASU No. 2019-08 on January 1, 2020, and the adoption did not have any impact on the Company’s financial position, results of operations or disclosures.
In March 2016,December 2019, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers2019-12, Simplifications to Accounting for Income Taxes (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross Versus Net), which clarifies740). The amendments in this ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. This ASU also adds guidance to reduce complexity in certain areas, including deferred taxes for goodwill and allocating taxes for members of a consolidated group. This ASU is effective for all entities for fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company adopted ASU No. 2019-12 on January 1, 2020, and the implementation guidanceadoption did not have any impact on principal versus agent considerations. the Company’s financial position, results of operations or disclosures.
New Accounting Pronouncements Not Yet Adopted
In April 2016,January 2020, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers2020-01 “Investments—Equity Securities (Topic 606): Identifying Performance Obligations321), Investments—Equity Method and LicensingJoint Ventures (Topic 323), which clarifiesand Derivatives and Hedging (Topic 815) —clarifying the interactions between Topic 321, Topic 323 and Topic 815 (a consensus of the emerging issues task force)”. The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain aspectsderivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of identifying performance obligationsthe accounting for these interactions. The pronouncement is effective for fiscal years, and licensing implementation guidance. for interim periods within those fiscal years, beginning after December 15, 2021. ASU No. 2020- 01 is effective for the Company beginning in fiscal 2022. The Company is currently in the process of evaluating the effects of this pronouncement on its financial statements.
In May 2016,August 2020, the FASB issued ASU No. 2016-12, Revenue from2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts with Customers (Topic 606): Narrow-Scope Improvementsin Entity’s Own Equity”, related to the measurement and Practical Expedients, which relates to disclosuresdisclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration,convertible instruments and the presentation of sales and other similar taxes collected from customers. These standards aresettlement assessment for contracts in an entity's own equity. This pronouncement is effective for annual reporting periods beginning after December 15, 2017, includingfiscal years, and for interim reporting periods within each annual reporting period. Currently, this guidance is not applicable to the Company as the Company does not generate revenue. However, the Company will adopt the guidance and evaluate the impact of adopting ASU 2014-09 on the consolidated financial statements when the Company begins to generate revenue.
3. MARKETABLE SECURITIES
those fiscal years, beginning in fiscal 2022. The Company investsis currently in the process of evaluating the effects of this pronouncement on its excess cash in fixed income instruments denominated and payable in U.S. dollars including money market accounts, commercial paper, and corporate obligations in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.financial statements.
The following table summarizes the Company’s cash, cash equivalents, and marketable securities as of December 31, 2017 and 2016:
| | | | | | |
| | |
| | | December 31, | | | December 31, |
(In thousands) | | 2017 | | 2016 |
Cash | | $ | 23 | | $ | 111 |
Money market funds | | | 12,887 | | | 21,353 |
Marketable securities | | | — | | | 11,577 |
Total cash, cash equivalents and marketable securities | | $ | 12,910 | | $ | 33,041 |
As of December 31, 2017, the Company had no marketable securities. As of December 31, 2016, the Company’s investment portfolio consisted of cash, money market funds and marketable securities with an original maturity of greater than 90 days. The Company has designated all investments as available-for-sale and therefore, such investments are reported at fair value.
The following table summarizes the Company’s short-term investments in marketable securities by category as of December 31, 2016:
| | | | | | | | | | | | | |
(In thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | | Fair Value |
December 31, 2016 | | | | | | | | | | | | | |
Current (due within 1 year or less) | | | | | | | | | | | | | |
Commercial paper | | $ | 4,240 | | | — | | | — | | $ | 4,240 | |
Corporate obligations | | | 7,337 | | | — | | | — | | | 7,337 | |
Total | | $ | 11,577 | | $ | — | | $ | — | | $ | 11,577 | |
As of December 31, 2016, the Company’s investments in marketable securities are classified in current assets as they are due in one year or less.
4.3. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following:
| | | | | | | | |
| | 2017 | | 2016 | | |
| | | | | | | | |
| | | December 31, | | December 31, | |
(In thousands) | | | 2020 | | 2019 | |
Computer software and hardware | | $ | 241 | | $ | 606 | | | $ | 40 | | $ | 131 | |
Research and lab equipment | | | 508 | | | 1,895 | | | | 520 | | | 520 | |
Leasehold improvements | | | 431 | | | 431 | | | | 66 | | | 66 | |
Office equipment | | | 796 | | | 796 | | |
Less accumulated depreciation and amortization | | | (1,819) | | | (3,218) | | |
Property and equipment | | | | 626 | | | 717 | |
Less accumulated depreciation | | | | (541) | | | (644) | |
Property and equipment, net | | $ | 157 | | $ | 510 | | | $ | 85 | | $ | 73 | |
Depreciation expense for the years ended December 31, 2017, 2016,2020 and 20152019, was $377, $536,$29 thousand, and $672,$39 thousand, respectively. Maintenance and repairs are charged to expense as incurred and any additions or improvements are capitalized. On August 28, 2017,
During the year ended December 31, 2020, the Company implemented a strategic restructuring and as a result wrote off $1,807$132 thousand of fully depreciated computer software and hardware assets and also recorded an impairment loss of $41 related to certain fixed assetsthat were no longer in connection with the restructuring.use. The Company had no disposals fordid not write off any assets during the yearsyear ended 2016.December 31, 2019.
5.4. INTANGIBLE ASSETS
Intangible assets included in “other assets,”assets” on the balance sheet consisted of patent licensing fees paid to license intellectual property (see Note 15)12). The Company is amortizing the license fee as a research and development expense over the 15–year term of the license.
| | | | | | | | |
| | 2017 | | 2016 | | |
| | | | | | | | |
| | | December 31, | | December 31, | |
(In thousands) | | | 2020 | | 2019 | |
Patent licensing fee | | $ | 200 | | $ | 200 | | | $ | 200 | | $ | 200 | |
Accumulated amortization | | | (139) | | | (122) | | | | (191) | | | (174) | |
| | $ | 61 | | $ | 78 | | |
Other assets | | | $ | 9 | | $ | 26 | |
For each of the years ended December 31, 2017, 2016,2020 and 2015, the2019, amortization expense was $17. Amortization expense is expected to$17 thousand and $18 thousand respectively. The remaining intangible assets balance of $9 thousand as of December 31, 2020 will be $17 perfully amortized in the year for 2018, 2019, and 2020, and $10 inended December 31, 2021.
6.5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
| | | | | | | |
| | December 31, | |
(In thousands) | | 2017 | | 2016 | |
Bonus | | $ | 62 | | $ | 906 | |
Payroll | | | 79 | | | 126 | |
Vacation | | | 55 | | | 91 | |
Severance | | | 1,160 | | | 385 | |
Other accrued expenses | | | 282 | | | 451 | |
Total accrued expenses | | $ | 1,638 | | $ | 1,959 | |
| | | | | | | |
| | December 31, | | December 31, | |
(In thousands) | | 2020 | | 2019 | |
Compensation | | $ | 996 | | $ | 1,040 | |
Clinical | | | 5 | | | 143 | |
Legal | | | 17 | | | 37 | |
Other accrued expenses | | | 146 | | | 207 | |
Total accrued expenses | | $ | 1,164 | | $ | 1,427 | |
7.6. FAIR VALUES OF ASSETS AND LIABILITIES
The Company groups its assets and liabilities generally measured at fair value in three3 levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2—Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The Company uses valuation methods and assumptions that consider, among other factors, the fair value of the underlying stock, risk‑free interest rate, volatility, expected life, and dividend rates in estimating the fair value for the warrants considered to be derivative instruments.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| | | | | | | | | | | | | | |
| | At December 31, 2017 | | |
| | | | | | | | | | | | | | |
| | | At December 31, 2020 | |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Fair Value | |
Cash equivalents | | $ | 12,887 | | $ | — | | $ | — | | $ | 12,887 | | | $ | 19,506 | | $ | — | | $ | — | | $ | 19,506 | |
Marketable securities | | $ | — | | $ | — | | $ | — | | $ | — | | |
Derivative warrant liability | | $ | — | | $ | 4 | | $ | — | | $ | 4 | | |
| | | | | | | | | | | | | | |
| | At December 31, 2016 | | |
| | | | | | | | | | | | | | |
| | | At December 31, 2019 | |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Fair Value | |
Cash equivalents | | $ | 21,353 | | $ | — | | $ | — | | $ | 21,353 | | | $ | 6,617 | | $ | — | | $ | — | | $ | 6,617 | |
Marketable securities | | $ | — | | $ | 11,577 | | $ | — | | $ | 11,577 | | |
Derivative warrant liability | | $ | — | | $ | 1,314 | | $ | — | | $ | 1,314 | | |
8. 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 $2,000 line of credit from the Commonwealth of Massachusetts’s Emerging Technology fund, with $200 designated to be used for working capital purposes and the remainder to be used for the purchase of capital equipment. The annual interest rate on the loan is fixed at 6.5% with interest-only payments for the first thirty months, commencing on November 1, 2012, and then equal interest and principal payments over the next fifty‑four months, until the final maturity of the loan on October 5, 2019. Commencing
on May 1, 2015, equal monthly principal payments of $41 are due until loan maturity. Therefore, forDuring the years endingended December 31, 2018,2020 and 2019, principal payments of $452 and $400, respectively, will be due. In October 2012, as part of the agreement, the Company issued MassDev a warrant for the purchase of 9,037 shares of the Company’s common stock. The warrant has a seven-year term and is exercisable at $6.64 per share.there were no transfers between levels. The fair value of the warrant was determinedCompany’s cash equivalents, consisting of a money market fund, is based on quoted market prices in active markets with no valuation adjustment.
The Company believes the carrying amounts of its prepaid expenses and other current assets, restricted cash, accounts payable and accrued expenses approximate their fair value due to be $32 and is being amortized through interest expense over the lifeshort-term nature of the note. For each of the years ended December 31, 2017, 2016, and 2015 amortization expense was $5, and was included in interest expense in the Company’s consolidated statements of operations. The equipment line of credit is secured by substantially all the assets of the Company, excluding intellectual property. Interest expense related to this loan was $71, $99, and $126 for the years ended December 31, 2017, 2016, and 2015, respectively.these amounts.
At December 31, loans payable consisted of the following:
| | | | | | | |
| | December 31, | |
| | 2017 | | 2016 | |
MassDev Loan | | $ | 852 | | $ | 1,275 | |
Less: current portion | | | (452) | | | (423) | |
| | $ | 400 | | $ | 852 | |
9.7. INCOME TAXES
No provision or benefit for federal or state income taxes has been recorded as the Company has incurred a net loss for all of the periods presented and the Company has provided a full valuation allowance against its deferred tax assets.
At December 31, 2017,2020, the Company had U.S. federal and Massachusetts net operating loss carryforwards of $117,298$148.9 million and $109,183,$140.8 million, respectively, of which $117.3 million of federal carryforwards will expire in varying amounts beginning in 2026. Massachusetts2026 and $31.6 million carry forward indefinitely. State net operating losses begin to expire in 2029. UtilizationUtilization of net operating losses and tax credit carryforwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code, and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization. The Company has completed several financings since its inception, which may have resulted in a change in ownership, or could result in a change in ownership in the future but has not yet completed ana Section 382 analysis of whether an ownership change limitation exists. The Company will complete an appropriate analysis before its tax attributes are utilized. The Company also had federal and state research and development tax credits of $991$1.4 million and $230,$0.2 million respectively, at December 31, 2017,2020, which will begin to expire in 20222026 and 2029, respectively, unless previously utilized.
On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act, including the effects on our existing deferred tax balances. In addition to the reduction in the federal corporate tax rate, which we have accounted for with provision estimates at December 31, 2017, we continue to analyze the provisions of tax reform that become effective for the Company in 2018 including the provisions related to Global Intangible Low Taxed Income, Foreign Derived Intangible Income, Base Erosion Anti-Abuse Tax, as well as other provisions which would limit the deductibility of future expenses.
As a result of the Act, we remeasured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. This resulted in a decrease to our gross deferred tax assets and a corresponding decrease in our valuation allowance of $15,521. Any items reported are done so using provisional amounts until the initial accounting required by the Act is complete. Additional time and resources are needed to ensure the correct implementation of the Act.
Significant components of the Company’s net deferred tax assets are as follows:
| | | | | | | | |
| | December 31, | | |
| | 2017 | | 2016 | | |
| | | | | | | | |
| | | December 31, | |
(In thousands) | | | 2020 | | 2019 | |
Net operating loss carryforward | | $ | 31,533 | | $ | 37,245 | | | $ | 40,175 | | $ | 37,744 | |
Research and development credit carryforward | | | 1,173 | | | 1,065 | | | | 1,608 | | | 1,544 | |
Stock-based compensation | | | 2,828 | | | 5,235 | | | | 421 | | | 2,319 | |
Depreciation and amortization | | | 71 | | | 31 | | | | 16 | | | 17 | |
Accrued expenses | | | 357 | | | 264 | | | | 7 | | | 19 | |
Charitable contributions | | | 27 | | | 63 | | |
Lease liability | | | | 279 | | | 360 | |
Right of use asset | | | | (253) | | | (331) | |
Subtotal | | | 35,989 | | | 43,903 | | | | 42,253 | | | 41,672 | |
Valuation allowance | | | (35,989) | | | (43,903) | | | | (42,253) | | | (41,672) | |
Net deferred taxes | | $ | — | | $ | — | | | $ | — | | $ | — | |
The Company has maintained a full valuation allowance against its deferred tax assets in all periods presented. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of generating taxable income and thereby realizing the net deferred tax assets, a full valuation allowance has been provided. During the year ending December 31, 2017, the Company adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. As part of the adoption, the Company recorded through retained earnings additional deferred tax assets of $642 related to previously unrecognized tax losses with an equal and offsetting adjustment to the Company's valuation allowance. The net impact of the adoption on the Company's deferred tax assets was $0. In the years ended December 31, 20172020 and 2016,2019, the valuation allowance decreasedincreased by $7,914$0.6 million and increased $9,406,$3.0 million, respectively.
The Company has no uncertain tax positions at December 31, 20172020 and 20162019 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of uncertain tax positions over the next twelve12 months. Since the Company is in a loss carryforward position, the Company is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available.
Income tax benefits computed using the federal statutory income tax rate differ from the same benefits computed using the Company’s effective tax rate primarily due to the following:
| | | | | | | | |
| | December 31, | | |
| | 2017 | | 2016 | | 2015 | | |
| | | | | | |
| | | December 31, |
| | | 2020 | | 2019 | |
Statutory rate | | (34.0) | % | (34.0) | % | (34.0) | % | | (21.0) | % | (21.0) | % |
State taxes, net of benefit | | (4.7) | % | (5.4) | % | (3.5) | % | | (5.8) | % | (5.7) | % |
Permanent differences: | | | | | | | | | | | | |
Derivative losses | | 2.9 | % | (0.9) | % | 11.0 | % | |
Warrant modification expense | | | — | % | 1.2 | % |
Other | | 1.1 | % | 0.2 | % | 0.3 | % | | 0.3 | % | 0.4 | % |
Research and development tax credit | | (0.2) | % | (0.5) | % | (0.4) | % | | (1.1) | % | (1.4) | % |
Stock-based compensation | | | 21.2 | % | — | % |
Other | | 1.4 | % | 0.5 | % | 0.4 | % | | — | % | 1.2 | % |
Adoption of ASU 2016-09 | | 7.4 | % | — | % | — | % | |
Increase / (decrease) in valuation reserve | | (32.0) | % | 40.1 | % | 26.2 | % | | 6.4 | % | 25.3 | % |
Change in federal tax rate | | 58.1 | % | — | % | — | % | |
Effective tax rate | | 0.0 | % | 0.0 | % | 0.0 | % | | 0.0 | % | 0.0 | % |
10. COMMON STOCK
The Company has authorized 100,000,000is subject to U.S. Federal and Massachusetts state income taxes. The statute of limitations for assessment by the Internal Revenue Service or state tax authority is generally open for the tax years ending December 31, 2017 through December 31, 2020, however federal and state tax attributes that were generated prior to the tax year ending December 31, 2017 may still be adjusted upon examination by the Internal Revenue Service or stat tax authority if the attributes either have been, or will be, used in a future period.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several changes to the Internal Revenue Code. The changes include, but are not limited to: increasing the limitation on the amount of deductible interest expense, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income. The tax law changes in the Act did not have a material impact on the Company’s income tax provision.
8. COMMON STOCK
In January 2020, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation to increase the number of shares of authorized common stock $0.00001 par value per share,from 25,000,000 to 500,000,000 (without giving effect to the 2020 Reverse Stock Split). On February 11, 2020, the Company effected the 2020 Reverse Stock Split and the number of which 34,274,776,shares of authorized common stock was reduced to 16,666,667. On August 4, 2020, the Company held the Annual Meeting. At the Annual Meeting, 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 16,666,667 to 50,000,000 shares. As of December 31, 2020 and 2019, 23,631,886 and 550,736 shares were issued and outstanding respectively.
In October 2020, the Company completed a registered public offering (the “October 2020 Offering”) in which it sold an aggregate of (i) 11,785,000 shares of 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 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, the Company 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 the Company’s 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 the Company, after deducting Wainwright's placement agent fees and other offering expenses payable by the Company, were approximately $13.5 million. The Company assessed whether the October 2020 Series A Warrants, October 2020 Series B Pre-funded Warrants and the October 2020 Placement Agent Warrants required accounting as derivatives and determined that they were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. As such, the Company concluded that the October 2020 Series A Warrants, October 2020 Series B Pre-funded Warrants and the October 2020 Placement Agent Warrants meet the scope exception for determining whether the instruments require accounting as derivatives and accordingly are classified in stockholders’ equity. The fair value of December 31, 2017the October 2020 Series A Warrants and 32,044,087 shares were issuedOctober 2020 Placement Agent Warrants was estimated at $8.7 million and outstanding as$551.3 thousand, respectively, using a Black-Scholes model with the following assumptions: expected volatility of December 31, 2016.
119.13%, risk free interest rate of 0.35%, expected life of 5 years and no dividends. The October 2020 Series B Pre-funded Warrants had an intrinsic value of approximately $5.6 million. During the year ended December 31, 2017,2020, the Company issued an aggregate of 89,3876,965,000 shares of 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. The Company did not issue any shares as a result of October 2020 Series A Warrants or October 2020 Placement Agent Warrants exercise activity during the year ended December 31, 2020.
In April 2020, the Company entered into a securities purchase agreement (the "April 2020 Purchase Agreement") with certain institutional investors (the "April 2020 Purchasers"), pursuant to which the Company agreed to sell and issue, in a registered direct offering, an aggregate of 1,715,240 of common stock, optionsat a purchase price per share of $1.75 (the "April 2020 Shares" "; the offering, the “April 2020 Registered Offering). The April 2020 Shares were offered by the Company pursuant to a shelf registration statement on Form S-3, which was declared effective by the SEC on November 14, 2019 (File No. 333-234353) and received casha prospectus supplement thereunder. Pursuant to the April 2020 Purchase Agreement, in a concurrent private placement, the Company also issued to the April 2020 Purchasers warrants (the "April 2020 Series C Warrants") to purchase up to 1,715,240 shares of 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, the Company also issued to Wainwright warrants to purchase an aggregate of 111,491 shares of the Company’s common stock (“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 fromto the Company, after deducting Wainwright's placement agent fees and other offering expenses payable by the Company, were approximately $2.6 million. The Company assessed whether the April 2020 Series C Warrants, and the April 2020 Placement Agent Warrants required accounting as derivatives and determined that they were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. As such, exercisesthe Company concluded that the April 2020 Series C Warrants and the April 2020 Placement Agent Warrants meet the scope exception for determining whether the instruments require accounting as derivatives and accordingly are classified in stockholders’ equity. The fair value of $26.
the April 2020 Series C Warrants was estimated at $2.1 million, using a Black-Scholes model with the following assumptions: expected volatility of 115.84%, risk free interest rate of 0.40%, expected life of 5.5 years and no dividends. The fair value of the April 2020 Placement Agent Warrants was estimated at $128 thousand, using a Black-Scholes model with the following assumptions: expected volatility of 116.14%, risk free interest rate of 0.36%, expected life of 5 years and no dividends. During the year ended December 31, 2017,2020, the Company issued an aggregate of 3,46435,000 shares of common stock upon the exercise of certain of the April 2020 Series C warrants and received cashfor aggregate proceeds from such exercises of $3.
$57 thousand. During the year ended December 31, 2017,2020, the Company issueddid not issue any shares as a result of April 2020 Placement Agent Warrants exercise activity.
In March 2020, the Company completed a registered public offering (the “March 2020 Offering”) in which it sold an aggregate of 98,319(i) 955,613 shares of common stock with a fair value of $183 to the Company’s 401(k) plan as a matching contribution.
During the year ended December 31, 2017, the Company issued(the “March 2020 Shares”) and Series A Warrants exercisable for an aggregate of 17,750955,613 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 common stock under the Company’s Employee Stock Purchase Plan (the “ESPP”“March 2020 Series B Warrants”) and received cash proceedsSeries A Warrants exercisable for an aggregate of $51.
During1,589,842 shares of our common stock (also the year ended December 31, 2017,“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, the Company issued, an aggregate of 2,021,419 shares of common stock to certain holders of warrants, dated May 9, 2014, in exchangeWainwright the placement agent for theirthe March 2020 Offering, warrants to purchase an aggregate of 577,548165,455 shares of the Company’s common stock (the “March 2020 Placement Agent Warrants”), which represents a number of shares of common stock. The Company did not receive any cash proceeds from the warrant exchanges (see Note 13).
On January 25, 2018, we entered into a purchase and a registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), under which we have the rightstock equal to sell up to $15,000 in shares of our common stock, $0.00001 par value per share, to Lincoln Park over a twenty-four-month period, subject to certain limitations and conditions set forth in the purchase agreement and registration rights agreement. In accordance with the terms6.5% of the purchase agreement, at the time we signed the purchase agreement and the registration rights agreement, we issued 429,800 shares to Lincoln Park as consideration for its commitment to purchase sharesaggregate number of our common stock under the purchase agreement (see Note 19).
In March 2016, the Company closed an underwritten public offering of an aggregate of 4,293,333 shares of common stock and warrants to purchaseMarch 2020 Series B Warrants sold in the March 2020 Offering. The March 2020 Placement Agent Warrants have an aggregateexercise price of 2,146,666 shares of common stock, at a price to the public of $7.49$3.4375 per share, of common stockare immediately exercisable and $0.01 per warrant.expire in March 2025. The net proceeds to the Company, after deducting underwriting discountsWainwright's placement agent fees and other offering expenses payable by the Company, were approximately $29,905.$6.0 million. The warrants have a per share exercise price of $10.00, or approximately 133%Company assessed whether the March 2020 Series A Warrants, March 2020 Series B Warrants and the March 2020 Placement Agent Warrants required accounting as derivatives and determined that they were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. As such, the Company concluded that the March 2020 Series A Warrants, March 2020 Series B Warrants and the March 2020 Placement Agent Warrants meet the scope exception for determining whether the instruments require accounting as derivatives and accordingly are classified in stockholders’ equity. The fair value of the public offering priceMarch 2020 Series A warrants and March 2020 Placement Agent Warrants was estimated at $3.5 million and $218 thousand, respectively, using a Black-Scholes model with the following assumptions: expected volatility of the common stock, are exercisable immediately,115.22%, risk free interest rate of 0.63%, expected life of 5 years and expire onno dividends. The March 18, 2021. The warrants contain a cashless exercise feature whereby shares are withheld to cover the exercise cost and the warrant holder receives a net issuance2020 Series B Warrants had an intrinsic value of the remaining shares. The Company intends to use the net proceeds from the offering to fund ongoing clinical trials and for general corporate purposes.
approximately $4.4 million. During the year ended December 31, 2016,2020, the Company issued an aggregate of 135,2051,577,114 shares of 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. During the year ended December 31, 2020, the Company did not issue any shares as a result of the March 2020 Placement Agent Warrants or March 2020 Series A Warrants exercise activity.
In November 2019, the Company closed a public offering of an aggregate of 233,341 shares of its common stock, optionsat an offering price of $3.60 per share (the offering, the “2019 Offering”). The net proceeds to the Company after deducting placement agent fees and received cash proceeds fromother offering expenses, were $367 thousand. In connection with the 2019 Offering, the Company agreed to issue, and in January 2020 issued, to designees of Wainwright, the placement agent for the 2019 Offering, warrants to purchase an aggregate of 15,168 shares of the Company’s common stock (the “2019 Placement Agent Warrants”). The 2019 Placement Agent Warrants have an exercise price of $4.50 per share, are immediately exercisable and expire in November 2024. The Company assessed whether the 2019 Placement Agent Warrants required accounting as derivatives and determined that they were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with ASC Topic 815, Derivatives and Hedging. As such, exercisesthe Company concluded that the 2019 Placement Agent Warrants meet the scope exception for determining whether the instruments require
accounting as derivatives and accordingly are classified in stockholders’ equity. The fair value of the 2019 Placement Agent Warrants was estimated at $59 thousand using a Black-Scholes model with the following assumptions: expected volatility of 100.82%, risk free interest rate of 1.61%, expected life of 5 years and no dividends. During the year ended December 31, 2020, there was no exercise activity related to the 2019 Placement Agent Warrants.
During the year ended December 31, 2016,2020 the Company issued an aggregate of 4,979 shares of common stock upon the cashless exercise of warrants.
During the year ended December 31, 2016, the Company issued an aggregate of 37,528 shares of common stock with a fair value of $208 to the Company’s 401(k) plan as a matching contribution.
During the year ended December 31, 2016, the Company issued an aggregate of 16,729 shares of common stock under the ESPP and received cash proceeds of $91.
During the year ended December 31, 2015, the Company issued an aggregate of 316,17740,975 shares of common stock upon the exercise of stock options, including stock optionscertain warrants issued in 2018 for aggregate proceeds of $286 thousand. During the year ended December 31, 2019, there was no exercise activity related to purchase 52,224any of the warrants that were issued in 2018.
In January 2019, 36 shares of common stock exercised through cashless exercise provisions resultingthat were purchased pursuant to the Company’s ESPP in the issuance of 14,961offering period commencing on July 1, 2018 and ending on December 31, 2018 were issued. During the year ended December 31, 2020, the Company did not issue any shares of common stock and stock options to purchase 301,216 shares of common stock exercised for cash, providing cash proceeds of $1,068.under the Company’s ESPP.
During the year ended December 31, 2015,2019, the Company issued an aggregate of 1,379,575143 shares of common stock upon vesting of restricted stock units. During the exerciseyear ended December 31, 2020, the Company issued an aggregate of warrants, including warrants to purchase 40,955100 shares of common stock exercised through cashless exercise provisions resulting inupon vesting of restricted stock units.
During the issuanceyear ended December 31, 2019, the Company issued an aggregate 6,886 restricted stock awards (“RSAs”) to its employees under the 2015 Equity Incentive Plan. These awards are considered issued and outstanding based on the dividend payment rights and the conveyance of 25,052 sharesvoting rights that was granted to the grant holders. During the year ended December 31, 2020, 584 restricted stock awards that were considered issued and outstanding as of common stock and warrants to purchase 1,354,523 shares of common stock exercised for cash, providing net cash proceeds of $7,789.December 31, 2019 were forfeited.
During the year ended December 31, 2015, the Company issued an aggregate of 17,437 shares of common stock with a fair value of $201 to the Company’s 401(k) plan2020, as a matching contribution.
In January 2015, the Company closed a registered direct offering of an aggregate of 2,000,000 shares of common stock, resulting in net proceeds of $11,038.
As part of the adjustment to reflect the Company’s 1-for-4 reverse stock split on its common stock on April 8, 2015,2020 Reverse Stock Split, the Company issued 1,5147,692 shares of common stock to account for the fractional roundup of shareholders.
In July 2015, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) pursuant to which the Company may issue and sell from time to time shares of common stock having aggregate sales proceeds of up to $50,000 through an “at the market” equity offering program under which Cowen acts as the Company’s sales agent. The Company is required to pay Cowen a commission of 3% on the gross proceeds from the sale of shares of common stock under the Sales Agreement. The Company issued 388,245 shares of common stock under the Sales Agreement during the year ended December 31, 2015, providing cash proceeds of $3,442, net, through this facility.
Common Stock Reserves
As of December 31, 2017,2020, the Company had the following reserves established for the future issuance of common stock as follows:
| | | |
| | At December 31, 2020 | |
Reserves for the exercise of warrants | | 2,166,14924,714,084
| |
Reserves for the exercise of stock options | | 3,369,2454,169
| |
Reserves for the vesting of restricted stock unitsRSUs | | 500,000100
| |
Total Reserves | | 6,035,39424,718,353
| |
11. DERIVATIVE INSTRUMENTS
The warrants issued in connection with the Company’s May 2014 public offering to purchase 1,750,156 shares of the common stock (see Note 10) have anti-dilution protection provisions and, under certain conditions, require the Company to automatically reprice the warrants. Accordingly, these warrants are accounted for as derivative warrant liabilities. Through the date of the warrant exchange (Note 13), the Company used the Binomial Lattice option pricing model and assumptions that consider, 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 warrants considered to be derivative instruments. As of December 31, 2017 the derivative warrant liability was insignificant. Changes in the fair value of the derivative financial instruments are recognized currently in the Company’s consolidated statement of operations as a derivative gain or loss. The warrant derivative gains or losses are non-cash expenses and for the years ended December 31, 2017, 2016, and 2015, a (gain) loss of $2,267, $(593) and $10,804, respectively, were included in other income (expense) in the Company’s consolidated statement of operations.
The fair value of these derivative instruments at December 31, 2017 and 2016 was $4 and $1,314, respectively, and was included as a derivative warrant liability in current liabilities. The assumptions used principally in determining the fair value of warrants were as follows:
| | | | | | | |
| | December 31, | |
| | 2017 | | 2016 | | 2015 | |
Risk-free interest rate | | 1.91 | % | 1.20 | % | 0.65 | % |
Expected dividend yield | | 0 | % | 0 | % | 0 | % |
Contractual term | | 1.35 | years | 2.4 | years | 3.4 | years |
Expected volatility | | 82 | % | 89 | % | 100 | % |
The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying common stock for each reporting period.
The table below presents the changes in derivative warrant liability during the years ended December 31, 2017, 2016, and 2015:
| | | | | | | | | | |
| | Year Ended December 31, | |
| | 2017 | | 2016 | | 2015 | |
Balance at beginning of year | | $ | 1,314 | | $ | 1,907 | | $ | 7,224 | |
Increase in derivative liability prior to warrant exchange | | | 3,029 | | | — | | | — | |
Reduction in derivative liability due to warrant exchange | | | (3,537) | | | — | | | — | |
Repurchase of warrants | | | (40) | | | — | | | — | |
Fair value of derivative warrant liability reclassified to additional paid in capital | | | — | | | — | | | (16,121) | |
Increase (decrease) in the fair value of warrants | | | (762) | | | (593) | | | 10,804 | |
Balance at end of year | | $ | 4 | | $ | 1,314 | | $ | 1,907 | |
12.9. SHARE-BASED COMPENSATION, STOCK OPTIONS, AND RESTRICTED SECURITIES
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”). Pursuant to theThe 2007 Plan provided that the Company’s Board of Directors (or committees and/or executive officers delegated by the Board of Directors) maycould grant incentive and nonqualified stock options to the Company’s employees, officers, directors, consultants and advisors. As of December 31, 2017, there were options to purchase an aggregate of 46,476 shares of common stock outstanding under the 2007 Plan and no shares available for future grants under the 2007 Plan.
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 providesprovided for grants of incentive stock options to employees, and nonqualified stock options and restricted common stock to employees, consultants, and non‑employeenon-employee directors of the Company.
In April 2015, the Company’s Board of Directors adopted, and the Company’ 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, restricted common stock, restricted stock units and stock appreciation rights to employees, consultants, and directors of the Company.
As of December 31, 2017, the total number of shares authorized for issuance under the 2015 Plan was 4,322,355 shares, consisting of 4,000,000 shares initially approved under the 2015 Plan plus the 322,355 shares that remained available for grant under the 2010 Plan at the time of its termination. Upon approval of the 2015 Plan by the Company’s shareholders on June 16, 2016,2015, the 2010 Plan was terminated and no additional shares or share awards have been subsequently granted under the 2010 Plan. In March 2019, the Company’s Board approved, and recommended to the Company’s shareholders for approval, an amendment to
the 2015 Plan (the “2015 Plan Amendment”), and on January 21, 2020, the Company’ shareholders subsequently approved the 2015 Plan Amendment. The 2015 Plan Amendment increased the maximum number of shares reserved for issuance under the 2015 Plan by 26,667 shares to a total of 32,000 shares. In June 2020, the Company’s Board approved, and recommended to the Company’s shareholders for approval, another amendment to the 2015 Plan to increase the number of shares available for issuance by 400,000 shares, and on August 4, 2020, the Company’ shareholders subsequently approved that amendment. As of December 31, 2017, there were outstanding options2020, the total number of shares available to purchase an aggregate of 1,878,125 and 1,444,644 shares of common stockbe issued under the 2015 Plan andwas 427,272 shares, consisting of, (i) 5,333 shares initially authorized under the 2015 Plan shares plus (ii) the shares that remained available for grant under the 2010 Plan respectively. at the time of its termination adjusted for cumulative cancellations, forfeitures and issuances from the 2010 Plan and 2015 Plan, (iii) the 26,667 shares approved for increase during the January 2020 shareholders meeting and (iv) the 400,000 shares approved for increase during the August 2020 shareholders meeting.
Options issued under the Plans are exercisable for up to 10 years from the date of issuance.
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 a year through after-tax payroll deductions at a discount from market. The Company’s Board of Directors initially authorized 187,500250 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) 50,00067 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 1,250,0001,667 shares. In December 2020, pursuant to the authority granted to it under the ESPP, the Company’s Board of Directors terminated the ESPP. As a result of such termination, as of December 31, 2020, there were no shares reserved for issuance under the ESPP.
The 2015 ESPP iswas considered a compensatory plan with the related compensation cost recognized over each respective six6 month offering period. As of December 31, 2017, approximately $3 of employee payroll deductions had
been withheld since July 1, 2017, the commencement of the offering period, and are included in accrued expenses in the accompanying balance sheet. The compensation expense related to the ESPP for theDuring years ended December 31, 20172020 and 20162019, none of the Company’s employees participated in the ESPP plan and consequently no compensation expense was $14 and $46, respectively, and is included in stock-based compensation expense. In January 2018, 4,691 shares that were purchased as of December 31, 2017 were issued under the ESPP.recorded.
Share‑basedShare-based compensation
For the years ended December 31, 2017, 20162020 and 2015,2019, the Company recorded stock‑basedstock-based compensation expense of $4,106, $5,063$215 thousand and $4,666,$268 thousand, respectively, net of forfeitures, inclusiveforfeitures. Stock-based compensation recognized was classified in the consolidated statements of the expense related to the ESPP.operations as follows:
| | | | | |
| Year Ended December 31, |
(In thousands) | 2020 | | 2019 |
Research and development | $ | 40 | | $ | 94 |
General and administrative | | 175 | | | 174 |
Total | $ | 215 | | $ | 268 |
The fair value of each option award is estimated on the date of grant using the Black‑ScholesBlack-Scholes option pricing model, which uses the assumptions noted in the following table. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the financial statements, to estimate option exercises within the valuation model. The expected term of options granted under the Plans, all of which qualify as “plain vanilla,” is based on the average of the contractual term (10 years) and the vesting period (generally, 48 months). For non‑employeenon-employee options, the expected term is the contractual term. The risk‑freerisk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. The impact of forfeitures on compensation expense is recorded as they occur.
The Company did not grant any awards during the year ended December 31, 2020. The assumptions used principally in determining the fair value of options granted during the year ended year ended December 31, 2019, were as follows:
| | | | | | | |
| | December 31, | |
| | 2017 | | 2016 | | 2015 | |
Risk-free interest rate | | 1.69 - 2.36% | | 1.20 - 1.52% | | 1.53 - 1.89% | |
Expected dividend yield | | 0% | | 0% | | 0% | |
Expected term (employee grants) | | 6.22 Years | | 5.99 years | | 6.00 years | |
Expected volatility | | 104% | | 111% | | 116% | |
| | | | |
| | December 31, | | |
| | 2019 | | |
Risk-free interest rate | | 2.55% | | |
Expected dividend yield | | 0% | | |
Expected term (employee grants) | | 6 Years | | |
Expected volatility | | 105% | | |
The Company grants restricted stock units, or RSUs, and RSAs, collectively referred to as restricted securities under the 2015 Equity Incentive Plan. These restricted securities generally vest over a three-year period, contingent on the recipient’s continued employment. Prior to vesting, all RSAs have the right to vote and receive dividends under the 2015 Equity Incentive Plan; however, the Company’s form of Restricted Stock Agreement provides that the payment of dividends on unvested RSAs shall be deferred until such time as the shares vest. The grant date fair value of these awards is based on the fair market value of our common stock on the date of grant.
Stock Options
A summary of option activity as of December 31, 20172020 and 2019 and changes for the year 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, 2016 | | 3,193,785 | | $ | 7.52 | | | | | | |
Granted | | 1,439,463 | | $ | 3.94 | | | | | | |
Forfeited | | (1,174,616) | | $ | 6.40 | | | | | | |
Exercised | | (89,387) | | $ | 0.29 | | | | | | |
Outstanding at December 31, 2017 | | 3,369,245 | | $ | 6.57 | | 7.14 | | $ | 22 | |
Vested at December 31, 2017 | | 2,224,246 | | $ | 7.54 | | 6.22 | | $ | 22 | |
Vested and expected to vest at December 31, 2017 | | 3,369,245 | | $ | 6.57 | | 7.14 | | $ | 22 | |
| | | | | | | | | | | |
| | | | | | | | Weighted | | | |
| | | | Weighted | | | Average | | | |
| | | | Average | | | Remaining | Aggregate |
| | | | Exercise | | | Contractual | Intrinsic |
Options | | Shares | | Price | | | Term in Years | Value |
Outstanding at December 31, 2018 | | 1,858 | | $ | 2,976.58 | | | 7.32 | | $ | — |
Granted | | 3,000 | | $ | 45.90 | | | | | | |
Expired | | (85) | | $ | 6,794.12 | | | | | | |
Cancelled/Forfeited | | (586) | | $ | 1,195.25 | | | | | | |
Outstanding at December 31, 2019 | | 4,187 | | $ | 1,077.78 | | | 8.17 | | $ | — |
Expired | | (17) | | $ | 6,780.00 | | | | | | |
Cancelled/Forfeited | | (1) | | $ | 3,262.50 | | | | | | |
Outstanding at December 31, 2020 | | 4,169 | | $ | 1,054.01 | | | 7.18 | | $ | — |
Vested and Exercisable at December 31, 2020 | | 2,104 | | $ | 1,984.48 | | | 6.38 | | $ | — |
Vested and expected to vest at December 31, 2020 | | 4,169 | | $ | 1,054.01 | | | 7.18 | $ | | — |
The Company did not grant any awards during the year ended December 31, 2020. The weighted average grant‑dategrant-date fair value of options granted during the yearsyear ended December 31, 2017, 2016 and 20152019 was $2.54, $5.23, and $7.37$37.46 per share, respectively.share. The total fair value of options that vested in years ended December 31, 2020 and 2019, was $117 thousand and $135 thousand respectively. For the years ended December 31, 2017, 2016,2020 and 2015 was $3,837, $5,179,2019, the Company recorded stock-based compensation expense of $117 thousand and $5,144, respectively.$165 thousand respectively related to stock options. As of December 31, 2017,2020, there was $3,516$61 thousand of total unrecognized compensation expense related to non‑vested share‑basednon-vested share-based option compensation arrangements. The unrecognized compensation expense is estimated to be recognized over a remaining weighted-average period of 2.380.84 years at December 31, 2017.2020.
Restricted Stock UnitSecurities
The following table summarizes the restricted stock unit (“RSU”)securities activity under the 2015 Equity Incentive Plan duringfor the yearyears ended December 31, 2017:2020 and 2019:
| | | | | |
| | | | Weighted-Average | |
| | Number of Grants | | Grant Date Fair Value | |
Unvested balance at December 31, 2016 | | — | $ | — | |
| | | | | | |
| | | | | Weighted-Average |
Restricted Securities | | | Number of Grants | | Grant Date Fair Value |
Unvested balance at December 31, 2018 | | | 343 | | $ | 693.17 |
Granted | | 595,000 | | 1.06 | | 6,886 | | | 15.59 |
Vested/Released | | | (143) | | $ | 734.70 |
Unvested balance at December 31, 2019 | | | 7,086 | | $ | 33.78 |
Vested | | — | | — | | (100) | | $ | 660.00 |
Forfeited | | (95,000) | | 1.25 | | (584) | | $ | 15.60 |
Unvested balance at December 31, 2017 | | 500,000 | $ | 1.03 | |
Unvested balance at December 31, 2020 | | | 6,402 | | $ | 25.67 |
For the year Ended December 31, 2017, the Company issued 595,000 RSUs to employees. These RSUs are subject to time-based vesting. For the yearyears ended December 31, 2017,2020 and 2019, the Company recorded stock-based compensation expense of $40$98 thousand and $103 thousand respectively, related to the time-based RSUs.restricted securities. As of December 31, 2017,2020, total unrecognized compensation expense related to non-vested RSUsrestricted securities amounted to $474,$120 thousand which the Company expects to recognize over a remaining weighted-average period of 2.951.32 years. There are 500,000 RSUs subject to time-based vestingAll the restricted securities that remain unvested and outstanding at December 31, 2017.2020 are subject to time-based vesting.
13.10. WARRANTS
The following table presents information about warrants to purchase common stock issued and outstanding at December 31, 2017:2020:
| | | | | | | | | | | |
| | | | Number of | | Exercise | | | | |
| | | | | | | | | | | | | |
| | | | | | | Number of | | Exercise Price as of | | | |
Year Issued | | Classification | | Warrants | | Price | | Date of Expiration | | | Defined Name | | Classification | | Warrants | | December 31, 2020 | | Date of Expiration | |
2012 | | Equity | | 6,054 | | $ | 6.64 | | 10/5/2019 | | |
2014 | | Liability | | 13,429 | | $ | 0.83 | | 5/9/2019 | | | 2014 Warrants | | Equity | | 11 | | $ | 352.50 | | 5/9/2021 | |
2016 | | Equity | | 2,146,666 | | $ | 10.00 | | 3/18/2021 | | | 2016 Warrants | | Equity | | 2,865 | | $ | 7,500.00 | | 3/18/2021 | |
2018 | | | 2018 Series A Warrants | | Equity | | 211,921 | | $ | 6.98 | | 6/25/2023 | |
2019 | | | 2019 Placement Agent Warrants | | Equity | | 15,168 | | $ | 4.50 | | 11/21/2024 | |
2020 | | | March 2020 Series A Warrants | | Equity | | 2,545,455 | | $ | 2.75 | | 3/10/2025 | |
2020 | | | March 2020 Placement Agent Warrants | | Equity | | 165,455 | | $ | 3.4375 | | 3/5/2025 | |
2020 | | | March 2020 Series B Warrants | | Equity | | 12,728 | | $ | 0.00001 | | Until Fully Exercised | |
2020 | | | April 2020 Series C Warrants | | Equity | | 1,680,240 | | $ | 1.62 | | 10/17/2025 | |
2020 | | | April 2020 Placement Agent Warrants | | Equity | | 111,491 | | $ | 2.1875 | | 4/15/2025 | |
2020 | | | October 2020 Placement Agent Warrants | | Equity | | 1,218,750 | | $ | 1.00 | | 10/22/2025 | |
2020 | | | October 2020 Series A Warrants | | Equity | | 18,750,000 | | $ | 0.80 | | 10/27/2025 | |
Total | | | | 2,166,149 | | | | | | | | | | | | 24,714,084 | | | | | | |
Weighted average exercise price | | | | | | $ | 9.93 | | | | Weighted average exercise price | | | | $ | 2.01 | | | |
Weighted average life in years | | | | | | | | | 3.20 | | Weighted average life in years | | | | | | | 4.73 | |
2019 Warrant Amendments
In March 2016,November 2019, the Company closed an underwritten public offering of an aggregate of 4,293,333 shares of common stockentered into a Second Amendment to Warrant Agency Agreement and warrants to purchase an aggregate of 2,146,666 shares of common stock, at a price to the public of $7.49 per share of common stock and $0.01 per warrant. The net proceeds to the Company, after deducting underwriting discounts and offering expenses, were approximately $29,905. The warrants have a per share exercise price of $10.00, or approximately 133% of the public offering price of the common stock, are exercisable immediately, and expire on March 18, 2021. The warrants are immediately exercisable, at the option of each holder, in whole or in part, in cash (except in the case of a cashless exercise as discussed below). The exercise price and number of shares of common stock issuable upon exercise of the warrants will be subject to adjustment in the event of any stock split, reverse stock split, stock dividend, recapitalization, or similar transaction, among other events as described in the warrants. In the event that shares of common stock underlying the warrants are no longer registered under the Securities Exchange Act of 1934, as amended, the holder may, in its sole discretion, exercise the warrant in whole or in part and, in lieu of making cash payment, elect instead to receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the warrant.
At inception, the fair value of the warrants was estimated at $11,726 using a Black-Scholes model with the following assumptions: expected volatility of 112.82%, risk free interest rate of 1.34%, expected life of five years and no dividends.
The Company assessed whether the warrants require accounting as derivatives. The Company determined that the warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with
Financial Accounting Standards BoardWarrants, (“FASB”the Second Ladenburg Warrant Amendment”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives, by and Hedging. As such,between the Company has concludedand Continental, as Warrant Agent, that amended the 2018 Series A warrants meet the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity.
Warrant Exchange
On August 10, 2017,issued by the Company entered into exchange agreements with certain holdersin the June 2018 underwritten public offering to reflect a reduced exercise price per share of $6.98 from $60.00. As a result of the liability classified warrants, dated May 9, 2014, to exchange such warrants for shares of common stock equivalent to 3.5 times the number of shares of common stock issuable to such holders at the $3.87 exercise price under the warrants as of the date of the exchanges. The Company issued an aggregate of 2,021,419 shares of common stock to the warrant holders in exchange for their warrants to purchase an aggregate of 577,548 shares of common stock. The warrants exchanged in this transaction were subsequently cancelled and terminated.
The Company re-measuredSecond Ladenburg Warrant Amendment, the fair value of the exchangedamended 2018 Series A warrants was re-measured immediately prior to the exchange anddate of the Second Ladenburg Warrant Amendment with changes in fair value recorded a $3,029 derivatives loss onas incremental warrant modification expense of $0.7 million in the Company’s consolidated statement of operations and a corresponding increase tofor the warrant liability on the balance sheet. The fair value of the warrants immediately prior to the exchange was equivalent to 2,021,419 shares of common stock at the Company’s closing stock price of $1.75 on August 9, 2017, the day before execution of the exchange. As a result of the exchange, the Company recorded the settlement by removing the derivative liability related to the exchanged warrants and recorded the issuance of common stock for $3,537.
As a result of the Company’s issuance of common stock in exchange for certain of the warrants, the per share exercise price of the remaining warrants, dated May 9, 2014, was adjusted downwards from $3.87 per share to $0.83 per share and additional warrants were issued such that the remaining warrants were exercisable at the time for an aggregate of 48,507 shares of common stock. The remaining 2014 warrants are subject to further adjustment in the event of sales of the Company’s common stock at a price per share less than the exercise price of the remaining 2014 warrants then in effect (or securities convertible or exercisable into common stock at a conversion or exercise price less than the exercise price then in effect).
Warrant Cancellation
In the fourth quarter of 2017, we entered into warrant cancellation agreements with certain remaining holders of our warrants, dated May 9, 2014, to cancel and terminate such warrants for total cash consideration of $40. As ofyear ended December 31, 2017, the remaining warrants were exercisable for an aggregate of 13,429 shares of common stock.2019.
14.11. EMPLOYEE BENEFIT PLAN
In November 2006, the Company adopted a 401(k) plan (the “Plan”) covering all employees. Employees must be 21 years of age in order to participate in the Plan. Under the Plan, the Company has the option to make matching contributions. ForIn the yearssecond 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, 2017, 2016 and 2015,2020, the Company madecontributed $60 thousand in matching cash contributions into employee 401(k) accounts. During the form of shares of the Company’s common stock. For the yearsyear ended December 31, 2017, 2016, and 2015,2019, the Company issued 98,319, 37,528, and 17,437 shares of its common stock, respectively, with related fair values of $183, $208, and $201, respectively, which were recorded as expensecontributed $55 thousand in the statement of operations.matching cash contributions to employee 401(k) accounts.
15.12. INTELLECTUAL PROPERTY LICENSE
In July 2007, the Company entered into a worldwide exclusive license (the “BCH License”) for patents co-owned by Boston Children’s Hospital (“BCH”)BCH and the Massachusetts Institute of TechnologyMIT initially covering the use of biopolymers to treat spinal cord injuries, and to promote the survival and proliferation of human stem cells in the spinal cord. During 2011, the BCH License was amended, and the Company obtained additional rights for use in the field of peripheral nerve injuries. The BCH License, as amended, has a 15‑year15-year term, or as long as the life of the last expiring patent right thereunder, whichever is longer, unless terminated earlier by the licensor, under certain conditions as defined in the related license agreement. In connection with the BCH License, the Company paid an initial $75 thousand licensing fee and is required to pay certain annual maintenance fees, milestone payments and royalties. License fees are capitalized and the gross total at December 31, 20172020 and 20162019 was $200 thousand (see Note 5)4). The Company accounts for milestone payments, maintenance fees and royalties when they become due and payable. ForThe Company paid $10 thousand in maintenance fees during each of the yearyears ended December 31, 2017,2020 and 2019.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
On May 3, 2018, the Company expensed milestoneentered into a sublease for 5,104 square feet of space for its corporate offices and laboratory space in Cambridge Massachusetts (the “Cambridge Lease”). The Cambridge Lease commenced on May 3, 2018 and expires October 31, 2023 with no renewal options. The Cambridge Lease contains rent holiday and rent escalation clauses.
In connection with the Cambridge Lease, a standby letter of credit was established for $40 thousand. On November 1, 2018, the standby letter of credit was increased to $60 thousand. Under the Cambridge Lease, the Company will be required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts. These costs are considered to be variable lease payments and are not included in the determination of $175.the lease’s right-of-use asset or lease liability.
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:
| ● | As the Company’s 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:
| | | | | | |
| Year Ended December 31, | |
Lease cost (In thousands) | 2020 | | 2019 | |
Operating lease cost | $ | 364 | | $ | 364 | |
Short-term lease cost | | 21 | | | 33 | |
Variable lease cost | | 139 | | | 63 | |
Total lease cost | $ | 524 | | $ | 460 | |
| | | | | | |
Other information (In thousands) | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows from short term leases | $ | 21 | | $ | 33 | |
Operating cash flows from operating leases | | 375 | | | 243 | |
Total cash paid for leases | $ | 396 | | $ | 276 | |
Weighted-average remaining lease term - operating leases | | 2.83 Years | | | 3.84 Years | |
Weighted-average discount rate - operating leases | | 7.0% | | | 7.0% | |
16. COMMITMENTS AND CONTINGENCIES
Leases
On November 30, 2011,Maturities of lease liabilities due under 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 theCompany’s Cambridge Lease as of December 31, 2020 is six years and three months, with one five‑year extension option. On August 21, 2017, the Company exercised its option for the five-year extension on the Cambridge Lease. The five-year renewal lease term commences on November 1, 2018 and ends on October 31, 2023. The terms of the Cambridge Lease require a standby letter of credit in the amount of $311 (see Note 2).as follows:
| | | |
Leases (In thousands) | As of December 31, 2020 | |
2021 | $ | 386 | |
2022 | | 398 | |
2023 | | 339 | |
Total lease payments | | 1,123 | |
Less: imputed interest | | (103) | |
Present value of lease liabilities | $ | 1,020 | |
| | | | | | | | |
Leases (In thousands) | | Classification | | December 31, 2020 | | December 31, 2019 |
Assets | | | | | | | | |
Lease asset, net | | Operating | | $ | 928 | | $ | 1,211 |
Total lease assets | | | | $ | 928 | | $ | 1,211 |
| | | | | | | | |
Liabilities | | | | | | | | |
Current | | Operating | | $ | 327 | | $ | 294 |
Non-current | | Operating | | | 693 | | | 1,020 |
Total lease liabilities | | | | $ | 1,020 | | $ | 1,314 |
Clinical Trial Commitments
The Cambridge Lease contains rent holidaysCompany has engaged and rent escalation clauses. The Company recognizes rent expense on a straight-line basis overexecuted contracts with clinical research organizations (“CROs”) to assist with the termadministration of the Cambridge Leaseits ongoing INSPIRE 1.0 and records the difference between the amount charged to expense and the rent paid as a deferred rent liability.INSPIRE 2.0 clinical trials. As of December 31, 20172020, approximately $4.5 million remains to be paid on these contracts. The timelines and 2016,related costs necessary to complete these trials may vary depending on a number of factors including the amountrate of patient enrollment into our INSPIRE 2.0 trial. In the event the Company were to terminate the INSPIRE 2.0 trial, certain financial penalties would become payable to the CROs for costs to wind down the terminated trial.
14. RELATED PARTY TRANSACTIONS
In our October 2020 Offering, the Company sold shares of our common stock and warrants to three investors that, based on Schedule 13-G filings with the SEC, owned more than 5% of our outstanding shares at the time of our October 2020 Offering: Sabby Volatility Warrant Master Fund, Ltd., which acquired 535,000 shares of the deferred rent liability is $397Company’s common stock and $276, respectively.
It iswarrants to purchase 3,215,000 shares of the Company’s policy to assess whether improvements made to the space rented under operating leases should be accounted for as “lessor” or “lessee” assets. Such costs are recorded as leasehold improvements,common stock; Intracoastal Capital, LLC, which are amortized to rent expense over the termacquired 500,000 shares of the Cambridge Lease. As of December 31, 2017Company’s common stock and 2016, such leasehold improvements totaled $61 and $143, net of accumulated depreciation.
Pursuantwarrants to the termspurchase 2,000,000 shares of the non‑cancelable lease agreements in effect at December 31, 2017, the future minimum rent commitments are as follows:
| | | | |
Year Ended December 31, | | | | |
2018 | | | 1,380 | |
2019 | | | 1,959 | |
2020 | | | 2,018 | |
2021 | | | 2,078 | |
2022 | | | 2,141 | |
Thereafter | | | 1,828 | |
Total | | $ | 11,404 | |
Total rent expense for the years ended December 31, 2017, 2016,Company’s common stock; and 2015, including month‑to‑month leases, was $1,231CVI Investments, Inc., $918 and $1,123, respectively.
On March 31, 2016, the Company entered into a short-term lease, as subtenant, to sub-lease 5,233 square feet of our Facility (the “Sublease”). The lease term was from April 1, 2016 through January 31, 2017. On March 31, 2016, the Company received $51 covering the first month’s rent and a security deposit under the termswhich acquired 500,000 shares of the Sublease. The funds received for the security deposit, $26, were classified as a component of accrued expenses on balance sheet as of December 31, 2016. In connection with the CRISPR Sublease, the Company received sublease income of $26Company’s common stock and $230 for the year ended December 31, 2017 and 2016, respectively, which was recorded as an offsetwarrants to rent expense. The Sublease was terminated on January 31, 2017.
On June 13, 2017, the Company entered into a short-term lease, as subtenant, to sublease 5,233 square feetpurchase 500,000 shares of the Facility (the “Moderna Sublease”). The lease term is from July 1, 2017 through October 26, 2018. On June 19, 2017,Company’s common stock. In addition, in the Company received a $55 security deposit under the terms of the Moderna Sublease. This security deposit is classified as a component of accrued expenses on the balance sheet as of December 31, 2017. In connection with the Moderna Sublease, the Company received sublease income of $164 for the year ended December 31, 2017, which was recorded as an offset to rent expense.
March 2020 Offering, Dr.
Compensation Commitment
The Company entered into a compensation arrangement with an executive during September 2016 which provided for a future cash payment by the Company to the executive based on the February 13, 2017 stock price of the executive’s former employer. The award was earned over a period of one year. The expense related to the compensation arrangement was $174Toselli, Mr. Christopher, and $101 for the years ended December 31, 2017 and 2016 respectively. As of December 31, 2017 we had made all payments to the executive.
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 worth of personal and/or exorbitant expenses that the Company alleges Mr. Reynolds inappropriately caused it to pay while he was servingMs. Merrifield participated as the Company’s Chief Executive Officer, Chief Financial Officer, President, and Chairmanpurchasers of the Company’s Boardcommon stock and warrants to purchase the Company’s common stock. Each of Directors. OnDr. Toselli, Mr. Christopher and Ms. Merrifield acquired 3,636 shares of the Company’s common stock and warrants to purchase 3,636 shares of the Company’s common stock.
15. SUBSEQUENT EVENTS
Subsequent to December 6, 2013, Mr. Reynolds answered the complaint,31, 2020, and filed counterclaims againstas of February 25, 2021, the Company issued an aggregate of 10,539,997 and the Company’s Board12,188 shares 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 sharescommon stock upon the exercise of certain stock options that he did not receive. On January 9, 2014,of the October 2020 Series A Warrants and October 2020 Placement Agent Warrants, respectively, for aggregate proceeds of $8.4 million.
As previously disclosed by the Company alongon a Current Report on Form 8-K filed on December 8, 2020 with the directors namedSEC, on December 4, 2020, the Company received a written notice (the “Initial Notice”) from the Listing Qualifications department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company was not in the counterclaims, filedcompliance with Nasdaq Listing Rule 5550(a)(2), which requires a minimum closing bid price of $1.00 per share of 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.(the “Minimum Bid Price Requirement”). The trial is scheduledInitial Notice provided the Company 180 calendar days, or until June 2, 2021, to begin on June 16, 2018.
regain compliance with the Minimum Bid Price Requirement. On February 1, 2021, the Company received a letter (the “Compliance Letter”) from the Listing Qualifications department of Nasdaq notifying the Company that it has regained compliance with the Minimum Bid Price Requirement. The Company intends to continue to defend itself against these claimsCompliance Letter noted that (i) the Company’s common stock had a closing bid price of at least $1.00 for a minimum of ten consecutive trading days from January 15, 2021 through January 29, 2021, and to date,(ii) the Company has not recorded any provision for losses that may arise.
17. RESTRUCTURING
On August 28, 2017, the Company implemented a strategic restructuring. In conjunctionregained compliance with the strategic restructuring,Minimum Bid Price Requirement. Accordingly, Nasdaq considers the Company completed a reduction in force eliminating approximately 39% of its workforce. For the year ended December 31, 2017, the Company recorded $898 in restructuring expenses, including employee severance benefits and related costs, as well as a write-off of certain fixed assets.matter closed.
The following table summarizes the restructuring costs by category for the periods indicated:
| | | | | | |
| | Year Ended December 31, 2017 |
| | Cash | | Non Cash (1) | | Total |
Research and development | $ | 669 | $ | 41 | $ | 710 |
General and administrative | | 188 | | — | | 188 |
| $ | 857 | $ | 41 | $ | 898 |
(1) The non-cash restructuring expenses represent write-offs of certain fixed assets in connection with the restructuring. The write-offs were recorded as a charge to research and development expense on the statement of operations.
The following table summarizes the restructuring reserve for the periods indicated:
| | |
| | Year Ended |
| | December 31, 2017 |
Restructuring reserve beginning balance | $ | — |
Cash restructuring expenses incurred during the period | | 857 |
Amounts paid during the period | | (509) |
Restructuring reserve ending balance | $ | 348 |
18. RELATED PARTY TRANSACTIONS
In January 2017, the Company entered into a consulting agreement with Dr. Robert Langer, a member of our Scientific Advisory Board, who at the time of entering into the consulting agreement was a holder of over 5% of the Company’s common stock, for certain consulting services. Dr. Langer was one of the original co-founders of the Company. Pursuant to the terms of the agreement, the Company initially agreed to pay Dr. Langer $250 per year in consulting fees, but that amount was reduced effective October 2017 to $100 per year in consulting fees. For the year ended December 31, 2017 the Company paid Dr. Langer $204 in consulting fees.
19. SUBSEQUENT EVENTS
On January 25, 2018, the Company entered into a purchase and a registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), under which the Company has the right to sell up to $15,000 in shares of common stock, $0.00001 par value per share, to Lincoln Park over a twenty-four-month period, subject to certain limitations and conditions set forth in the purchase agreement and registration rights agreement. In accordance with the terms of the purchase agreement, at the time the Company signed the purchase agreement and the registration rights agreement, the Company issued 429,800 shares to Lincoln Park as consideration for its commitment to purchase shares of its common stock under the purchase agreement. In addition, as of March 12, 2018 the Company had drawn $2,252 against the purchase agreement and issued an aggregate of 3,344,769 shares.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Our Disclosure Controls and Procedures
Our management, with the participation of our chief executive officerits Chief Executive Officer and chief financial officer,Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017.2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission (the “SEC”).SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of the Company’sour disclosure controls and procedures as of December 31, 2017, the Company’s chief executive officer2020, our Chief Executive Officer and chief financial officerChief Financial Officer concluded that as of such date, the Company’sour disclosure controls and procedures were effective at thea reasonable assurance level.level as of the end of the period covered by this report.
Management’s Annual Report on Internal Control overOver Financial Reporting
Our management 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) for the Company. 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 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 financial statements. |
Because of its 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 or compliance with the policies or procedures may deteriorate.
WithOur management, with the participation of our chief executive officerits Chief Executive Officer and our chief financial officer, our management conducted an evaluation of the effectiveness ofChief Financial Officer, assessed our internal control over financial reporting as of December 31, 20172020, the end of our fiscal year. Management based its assessment on the frameworkcriteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (“COSO”). Based upon our assessment and the COSO criteria, management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2017.2020.
Attestation Report of Registered Public Accounting Firm
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and therefore are not required to provide an attestation report of our registered public accounting firm has issued an attestation report onwith respect to our internal control over financial reporting. This report appears on page 53 of this Annual Report on Form 10-K.
Changes in Internal Control overOver Financial Reporting
During the fiscal quarter ended December 31, 2017, thereThere were no changes in our system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION (dollar amounts in thousands)
Sale of Shares to Lincoln ParkNone.
On January 25, 2018, we entered into a purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”). The common stock that has been and may be issued under the purchase agreement was and will be offered and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder. Lincoln Park represented that it was an “accredited investor,” as defined in Regulation D, and was acquiring such shares under the purchase agreement for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. In connection with the purchase agreement, we have registered for re-sale an aggregate of 10,700,000 shares of our common stock pursuant to a registration statement on Form S-1 (File No. 333-222738) (the “Registration Statement”). Although the purchase agreement provides that we may sell up to $15,000 of our common stock to Lincoln Park, depending on the market prices of our common stock at the time we elect to issue and sell shares to Lincoln Park under the purchase agreement, we may need to register for resale under the Securities Act additional shares of our common stock in order to receive aggregate gross proceeds equal to the $15,000 total commitment available to us under the purchase agreement. We may not sell more than the 10,700,000 shares registered under such registration statement to Lincoln Park unless we first register for resale under the Securities Act any such additional shares. If all of the 10,700,000 shares covered by the Registration Statement were issued and outstanding such shares would represent 28% of the total number of shares of our common stock outstanding as of March 9, 2018. At the time we signed the purchase agreement, we issued 429,800 shares of common stock (the “Commitment Shares”) to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the purchase agreement. Between January 25, 2018 through March 12, 2018, we issued an aggregate of 3,344,769 shares (exclusive of the Commitment Shares) to Lincoln Park for an aggregate purchase price of $2,300.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our Executive Officers and Directors
Our Board currently consists of seven directors serving on a classified board, consisting of three classes. The directors in each class serve a three-year term. The termsfollowing table sets forth the name, age, and position of each class expire at successive annual meetings so that the stockholders elect one class of directors at each annual meeting. Directors appointed due to an increase in the size of the Board may be filled by the Board for a term of office continuing only until the next election of directors by the Company’s stockholders. Our directors andour executive officers and directors as of MarchFebruary 12, 2018 are as follows:2021.
| | | | | |
NAME |
| AGE |
| CURRENT POSITION | |
Executive Officers | | | | | |
Richard Toselli, M.D. | | 63 | | |
NAME
| | AGE
| | CURRENT POSITION
|
Richard Toselli
| | 60 | | President, Chief Executive Officer, and Director (1) | |
Richard Christopher McNulty | | 4151 | | Chief Financial Officer | |
Christina MorrisonNon-Employee Directors
| | 51 | | Director
| | | |
C. Ann Merrifield (2) (3) | | 6669 | | Director, Chair of the Board |
Jeffrey S. Hatfield
| | 60 | | Director
|
Daniel R. Marshak, Ph.D. (1) (2) | | 6063 | | Director | |
Kenneth DiPietroChristina Morrison (1) (2)
| | 5954 | | Director | |
Richard J. Roberts, Ph.D. (2) (3) | | 7477 | | Director | |
Robert J. Rosenthal, Ph.D. (1) (3) | (1)
| 64 | Dr. Toselli became our President and Chief Executive Officer, and a director effective February 2, 2018.
| Director | |
| | | | | |
| (1) | Member of audit committee |
| (2) | Member of compensation committee |
| (3) | Member of nominating and corporate governance committee |
Biographical and certain other information concerning our executive officers and directors is set forth below.
Executive Officers
Richard Toselli, 60,M.D. 63, has served as our President and Chief Executive Officer and a director since February 2018. Prior to being appointed President and Chief Executive Officer and a director, Dr. Toselli served as our Acting Chief Executive Officer from December 2017 to February 2018. Since July 2017, Dr. Toselli has also served as our Chief Medical Officer. Before joining the Company,company, Dr. Toselli served as the Chief Medical Officer for Cochlear Limited, a medical device company, from June 2016 until March 2017. Prior to that, Dr. Toselli served at Sanofi, a pharmaceutical company, from July 2012 to June 2016 in various levels of increasing responsibility, including Vice President of Global Medical Affairs — Immunology and Inflammation, Biologics Division; Vice President of Global Medical Affairs and Head of the Biosurgery Discovery Performance Unit; and Vice President of Global Medical Affairs, Biosurgery. Before his time at Sanofi, he served as Chief Medical/Technology Officer for Covidien Public Limited Company (now Medtronic Public Limited Company), a medical device company, and earlier held the position of Vice President of Evidence-Based Medicine for the device sector at Johnson & Johnson, a medical device, pharmaceutical and consumer packaged goods manufacturing company. Prior to that, Dr. Toselli held various roles at DePuy Synthes Spine, Inc., a medical device company, including Director of Medical Affairs, Worldwide Vice President of Research and Development, and Worldwide Vice President of Clinical Evidence and External Relations. Dr. Toselli holds a bachelorBachelor of artsArts from Providence College, his medical degree from Brown University, and a mastersMaster of business administrationBusiness Administration from the UNC’s Kenan-Flagler Business School. Dr. Toselli is a board-certified neurological surgeon.
Richard Christopher, McNulty51, 41, has servedwas appointed as our Chief Financial Officer since March 2017. Prior to being appointedin January 2019. Previously, Mr. Christopher was the Chief Financial Officer Mr. McNulty served as our Senior Vice President, Business Development & Investor Relations. In that role, he has ledof iCAD, Inc. from December 2016 through January 2019. iCAD, Inc. is a Nasdaq-listed company with a focus on therapies and solutions for the Company’s business developmentearly identification and partnering activities as well as corporate communications, including investor relations and public relations. From June 2014 to August 2015, he served as the Company’s Vice President, Business Development and Investor Relations, and from November 2013 to July 2014, he served as the Company’s Vice President, Business Development.treatment of cancer. Prior to joining the Company,iCAD, Inc., Mr. McNulty served at Repligen Corporation, a pharmaceuticalChristopher was Chief Financial Officer from March 2014 through December 2016 and bioprocessing company,Chief Operating Officer from 2010 to 2013, most recently as Senior DirectorOctober 2015 through December 2016 of Business Development. From 2009 to 2010, he was Director of Corporate Development at Seventh Sense Biosystems,Caliber Imaging & Diagnostics, Inc., a medical device company. From 2006technology company focused on cancer detection imaging solutions, with primary applications in dermatology. Prior to 2009,Caliber and starting in 2000, Mr. McNultyChristopher held various positions of increasing responsibility at DUSA Pharmaceuticals, Inc., a Nasdaq-listed dermatology company focused on the treatment of precancerous skin lesions, where he ultimately served at Genzyme Corporation,as Chief Financial Officer from January 2005 through its acquisition and integration into Sun Pharmaceuticals Industries Ltd in April 2013. Mr. Christopher holds a biotechnology company, most recently as Associate DirectorMaster of Alliance ManagementScience in Accounting from Suffolk University and Business Development. Before joining Genzyme, Mr. McNulty held technical roles at Transform Pharmaceuticals, Inc.a Bachelor of Science in Finance from 2000 to 2004 and at Cereon Genomics, LLC from 1998 to 2000. Mr. McNulty received his B.S. and M.Eng. degrees in electrical engineering and computer science from the Massachusetts Institute of Technology. He also holds an M.B.A. from Harvard Business School.
Bentley University.
Non-Employee Directors
C. Ann Merrifield, 69, has been a director of our company since November 2014. She currently serves as a board director for a number of public and private companies which include Flexion Therapeutics, a public biotechnology company; Lyra Therapeutics, a public biotechnology company; and MassMutual Premier, Select, MML and MMLII Funds, a portfolio of mutual funds. Ms. Merrifield also serves as trustee and director on several other boards including Partners Continuing Care, the post-acute care services division of Partners HealthCare; Huntington Theatre Company, a non-profit organization; and the YMCA of Greater Boston. She also served on the Board of Directors of Juniper Pharmaceuticals, a specialty pharmaceuticals company, from 2015 to 2018 when it was acquired by Catalent, and Ms. Merrifield served on the Board of Veritas Genetics, a private genomics company, from 2015 through 2018. Previously, Ms. Merrifield served as President, Chief Executive Officer and a director of PathoGenetix, a genomics company focused on developing an automated system for rapid bacterial identification from 2012 until July 2014 when the company filed for Chapter 7 bankruptcy. Prior to then, she spent 18 years at Genzyme Corporation, serving in a number of leadership roles including President of Genzyme Biosurgery, President of Genzyme Genetics and Senior Vice President Business Excellence. She holds a B.A. in zoology and a Master of Education from the University of Maine and an M.B.A. from the Tuck School of Business at Dartmouth College. Ms. Merrifield brings to our Board an invaluable amount of experience and expertise over her long career in the life sciences industry.
Daniel R. Marshak, Ph.D., 63, has been a director of our company since September 2014. He has served as part-time Chief Technology Officer to Phase Scientific International Ltd., a medical device and clinical diagnostics company, since 2017. He most recently served in a full-time role as Senior Vice President and Chief Scientific Officer for PerkinElmer, Inc., a human and environmental health company, until September 2014. Prior to joining PerkinElmer in 2006, Dr. Marshak was Vice President and Chief Technology Officer, Biotechnology, for Cambrex Corporation (NYSE:CBM) and earlier, Chief Scientific Officer at Osiris Therapeutics Inc. Dr. Marshak has received numerous awards for scientific and academic achievements and is named as inventor on six issued U.S. patents. Dr. Marshak has served on the Board of Directors of Tecan Group (Swiss:TECN), a leading global provider of laboratory instruments and solutions in biopharmaceuticals, forensics and clinical diagnostics, since 2018. He also serves on the Board of Directors LifeVault Bio in Massachusetts, USA, a private, early-stage company, as well as Elevian, Inc., a private biotechnology company located in Massachusetts, USA, and RareCyte, Inc., a private biotechnology company located in Washington, USA. Dr. Marshak is the author of more than 100 scientific publications, including one textbook, and has been the editor of five monographs. He held an appointment as Adjunct Associate Professor at the Johns Hopkins University School of Medicine, served as Senior Staff Investigator at Cold Spring Harbor Laboratory, and previously taught graduate biochemistry as an Assistant Professor at the State University of New York, now Stony Brook University. Dr. Marshak received his B.A. degree in biochemistry and molecular biology from Harvard University, and he holds a Ph.D. in biochemistry and cell biology from The Rockefeller University. Dr. Marshak brings to our Board extensive industry experience and a deep understanding of the science and technology behind our business.
Christina Morrison, 54, 51, has served as a director of our company since June 2016. Ms. Morrison has served as Chief Financial Officer of Biograph Inc,Physicians Endoscopy, an information technology and servicesambulatory surgical center management company, since July 2017.Previously,April 2018. Prior to that Ms. Morrison served as the Senior Vice President of Finance of Aramark, a publicly traded foodservice, facilities and uniform services provider, from June 2013 until July 2016. Prior to joining Aramark, Ms. Morrison was Senior Vice President of Business and Financial Planning at Merck & Co., Inc., a publicly traded pharmaceutical company, from November 2009 to June 2013. Before that, Ms. Morrison spent five years at Wyeth Pharmaceuticals, a publicly traded pharmaceutical company, serving in a number of leadership roles including Senior Vice President and Chief Financial Officer of the pharmaceutical division. Ms. Morrison holds an M.B.A. from the Tuck School of Business at Dartmouth College and a B.S. in Economics from the Wharton School at the University of Pennsylvania. Ms. Morrison brings to our Board significant financial experience and a decade of experience in the pharmaceutical industry.
C. Ann Merrifield, 66, has served as the Chair of the Board since December 2017 and has been a director of our company since November 2014. She also serves as a director of Flexion Therapeutics, a public biotechnology company and Juniper Pharmaceuticals, a public specialty pharmaceutical company. Ms. Merrifield most recently served as President, Chief Executive Officer, and a director of PathoGenetix, Inc., a genomics company focused on developing an automated system for rapid bacterial identification, from 2012 until July 2014 when the company filed for Chapter 7 bankruptcy. Prior to then, she spent 18 years at Genzyme Corporation, serving in a number of leadership roles including President of Genzyme Biosurgery, President of Genzyme Genetics and Senior Vice President, Business Excellence. Ms. Merrifield also serves as trustee and director on several other boards including Veritas Genetics, Partners Continuing Care, the post-acute care services division of Partners HealthCare; the YMCA of Greater Boston; and MassMutual Premier, MML, and Select/MML II Funds. She holds a B.A. in zoology and a Master of Education from the University of Maine, and an M.B.A. from the Tuck School of Business at Dartmouth College. Ms. Merrifield brings to our Board an invaluable amount of experience and expertise over her long career in the life sciences industry.
Jeffrey S. Hatfield, 60, has been a director of our company since November 2016. Mr. Hatfield has served as Chief Executive Officer and Board Member of Zafgen, Inc. since October 2017. Mr. Hatfield also serves as a director of aTyr Pharma, Inc., a publicly traded biotherapeutics company and Miragen Therapeutics Inc., a publicly traded biopharmaceutical company. Previously, he served as President, Chief Executive Officer and Board Member of Vitae Pharmaceuticals, Inc., a pharmaceutical company, from March 2004 until September 2016, when Allergan Plc entered into a definitive agreement to purchase Vitae Pharmaceuticals. Prior to joining Vitae Pharmaceuticals, Mr. Hatfield worked at Bristol-Myers Squibb, a biopharmaceutical company, which he joined in 1985. While at Bristol-Myers Squibb, Mr. Hatfield held a variety of executive positions, including Senior Vice President of Bristol-Myers Squibb’s Virology and Immunology Divisions from 2000 to 2004; President and General Manager, Canada from 1997 to 2000; and Vice President, U.S. Managed Health Care from 1996 to 1997. In 2014, Mr. Hatfield became a director of Ambit Biosciences, a biopharmaceutical company. Mr. Hatfield holds an M.B.A. from The Wharton School, University of Pennsylvania and received a bachelor’s degree in Pharmacy from Purdue University. Mr. Hatfield brings to our Board extensive experience in general management and over 30 years of experience in the biopharmaceutical industry.
Daniel R. Marshak, Ph.D., 60, has been a director of our company since September 2014. Dr. Marshak has served as Chief Scientific Officer of Ferghana Partners, an investment banking firm servicing the life sciences sector, since December 2016. Previously, he served as Senior Vice President and Chief Scientific Officer for PerkinElmer, Inc., a human and environmental health company, from 2006 until September 2014. Prior to joining PerkinElmer in 2006, Dr. Marshak was Vice President and Chief Technology Officer, Biotechnology, for Cambrex Corporation. Dr. Marshak has received numerous awards for scientific and academic achievements and is named as inventor on six issued U.S. patents. He currently serves on the International Society for Stem Cell Research Global Advisory Council and served on its board of directors from July 2008 to June 2014. Dr. Marshak is the author of more than 100 scientific publications, including one textbook, and has been the editor of five monographs. He recently held an appointment as Adjunct Associate Professor at the Johns Hopkins University School of Medicine and previously taught graduate biochemistry as an Assistant Professor at the State University of New York. Dr. Marshak received his B.A. degree in biochemistry and molecular biology from Harvard University, and he holds a Ph.D. in biochemistry and cell biology from The Rockefeller University. Dr. Marshak brings to our Board extensive industry experience and a deep understanding of the science and technology behind our business.
Kenneth DiPietro, 59, has been a director of our company since December 2012. Mr. DiPietro served as Executive Vice President, Human Resources of Biogen, Inc., a publicly-traded biotechnology company, from January 2012 until May 2017. Mr. DiPietro joined Biogen from Lenovo Group, where he served as Senior Vice President, Human Resources from May 2005 until June 2011. From 2003 to 2005, he served as Corporate Vice
President, Human Resources at Microsoft Corporation, and as Vice President, Human Resources at Dell Inc. from 1999 to 2002. Prior to that, he spent 17 years at PepsiCo, serving in a range of human resource and general management positions. Mr. DiPietro holds a B.S. degree in Industrial and Labor Relations from Cornell University. As a human resources senior executive, Mr. DiPietro brings broad cultural transformation, organizational development and corporate re-engineering experience to our Board.
Richard J. Roberts, Ph.D., 74,77, has been a director of our company since October 2010 and a director of InVivo Therapeutics Corporation, our wholly-owned subsidiary, since November 2008. Dr. Roberts initially joined InVivo Therapeutics Corporation’s Scientific Advisory Board in June 2007 and continued as a member of our Scientific Advisory Board. He has served as Chief Scientific Officer at New England Biolabs, a life sciences company, since February 2007. Dr. Roberts was awarded the 1993 Nobel Prize in Physiology of Medicine along with Phillip Allen Sharp for the discovery of introns in eukaryotic DNA and the mechanism of gene-splicing. He holds a B.Sc. in Chemistry and a Ph.D. in Organic Chemistry from the University of Sheffield, U.K. Dr. Roberts brings the Board his significant experience and understanding of the science and technology involved in our business.
Robert J. Rosenthal, Ph.D., 64, has been a director of our company since November 2019. Dr. Rosenthal currently serves as Chairman of the Board of Directors of Taconic Biosciences, Inc., a privately-held provider of research models for the pharmaceutical and biotech industry, where from 2014 to 2019 he also served as Chief Executive Officer. Dr. Rosenthal also currently serves as a director of the Bruker Corporation, a publicly traded manufacturer of analytic instruments, since 2015. Dr. Rosenthal has served since 2007 as a director of Safeguard Scientifics, Inc., a publicly-traded provider of capital for early- and growth-stage companies, and as Chairman of its Board of Directors since May 2016. Since 2013, he has also served as a director of Galvanic Applied Sciences, Inc., a privately-held Canadian company. Since 1995, Dr. Rosenthal previously served in a variety of senior management positions with companies involved in the development of diagnostics, therapeutics, medical devices, and life sciences tools, most recently including from 2010 through 2012 as President and Chief Executive Officer of IMI Intelligent Medical Implants, AG, a medical technology company, and from 2005 through 2009 as President and Chief Executive Officer of Magellan Biosciences, Inc., a provider of clinical diagnostics and life sciences research tools. Earlier in his career, Dr. Rosenthal served in senior management positions at Perkin Elmer Inc. and Thermo Fisher Scientific, Inc. Dr. Rosenthal holds a Ph.D. from Emory University and a Master of Science degree from the State University of New York. Dr. Rosenthal brings to our Board an extensive understanding of and experience in strategic planning and positioning; corporate, business and product development; operations management; capital markets transactions; debt and equity financings; fund-raising; merger and acquisition transactions; corporate finance; and corporate governance.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Delinquent Section 16(a) Beneficial Ownership Reporting Compliance
16 Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of a registered class of our equity securities to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Securities and Exchange Commission.
To our knowledge, based solely on a review of copies of such reports furnished to us by our officers and directors, we believe that, during the fiscal year ended December 31, 2017,2020, no person required to file reports under Section 16(a) of the Exchange Act failed to file such reports on a timely basis during such fiscal year.basis.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics, as amended, that applies to all employees, officers, and directors of our company, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. Our Code of Business Conduct and Ethics is available on the “Corporate Governance” page of the “Investor Relations” section of our website at www.invivotherapeutics.com. A copy of our Code of Business Conduct and Ethics can also be obtained free of charge by contacting our Secretary, c/o InVivo Therapeutics Holdings Corp., One Kendall Square, Suite B14402, Cambridge, MA 02139. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K8‑K regarding any amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on our website.
Process for Stockholder Nominations
There have been no material changes to the procedures by which security holders may recommend nominees to our Board since we last provided disclosure of such procedures.
Audit Committee
The Board has established an audit committee which operates underdesignated our Audit Committee as a charter that has been approved by the Board. A copy of the audit committee charter is posted on the Investor Relations section of our website, which is located at www.invivotherapeutics.com.principal standing committee. The current members of our Audit Committee are Ms. Morrison, (Chairwoman), Mr. Hatfield, Dr. Marshak and Dr. Rosenthal. Dr. Rosenthal is the chair of our Audit Committee. Our Board has determined that each of Ms. Merrifield.
Morrison, Dr. Marshak and Dr Rosenthal is independent as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules. The Board has determined that Ms. MorrisonDr. Rosenthal is an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Summary
This Compensation Discussion and Analysis explains our compensation philosophy, objectives, policies, and practices with respect to our Chief Executive Officer and our other named executive officers. For 2017, our named executive officers are:
| ·
| | Richard Toselli, our President, Chief Executive Officer, and a director, who formerly served as our Acting Chief Executive Officer from December 2017 to February 2018;
|
See “Non-Employee Directors – Robert Rosenthal” above for a description of Dr. Rosenthal’s relevant experience.
| ·
| | Christopher McNulty, our Chief Financial Officer;
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| ·
| | Pamela Stahl, our former Chief Commercial Officer, who resigned from the Company effective March 7, 2018;
|
| ·
| | Tamara Joseph, our former SVP, General Counsel and Chief Compliance Officer, who resigned from the Company effective February 7, 2018;
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| ·
| | Mark D. Perrin, our former Chief Executive Officer and former Chairman of the Board; who resigned from the Company effective December 18, 2017;
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| ·
| | Thomas Ulich, M.D., our former Chief Scientific Officer; whose position with the Company was eliminated on August 28, 2017 as part of a strategic corporate restructuring; and
|
| ·
| | Melanie Morel-Ferris, our former interim Chief Financial Officer; who served in this capacity from January 2, 2017 through March 28, 2017 and who resigned from the Company effective October 27, 2017.
|
Compensation Philosophy and ObjectivesITEM 11. EXECUTIVE COMPENSATION
The primary objectives of our executive compensation program are to attract, motivate, retain and reward high-quality executives, to compensate our executives with a “pay-for-performance” philosophy that rewards executives for meeting performance-based goals, and to align the interests of our executives with our stockholders by having equity-based compensation as an important portion of our executives’ total compensation.EXECUTIVE COMPENSATION
As part of our overall compensation philosophy, we target the 25th percentile of our peer group companies for target cash compensation to our executive officers, and the median of our peer group companies for their total direct compensation (cash plus equity-based compensation). Our annual bonus programSet forth below is based on the achievement of certain corporate performance goals and, in the case of our named executive officers other than our Chief Executive Officer, individual performance goals. This approach enables us to deploy more of our cash resources to advancing our clinical development programs while providing executives with strong equity opportunities, further linking their interests with those of our stockholders. In addition to aligning our compensation practices for our named executive officers with comparable companies in our industry, we also seek to have an executive compensation structure that is fair relative to other professionals within our company. Our objective is to foster a performance-oriented culture, where individual performance is aligned with business objectives and the creation of long-term stockholder value.
Role of the Compensation Committee
The Compensation Committee approves or recommends to the Board for approvalinformation regarding the compensation of (i) our Chief Executive Officer and all other(ii) our Chief Financial Officer. Such officers are collectively referred to as our “named executive officers, administers our incentive compensation and stock plans and oversees our employee benefit plans. Ourofficers.”
2020 Summary Compensation Committee is appointed by the Board and consists entirely of directors who are “independent” under the NASDAQ Listing Rules, “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. Our Compensation Committee is currently composed of Messrs. DiPietro and Hatfield and Drs. Marshak and Roberts.
Compensation-Setting Process
Table
The Compensation Committee reviews and recommends to our Boardfollowing table sets forth information regarding the compensation of our Chief Executive Officer, and reviews and approves, with input from management, the compensation of our other executive officers, including our named executive officers. This review is based on an evaluation of each officer’s performance, corporate goals and objectives, and such other information as the Compensation Committee may request, including surveys of executive compensation practices at comparable companies.
Role of our Management
Our Chief Executive Officer and our human resources and finance departments work togetherawarded to, develop and prepare materials requestedearned by, and to be presented to the Compensation Committee, including analyses of financial data,
peer data comparisons, and other briefing materials. Our Chief Executive Officer and our Vice President, Human Resources present the compensation proposals for our named executive officers (other than our Chief Executive Officer), along with any background information, to the Compensation Committee for review and consideration. The Compensation Committee may approve, modify, or reject those proposals, or may request additional information from management on those matters. Our Chief Executive Officer does not attend any portion of meetings at which his compensation is determined.
Role of Independent Compensation Consultant
Pursuant to its charter, the Compensation Committee has the authority to select and retain independent compensation consultants or advisors, at our expense, to assist it in carrying out its duties and responsibilities. In 2017 the Compensation Committee engaged Pearl Meyer to perform duties requested by the committee including:
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| | providing recommendations on the composition of the Peer Group described under Competitive Market Assessment below;
|
| ·
| | analyzing executive compensation in comparison to market benchmarks;
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| ·
| | updating the Compensation Committee on executive compensation market trends; and
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| ·
| | advising the Committee on the 2017 short-term and long-term incentive designs.
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The consultant spoke with the chair of the Compensation Committee, as well as with management, in preparing for committee meetings, regularly attended committee meetings and met from time to time in executive session with the Compensation Committee without the presence of management.
Competitive Market Assessment
On an annual basis, the Compensation Committee reviews, with its compensation consultant, relevant market benchmarks for the Company’s executive compensation. The Compensation Committee uses this information to ensure that it is acting on an informed basis and to establish points of reference to determine whether and to what extent it is establishing competitive levels of compensation for our named executive officers.
For 2017 compensation decisions, the Compensation Committee considered compensation information of peer group public companies in the biotechnology and pharmaceutical industries. The criteria for selection of the companies in the peer group included the size of a company, its business development stage, and how recently a company had become publicly owned. All companies in the peer group have less than 300 employees and a primary industry focus of pharmaceutical products, diagnostic substances, or therapeutic preparations, with most peers having products in the preclinical to phase II product development stages. Companies were selected with various revenue sizes because we are recruiting from and competing for executive talent with companies that are generating revenue. For 2017, the peer group companies consisted of:
Acceleron Pharma, Inc.
| | Epizyme, Inc.
|
Agenus Inc.
| | Flexion Therapeutics, Inc.
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Akebia Therapeutics, Inc.
| | Genocea Biosciences, Inc.
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AxoGen Inc.
| | Idera Pharmaceuticals, Inc.
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Cerulean Pharma Inc.
| | Organovo Holdings Inc.
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Curis, Inc.
| | OvaScience, Inc.
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Dicerna Pharmaceuticals, Inc.
| | Sarepta Therapeutics, Inc.
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Dimension Therapeutics Inc.
| | Verastem, Inc.
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Eleven Biotherapeutics, Inc.
| | ZIOPHARM Oncology, Inc.
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Enanta Pharmaceuticals, Inc.
| | |
The Compensation Committee also considered market data compiled by Pearl Meyer from industry-relevant published compensation survey data, employing the appropriate headcount and executive role perspectives, as an additional market check.
Say-on-Pay Advisory Vote
Our most recent shareholder advisory vote on executive compensation was held at our 2016 annual meeting of stockholders. At our 2016 annual meeting, approximately 84% of the votes cast approved the compensation of our named executive officers as disclosed in the proxy statement delivered to our stockholders in connection with the 2016 annual meeting. We understood this to mean that stockholders generally approved of our compensation policies and determinations in 2016. However, the Compensation Committee still undertook a review of our compensation policies and determinations following the 2016 annual meeting. After this review and in consideration of evolving best practices in executive compensation by comparable public companies in our industry, upon the recommendation of the Compensation Committee, we determined not to make any significant changes to our executive compensation decisions and policies.
Elements of Executive Compensation Program
Generally, our executive compensation program consists of five components: base salary, annual bonus incentives, long-term equity incentives, benefits, and severance or termination protection.
Base Salary. Base salary is the primary fixed component of our executive compensation program. The Compensation Committee believes that a competitive base salary is necessary to attract and subsequently retain a management team with the requisite skills to lead our company. The Compensation Committee typically reviews salaries for potential adjustments in January of each fiscal year and may make adjustments at other times as needed. Generally, our Compensation Committee believes that adjustments to base salary should reflect the responsibilities of the executive, the executive’s performance for the preceding year, demand in the market for the particular executive position, and the pay of the other members of the executive team, as well as targeting our cash compensation at the 25th percentile of our peer group companies. Base salaries for our named executive officers are further described below.
Annual Incentive Bonus Plan. Our annual incentive bonus plan provides performance-based incentives that motivate and reward achievement of corporate and individual performance goals. Under the annual incentive bonus plan, goals are set at the beginning of each year that are appropriate in light of our business plans and take into consideration our financial, operational and strategic priorities. Currently, payouts under our annual incentive bonus plan to our Chief Executive Officer are based on the achievement of corporate objectives, and for other named executive officers, payouts are based on a combination of corporate objectives and individual performance goals. Corporate objectives are recommended by the Committee, with input from management and an independent eternal compensation consultant, and discussed with and approved by the Board. Individual performance goals for our named executive officers, other than our Chief Executive Officer, are determined by the Compensation Committee with input from our Chief Executive Officer and are intended to measure our executive officers’ achievement of specific projects. At the end of each year, the Compensation Committee determines the degree to which individual performance goals have been met. The Board determines the degree to which corporate performance objectives have been met and the associated payouts to each named executive officer. The Compensation Committee may grant bonuses that are above, at, or below the individual target bonus for named executive officers, except the Chief Executive Officer, based on the level of achievement if it determines that such bonuses are warranted and are in the best interests of our company and our stockholders. The Board may grant the Chief Executive Officer a bonus that is above, at, or below the target bonus based on the level of achievement of corporate objectives if it determines that such bonus is warranted and is in the best interests of the Company and our stockholders. Goals, results and approved payouts under our annual incentive plan for 2017 are further described below.
Long-Term Equity Incentives. Consistent with the practices of peer group companies, we provide equity incentive compensationpaid to our named executive officers. These awards aim to align the interests of our executive officers with those of our stockholders to create long-term stockholder value, as well as motivate and retain talented executives.
Our named executive officers are eligible to receive annual equity awards, although an annual award is not guaranteed. Individual equity award determinations for named executive officers, except the Chief Executive Officer, are made by the Compensation Committee with respect to the frequency and size of the equity award to be granted to the named executive officers. The determination for equity awards for the Chief Executive Officer is recommended by the Compensation Committee to the Board and approved by the Board, with respect to the frequency and size of the equity award to be granted to the Chief Executive Officer. In making these determinations, the Compensation Committee considers performance relative to the strategic and financial objectives of our company and the individual performance
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Non-Equity | | | | |
| | | | | | | | Stock | | Option | | Incentive Plan | | All Other | | |
Name and Principal | | | | | | Bonus | | Awards | | Awards | | Compensation | | Compensation | | |
Position | | Year | | Salary ($) | | ($)(1) | | ($)(2) | | ($)(2) | | ($) | | ($) | | Total ($) |
Richard Toselli | | 2020 | | 499,200 | | 316,160 | | — | | — | | — | | 17,127 | (4) | 832,487 |
President and Chief Executive Officer (3) | | 2019 | | 480,000 | | 716,000 | | 35,880 | | — | | — | | 27,433 | (5) | 1,259,313 |
| | | | | | | | | | | | | | | | |
Richard Christopher | | 2020 | | 343,200 | | 196,768 | | — | | — | | — | | 18,375 | (7) | 558,343 |
Chief Financial Officer (6) | | 2019 | | 311,297 | | 212,575 | | 24,700 | | 112,391 | | — | | 16,747 | (8) | 677,710 |
85
of each named executive officer. Our equity awards generally vest over a four-year period, with 25% vesting on the first anniversary of the date of grant and thereafter on a monthly basis in 36 equal installments. At the time of hire, we typically provide our named executive officers with an equity incentive award in the form of stock options although we have also granted restricted stock units, or RSUs, in connection with hire.
We currently grant stock options and restricted stock units and not other forms of equity to our executive officers because we believe stock options and restricted stock units are consistent with the risk profile of a pre-commercial company. We review our program annually to determine the appropriate form and terms of awards given the business strategy.
Benefits and Perquisites. We provide the following benefits to our named executive officers generally on the same basis as the benefits provided to all employees: medical, dental and vision insurance, including a flexible spending account option, life insurance, short and long-term disability, and certain commuting expenses. We also match, in the form of shares of our common stock, contributions to our 401(k) profit sharing plan, in amounts up to 5% of each named executive officer’s annual compensation. Our matching contributions become 100% vested after the employee has been employed by us for four years. In addition, in 2015 we adopted, and our stockholders approved, an employee stock purchase plan to allow our employees to purchase shares of our common stock at a discount using after-tax payroll deductions. We may also provide additional benefits or perquisites under contractual agreements to our named executive officers, including housing allowances and commuting expenses.
Severance/Termination Benefits. Under contractual agreements with our named executive officers, we have agreed to provide severance payments in connection with the termination of the executive, including in connection with a change in control. These arrangements are described in the Executive Compensation section under “Potential Payments upon Termination or Change in Control.”
Compensation Decisions for 2017
Base Salaries. The initial base salaries of our named executive officers were determined upon each officer’s hire based on such officer’s industry experience, expertise, and demand within our industry, and may be adjusted from time to time following hiring. Please see the Summary Compensation Table below for the actual amounts paid to our named executive officers in 2017.
| | | | | | |
| | 2016 | | | | 2017 |
Named Executive Officer | | Salary ($)(1) | | Increase % | | Salary ($)(2) |
Richard Toselli(3) | | n/a | | n/a | | 435,000 |
Mark Perrin(4) | | 445,050 | | 16.6 | % | 519,000 |
Christopher McNulty(5) | | 276,863 | | 11.6 | % | 309,000 |
Melanie Morel-Ferris(6) | | 155,000 | | 16.1 | % | 180,000 |
Pamela J. Stahl(7) | | 335,000 | | — | % | 335,000 |
Tamara Joseph(8) | | 256,680 | | 3.4 | % | 265,491 |
Thomas Ulich (9) | | 336,375 | | 3.8 | % | 349,000 |
| (1)
1. | | Annual salaries as of January 1, 2016, including any annual increase,See below, “Narrative to Summary Compensation Table – Bonuses” for incumbent executive officers, and asa description of the startbonuses paid to Dr. Toselli and Mr. Christopher in 2020 and 2019.
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| 2. | The amounts shown in this column represent the aggregate grant date for new executive officers hired mid-year. |
| (2)
| | Annual salaries as of January 1, 2017, including any annual increase, for incumbent executive officers, and asfair value of the startoption awards computed in accordance with ASC 718, not the actual amounts paid to or realized by the individual. The assumptions used in determining grant date for new executive officers hired mid-year.
fair value of these awards are set forth in Note 9 to our Consolidated Financial Statements appearing in this Annual Report on Form 10-K. |
| (3)
3. | | Dr. Toselli joined our company as Acting Chief Executive Officer effective December 18, 2017 and began serving as was appointed our President, Chief Executive Officer, and Director effective February 2, 2018. Previously, he served as a consultant Chief Medical Officer. |
| (4)
4. | Represents (i) $114 in vested restricted stock, (ii) $14,250 in 401(k) cash matching contributions under our 401(k) profit sharing plan, (iii) $2,313 in accommodation expenses and (iv) $450 in commuting expenses. |
| 5. | Represents (i) $2,220 in vested restricted stock, (ii) $14,000 in 401(k) cash matching contributions under our 401(k) profit sharing plan and (iii) $11,213 in accommodation expenses. |
| 6. | Mr. Perrin resigned fromChristopher joined our company effective December 18, 2017. Mr. Perrin’s annual salary increase contemplated the elimination of certain allowances relating to relocation. |
| (5)
| | In addition to an annual increase, Mr. McNulty’s salary increased from $309,000 to $335,000 on March 28, 2017, following his promotion toas Chief Financial Officer and Mr. McNulty’s salary increased from $276,863 to $300,000 on June 13, 2016 in connection with expanded responsibilities.
effective January 14, 2019. |
| (6)
7. | | In addition to an annual increase, Ms. Morel-Ferris’ salary increasedRepresents (i) $14,250 in connection with her assumption of the acting Chief Financial Officer duties on January 2017.
401(k) cash matching contributions under our 401(k) profit sharing plan and (ii) $4,125 in commuting expenses. |
| (7)
8. | | Ms. Stahl resigned fromRepresents (i) $12,692 in 401(k) cash matching contributions under our company effective March 7, 2018.
401(k) profit sharing plan and (ii) $4,055 in commuting expenses. |
| (8)
| | Ms. Joseph resigned from our company effective February 7, 2018.
|
| (9)
| | Dr. Ulich’s employment was terminated on August 28, 2017 as part of a strategic corporate restructuring.
|
Narrative to Summary Compensation Table
Base Salary. In 2019, we paid Dr. Toselli an annualized base salary of $480,000, and our Board of Directors increased Dr. Toselli’s annualized base salary to $499,200 effective January 1, 2020. In 2020, we paid Dr. Toselli an annualized base salary of $499,200. In 2019, we paid Mr. Christopher an annualized base salary of $330,000, which was pro-rated to reflect the number of days he served as our Chief Financial Officer following his appointment in January 2019. Our Board of Directors increased Mr. Christopher’s annualized base salary to $343,200 effective January 1, 2020. In 2020, we paid Mr. Christopher an annualized base salary of $343,200. We use base salaries to recognize the experience, skills, knowledge, and responsibilities required of all our employees, including our named executive officers. Dr. Toselli’s employment agreement provides that his salary will be reviewed by the Board and adjusted upward no less frequently than annually. Mr. Christopher is not party to an employment agreement or other arrangement that provides for automatic or scheduled increases in base salary.
Bonuses. Our Board may, in its discretion, award bonuses to our named executive officers from time to time. We typically establish annual bonus targets based around a set of specified corporate goals for our named executive
Annual Incentive Bonuses. Allofficers and conduct an annual performance review to determine the attainment of such goals. Our management may propose bonus awards to our Board primarily based on such review process. Our Board makes the final determination of the eligibility requirements for and the amount of such bonus awards. Under the terms of their respective employment agreements, each of our named executive officers wereis eligible to participatereceive an annual performance-based bonus, as determined by our Board in its sole discretion, with a target of a specified percentage of such officer’s annual base salary earned in such particular calendar year, which percentage shall be subject to adjustment from time to time by our 2017 incentiveBoard in its sole discretion. Our Board determines the amount of the bonus, plan, which consistedif any, based on its assessment of corporate objectivesthe named executive officer’s performance and that of the company against appropriate goals established annually by our Board. The current target annual bonus percentage for each of our named executive officers other thanis 50% and 40% for Dr. Toselli and Mr. Christopher, respectively.
With respect to 2019, we awarded a performance bonus of $156,000 to Dr. Toselli based on our achievement of certain company goals. In 2019, we also awarded an additional bonus of $360,000 to Dr. Toselli pursuant to the terms of his amended employment agreement. The additional bonus was payable in two installments in accordance with and subject to the following: 1) $120,000 on April 1, 2019, provided that Dr. Toselli was an active employee of the Company in his capacity as President and Chief Executive Officer individual objectives. For eachthrough March 31, 2019 and 2) $240,000 on July 1, 2019, provided that Dr. Toselli was an active employee of the Company in his capacity as President and Chief Executive Officer through June 30, 2019. We also awarded Dr. Toselli a special bonus of $200,000, which was conditioned upon his continued service as an active employee of the Company through December 31, 2019. In 2019, we awarded a performance bonus of $75,075 to Mr. Christopher based on our achievement of certain company goals, and we awarded Mr. Christopher a special bonus of $137,500, which was conditioned upon his continued service as an active employee of the Company through December 31, 2019.
With respect to 2020, we awarded Dr. Toselli a performance bonus of $149,760 based on our achievement of certain company goals. In 2020, we also awarded Dr. Toselli a special bonus of $166,400, which was contingent upon his continued service as an active employee of the Company through December 31, 2020. In 2020, we awarded Mr. Christopher a performance bonus of $82,368 based on our achievement of certain company goals. In 2020, we also awarded Mr. Christopher a special bonus of $114,400, which was contingent upon his continued service as an active employee of the Company through December 31, 2020.
Equity Incentives. Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, or any formal equity ownership guidelines applicable to them, we believe that equity grants provide our executives with a strong link to our long term performance, create an ownership culture and help to align the Compensation Committee setsinterests of our executives and our stockholders. In addition, we believe that equity grants with a target bonus amount expressed as a percentagetime based vesting feature promote executive retention because this feature incentivizes our executive officers to remain in our employment during the vesting period. Accordingly, our Board periodically reviews the equity incentive compensation of base salary. For 2017, the target bonus amount was set at 50% of base salary for our Chief Executive Officer and 35% of base salary for our other named executive officers.
For our named executive officers other than our Chief Executive Officer,and from time to time may grant equity incentive awards to them in the 2017 incentive bonus was weighted 75%form of stock options or restricted stock units.
In 2019, we granted options to achievementpurchase an aggregate of corporate objectives3,000 shares of Common Stock to Mr. Christopher, and 25%we granted 2,300 and 1,584 shares of restricted Common Stock to achievement of individual objectives. For Mr. Perrin, our former Chief Executive Officer, the 2017 bonus was weighted 100% to achievement of corporate objectives. Dr. Toselli and Mr. Christopher, respectively. We did not participate in the 2017 incentive bonus plan because he was serving as a consulting Chief Medical Officer from July 2017 to December 2017, when he assumed the role of Acting Chief Executive Officer.
The corporate objectives were set with a reasonable level of difficulty that required our named executive officers to perform at a high level to meet the objectives, and the likelihood of attaining the objectives was not assured. The Board has full discretion with respect to the amount and payment of bonuses, including adjustments to the objectives, weightings and actual amounts, and payout terms of the annual bonuses. This discretion is communicated to the executives. In January 2018, the Board, following the recommendation of the Compensation Committee, determined that no bonuses would be awarded for 2017 for named executive officers regardless of whethergrant any bonus objectives were met, including corporate objectives or individual objectives.
The 2017 corporate objectives and weightings recommended by the Compensation Committee and approved by the Board in 2017, and the actual weightings achieved as determined by the Board for 2017 performance, were as follows:
| | | | | | |
| | | Target | | Level of | |
Objective | | Weighting | | Attainment(1) | |
1. | 20 evaluable patients implanted with Neuro-Spinal Scaffold implant in probable benefit pivotal thoracic SCI clinical study | | 35 | % | — | % |
2. | Initiate ex-US cervical SCI study by the end of Q-2 | | 15 | % | 15 | % |
3. | Evaluate localized delivery strategies that improve the efficacy or safety of therapeutic agents, and recommend and execute two business transactions that the advancement of one or more therapeutic products (i.e., a cell, protein, or gene therapy) to an initial FDA meeting (2) | | 25 | % | — | % |
4. | Maintain sufficient financial resources to support company operations | | 25 | % | — | % |
| Total | | 100 | % | 15 | % |
| (1)
| | Although the level of attainment for the objectives was 15%, in January 2018 the Board, following the recommendation of the Compensation Committee, determined that no bonuses would be awarded for 2017 for named executive officers.
|
| (2)
| | Examples of strategic transactions include a licensing of technology or intellectual property, a business deal to acquire or codevelop a therapeutic product such as a cell, protein, or gene therapy; a letter of commitment/intent from another institution with a synergistic asset, a manufacturing or supply partnership or agreement, or an out-license of our spinal cord delivery intellectual property.
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Long-Term Equity Incentive Awards. We use equity awards to reward long-term value creation and as a retention tool. The size ofDr. Toselli or Mr. Christopher in 2020.
We award our stock options on the equity awards approved bydate our Compensation Committee for each named executive officer reflects individual contributions to company performance and competitive positioning relativeBoard approves the grant. We set the option exercise price equal to the market. In 2016, we opted to shift the timingfair market value of shares of our annual equity awards from DecemberCommon Stock on the date of grant, which is determined by reference to January. The long-term equity awards granted in January 2017 tothe closing market price of our named executive officers were comprisedCommon Stock on the date of stock option awards.
Annual equity awards were made in January 2017, based on company and individual performance in 2016, expected future individual performance, retention considerations, and market data provided by our compensation
consultant. In January 2017, the Compensation Committee awarded stock options to our named executive officers, other than our Chief Executive Officer, and the Board awarded stock options to our Chief Executive Officer, as follows:
| | |
| | Stock
|
| | Options
|
Named Executive Officer
| | (#)
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Rich Toselli
| | n/a
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Mark Perrin
| | 320,000
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Christopher McNulty
| | 75,000
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Melanie Morel-Ferris
| | 25,000
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Pamela J. Stahl(1)
| | 35,000
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Tamara Joseph
| | 120,000
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Thomas Ulich
| | 150,000
|
| (1)
| | The number of options granted was pro-rated based on Ms. Stahl’s appointment as Chief Commercial Officer on September 14, 2016.
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In January 2018, the Board, following the recommendation of the Compensation Committee, determined that no annual equity awards would be granted to named executive officers based on performance in 2017.
In March 2017, the Compensation Committee granted Mr. McNulty a stock option award to purchase 29,297 shares of common stockgrant. For grants in connection with his appointment as Chief Financial Officer, as further described below. The awardinitial employment, vesting typically begins on the initial date of employment. Time vested equity grants to Mr. McNulty vests over a four-year period, withour executives and other employees typically vest either (i) 25% on the first anniversary of grant or, if earlier, the initial employment date and in equal monthly installments thereafter, through the fourth anniversary of the vesting commencement date or (ii) 33.33% on the first anniversary of the grant date, and the remainder vesting monthly in 36 equal installments until fully vested on the fourth anniversary of the grant date, provided that Mr. McNulty remains continually employed by the Company on each such vesting date.
In September 2017, the Compensation Committee approved a grant to Ms. Morel-Ferris of a restricted stock unit award for 60,000 shares under the Company’s 2015 Equity Incentive Plan and a Restricted Stock Unit Agreement in connection with an employee retention program. The award to Ms. Morel-Ferris vested over a two-year period, with 50% vesting on the first anniversary of the grant date and 50% vesting33.33% on the second anniversary of the grant date providedand the remaining 33.33% on the third anniversary of the grant date, and have a term of ten years from the grant date.
Outstanding Equity Awards at Fiscal Year End
The following table summarizes the option and stock awards made to our named executive officers that Ms. Morel-Ferris remained continually employedwere outstanding on December 31, 2020.
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| | Option Awards | | Stock Awards |
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| | | | | | | | | | | | | | | | Market | |
| | | | No. of | | No. of | | | | | | | | Number of | | Value of | |
| | | | Securities | | Securities | | | | | | | | Shares or | | Shares or | |
| | | | Underlying | | Underlying | | | | | | | | Units of | | Units of | |
| | | | Unexercised | | Unexercised | | Option | | Option | | | | Stock That | | Stock That | |
| | Award | | Options (#) | | Options (#) | | Exercise | | Expiration | | Award Grant | | Have Not | | Have Not | |
Name | | Grant Date | | Exercisable | | Unexercisable | | Price ($) | | Date | | Date | | Vested (#) | | Vested ($)(1) | |
Richard Toselli | | 7/5/2017 | | 371 | | 63 | (2) | 1,912.50 | | 7/5/2027 | | | | | | | |
| | | | | | | | | | | | 12/18/2017 | | 100 | (3) | 81 | |
| | | | | | | | | | | | 9/25/2019 | | 2,300 | (4) | 1,863 | |
Richard Christopher | | 1/14/2019 | | 1,000 | | 2,000 | (5) | 45.90 | | 1/14/2029 | | | | | | | |
| | | | | | | | | | | | 9/25/2019 | | 1,584 | (6) | 1,283 | |
| (1) | The value of the award is based on a price per restricted stock unit award of $0.81, the closing sale price of our common stock on December 31, 2020. |
| (2) | 25% of the shares underlying the option vested on the first anniversary of the grant date, and the remaining shares vest on a monthly basis in equal monthly installments, subject to continued service. |
| (3) | Represents 400 RSU’s awarded to Dr. Toselli, which vested as to 25% of the total underlying shares on the first anniversary of the grant date and the remainder vests in equal semiannual installments until fully vested on the fourth anniversary of the grant date, subject to continued service. |
| (4) | Represents 2,300 shares of restricted stock, which vest 100% on September 25, 2022, subject to continued service. |
| (5) | One third (1/3) of the shares underlying the stock option vested on the first anniversary of the grant date and will vest as to one third (1/3) of the shares underlying the stock option on January 14, 2021 and the remaining one third (1/3) of the shares underlying the stock option on January 14, 2022, subject to continued service. |
| (6) | Represents 1,584 shares of restricted stock, which vest 100% on September 25, 2022, subject to continued service. |
Summary of the 2015 Equity Incentive Plan
The following is a general summary of the 2015 Equity Incentive Plan (the “2015 Plan”), as amended, and is qualified in its entirety by the Company on each such vesting date. Ms. Morel-Ferris resigned fromcomplete text of the Company effective October 27, 2017.2015 Plan.
In December 2017,Plan Administration. The 2015 Plan is administered by the Compensation Committee recommended andof our Board, or such other committee as the Board may appoint from time to time. The Compensation Committee may delegate the administration of the 2015 Plan to members of the Board, officers, or employees of the Company, subject to the terms of the 2015 Plan.
Subject to the terms of the 2015 Plan, the Compensation Committee has the authority to;
| ● | decide which individuals will receive awards under the 2015 Plan; |
| ● | specify the type of award to be granted and the terms and conditions upon which an award will be granted and may be earned (including, when and how an award may be exercised or earned and the exercise price, if applicable, associated with each award); |
| ● | prescribe any other terms and conditions (including accelerated vesting or forfeiture provisions) affecting an award; |
| ● | adopt, amend and rescind rules and regulations relating to the 2015 Plan; and |
| ● | make all other decisions necessary or advisable for the administration and interpretation of the 2015 Plan. |
Any decisions of the Compensation Committee regarding the 2015 Plan shall be final, conclusive and binding on all persons or entities, including the company and participants.
Eligibility. The individuals eligible to receive awards under the 2015 Plan are officers, directors, employees, and consultants who provide services to us or any “related entity,” which means any subsidiary, and any business, corporation, partnership, limited liability company or other entity designated by the Board, in which the Company or a Subsidiary holds a substantial ownership interest, directly or indirectly. At this time, there is only one related entity, our wholly owned subsidiary, InVivo Therapeutics, Corp. However, only employees of the company (or related entities) are eligible to receive incentive stock options, or ISOs. There are approximately six employees of our Company, four non-employee directors of our Company and three consultants to our Company who would currently be eligible to participate in the 2015 Plan. Actual participation and receipt of an award under the 2015 Plan will be determined by the Compensation Committee in its sole discretion.
Shares Subject to the 2015 Plan. At the Annual Meeting held on January 21, 2020, the Company’s stockholders approved a grantan amendment to Dr. Toselli of a restricted stock unit award for 300,000 shares under the Company’s 2015 Equity Incentive Plan (as so amended, the “Incentive Plan”) to increase the number of shares available for issuance thereunder by 26,667 to a total of 32,000 shares (after reflecting the 1-for-30 reverse stock split the company completed on February 11, 2020). In June 2020, the Company’s Board approved, and recommended to the Company’s shareholders for approval, another amendment to the 2015 Plan (the “Second Amendment”). On August 4, 2020, the Company’ shareholders approved the Second Amendment, which increased the number of shares available for issuance by 400,000 shares plus (i) the number of shares that remained available for issuance under the Company’s 2010 Equity Incentive Plan, as amended (the “Prior Plan”) as of the date that the Incentive Plan became effective and (ii) the number of shares that were subject to outstanding awards under the Prior Plan the date the Incentive Plan became effective that become available in the future due to cancellation, forfeiture or expiration of such outstanding awards and corresponding adjustments that will be reflected in various share limitations.
Shares under the 2015 Plan may only be reused for new grants if the shares were subject to an award that was forfeited, expired or otherwise terminated without issuance of the underlying shares, or if the award was settled for cash and does not otherwise involve the issuance of underlying shares.
Limitations on Certain Types of Awards. The maximum number of shares that may be delivered under the 2015 Plan as a Restricted Stock Unit Agreementresult of the exercise of the incentive stock options is 432,000 shares. In addition, there are individual participant limitations, including (i) no grant of options and/or stock appreciation rights of more than 432,000 shares per participant per fiscal year; (ii) no grant of restricted stock, restricted stock units, performance shares and/or other stock-based awards denominated in connectionor valued by reference to a designated number of shares, with his appointmentrespect to more than 432,000 shares per fiscal year; and (iii) no grant of performance units payable in cash of more than (x) $2,000,000 per fiscal year, pro-rated for a performance period that is less than 12 months, and (y) $2,000,000 per fiscal year with respect to any performance period that is more than 12 months. No non-employee director may be granted awards under the 2015 Plan that have a grant date fair market value (determined for financial accounting purposes) that exceeds $1,000,000 in the aggregate per fiscal year.
Adjustments in Capitalization. The Compensation Committee is authorized to adjust the limitations on the number of shares available for issuance under the 2015 Plan and the individual limitations on the amount of certain awards and to adjust outstanding awards (including adjustments to exercise prices of options and other affected terms of awards) to the extent it deems equitable in the event that a dividend or other distribution (whether in cash, shares or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange or other similar corporate transaction or event affects the shares so that an adjustment is appropriate.
Types of Awards. The 2015 Plan provides for a variety of awards, including options, restricted stock awards, restricted stock units, stock appreciation rights (stock- and cash-settled) and other equity-based awards, as Acting Chief Executive Officer,well as further described below.dividend equivalents and "performance-based" awards. Any award granted under the 2015 Plan will be evidenced by an award agreement which will describe the terms and conditions of the award, including, without limitation, the type of award granted, when and how the award may be exercised or earned, and any exercise price (as appropriate) associated with the award.
Options. Options provide for the right to purchase shares of our common stock at a specified price, and usually will become exercisable in the discretion of the Compensation Committee in one or more installments after the grant date. The awardCompensation Committee will determine the acceptable forms of consideration for exercising an option, including the method of payment, to Dr. Toselli vests overthe extent permitted by applicable law. Generally, our practice has been to grant awards that are subject to a four-year period,vesting schedule with 25% vesting on the first anniversary of the grant date and the remainder vesting monthly in 36 equal installments until fully vestedthereafter.
Options may be granted for any term specified by the Compensation Committee, but shall not exceed ten years. Options may not be granted at an exercise price that is less than the fair market value of our common stock on the fourth anniversarydate of grant. For purposes of the grant2015 Plan, fair market value is defined as the closing price for our common stock on the principal stock exchange or market on which our common stock is traded on the date provided that Dr. Toselli remains continually employedof determination.
Options may take two forms, nonstatutory options, or NSOs, and ISOs. ISOs will be designed to comply with the provisions of the Code and will be subject to certain restrictions contained in the Code in order to qualify as ISOs. Among such restrictions, ISOs must:
| ● | have an exercise price not less than the fair market value of our common stock on the date of grant, or if granted to certain individuals who own or are deemed to own at least 10% of the total combined voting power of all of our classes of stock ("10% stockholders"), then such exercise price may not be less than 110% of the fair market value of our common stock on the date of grant; |
| ● | be granted only to our employees and employees of our subsidiary entities; |
| ● | be exercised within ten years after the date of grant, or with respect to 10% stockholders, no more than five years after the date of grant; and |
| ● | not be first exercisable for more than $100,000 worth of value per calendar year, determined based on the grant date fair market value. |
If an award purported to be an ISO fails to meet the requirements of the Code, then the award will instead be considered an NSO.
Stock Appreciation Rights. Stock appreciation rights, or SARs, provide for the payment to the holder based upon increases in the price of our common stock over a set base price, which may not be less than the fair market value of our common stock on the date of grant. Payment for SARs may be made in cash, common stock or any combination of the two. SARs may be granted for any term specified by the Company on each such vesting date.Compensation Committee, but shall not exceed ten years.
Restricted Stock. A restricted stock award is the grant of shares of our common stock at a price determined by the Compensation PracticesCommittee (which price may be zero), is nontransferable and Risk
unless otherwise determined by the Compensation Committee at the time of award, may be forfeited upon termination of employment or service during a restricted period. The Compensation Committee may restrict the participant’s ability to vote the shares of restricted stock or receive dividends on such shares.
Restricted Stock Units. Restricted stock units represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of such right. If the restricted stock unit has reviewed our compensation policies as generally applicable to our employees and believes that our policies do not encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effectbeen forfeited, then on the Company. In making this determination,date specified in the restricted stock unit agreement we shall deliver to the holder of the restricted stock unit, unrestricted shares of common stock which will be freely transferable. The Compensation Committee consideredwill specify the following:purchase price, if any, to be paid by the grantee for the common stock.
Bonus Stock and Awards in Lieu of Obligations. The Compensation Committee is authorized to grant shares of common stock to any eligible persons as a bonus, or to grant shares or other awards in lieu of obligations to pay cash or deliver other property under the 2015 Plan or under other plans or compensatory arrangement.
| ·
| | Our salaries, annual bonuses and annual equity grants are largely determined based on comparisons with peer companies, and annual incentive bonuses are based on financial and/or operational performance goals and business criteria such as capital raising, regulatory filings/approvals, progress in pre-clinical and clinical trials, intellectual property filings or issuances, and business development transactions, and individual performance objectives, set by the Committee.
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| ·
| | The Committee has discretion to modify amounts awarded under our programs, and our system of internal control over financial reporting and code of business conduct and ethics reduce the likelihood of manipulation of our financial performance to enhance payments under any of our incentive plans.
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Other Stock-Based Awards. The Compensation Committee is authorized to grant awards that are denominated or payable in, valued by reference to, or otherwise based on or related to shares of our common stock. The Compensation Committee determines the terms and conditions of such awards.
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| | There is balance between short-term (bonus measures) and long-term (stock options or RSUs with service-based vesting) performance focus.
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| ·
| | Our severance benefits neither insulate management from risky business strategies nor provide an enticement to pursue risky strategies.
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ArrangementsPerformance Awards. Performance awards are denominated in cash or shares of our common stock and are linked to satisfaction of performance criteria established by the Compensation Committee. The performance criteria to be achieved during any performance period and the length of the performance period will be determined by the Compensation Committee upon the grant of the performance award. Performance awards may be valued by reference to a designated number of shares (in which case they are referred to as performance shares) or by reference to a designated amount of property including cash (in which case they are referred to as performance units). Performance awards may be settled by delivery of cash, shares or other property, or any combination thereof, as determined by the Compensation Committee.
One or more of the following criteria shall be used by the Compensation Committee in establishing performance goals for such awards; (1) earnings per share; (2) achievement of domestic and international regulatory milestones, including the submission of filings required to advance products, services and technologies in clinical development and the achievement of approvals by regulatory authorities relating to the commercialization of products, services and technologies; (3) the achievement of discovery, preclinical and clinical stage scientific objectives, discoveries or inventions for products, services and technologies under research and development; (4) the entry into or completion of a phase of clinical development for any product, service or technology; (5) specified levels of product sales; (6) earnings before or after discontinued operations, interest, taxes, depreciation and/or amortization, operating profit before or after discontinued operations and/or taxes, sales, sales growth, earnings growth, cash flow or cash position, gross margins or working capital; (7) stock price, (8) return on sales, assets, equity or investment; (9) operating income or income from operations after excluding extraordinary or special items (including, without limitation, stock-based compensation, goodwill impairments, building and other significant asset sales, asset write-downs, plant closures and related layoffs, and/or amortization of intangibles); (10) net income; (11) management of fixed costs or variable costs; (12) identification or consummation of investment opportunities or completion of specified projects in accordance with Named Executive Officerscorporate business plans, including financings, strategic mergers, acquisitions or divestitures; (13) total shareholder return; (14) debt reduction; (15) market share; (16) entry into new markets, either geographically or by business unit; and/or (17) the fair market value of a share. Any of the above goals may be determined on an absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Compensation Committee including, but not limited to, the NASDAQ Composite Index, the NASDAQ Biotechnology Index or a group of companies that are comparable to the company.
After the end of each performance period, the Compensation Committee will determine and certify whether the performance goals have been achieved. In determining the achievement of such performance goals, the Compensation Committee may, at the time the performance goals are set, require that those goals be determined by excluding the impact of: (i) restructurings, discontinued operations, and extraordinary items (as defined pursuant to generally accepted accounting principles), and other unusual or non-recurring charges; (ii) changes in accounting standards required by generally accepted accounting principles; or (iii) such other exclusions or adjustments as the Compensation Committee specifies at the time the award is granted.
The Compensation Committee may, in its discretion, determine that the amount payable as a performance award will be reduced from the amount of any potential award.
Acceleration of Vesting; Change in Control. Subject to certain limitations, the Compensation Committee may, in its discretion, accelerate the exercisability, the lapsing of restrictions or the expiration of deferral or vesting periods of any award. In the event of a “change in control” of the company, as defined in the 2015 Plan, and only to the extent provided in any employment or other agreement between the participant and the company or any related entity, or in any award agreement, or to the extent otherwise determined by the Compensation Committee in its sole discretion in each particular case: (i) any option or stock appreciation right that was not previously vested and exercisable at the time of the "change in control" will become immediately vested and exercisable; (ii) any restrictions, deferral of settlement and forfeiture conditions applicable to a restricted stock award, restricted stock unit award or any other stock-based award subject only to future service requirements will lapse and such awards will be deemed fully vested; and (iii) with respect to any outstanding award subject to achievement of performance goals and conditions under the 2015 Plan, the Compensation Committee may, in its discretion, consider such awards to have been earned and payable based on achievement of performance goals or based upon target performance (either in full or pro-rata based on the portion of the performance period completed as of the “change in control”).
Subject to any limitations contained in the 2015 Plan relating to the vesting of awards in the event of any merger, consolidation or other reorganization in which the company does not survive, or in the event of any "change in control," the agreement relating to such transaction or the Compensation Committee may provide for: (i) the continuation of the outstanding awards by the company, if the company is a surviving entity; (ii) the assumption or substitution for outstanding awards by the surviving entity or its parent or subsidiary pursuant to the provisions contained in the 2015 Plan; (iii) full exercisability or vesting and accelerated expiration of the outstanding awards; or (iv) settlement of the value of the outstanding awards in cash or cash equivalents or other property followed by cancellation of such. The foregoing actions may be taken without the consent or agreement of a participant in the 2015 Plan and without any requirement that all such participants be treated consistently.
Clawback. The Compensation Committee has the power and authority under the 2015 Plan to cancel an award, require reimbursement of an award, or otherwise recoup awards made under the 2015 Plan if (1) there is an accounting restatement of the company’s financial statements or results and (2) the restatement results from the company’s non-compliance with federal securities laws.
Awards Not Transferable. Generally, the awards may not be pledged, assigned or otherwise transferred other than by will or by laws of descent and distribution.
Other Adjustments. The Compensation Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, awards: (i) in recognition of unusual or nonrecurring events (such as acquisitions and dispositions of businesses and assets) affecting our company or any subsidiary, or the financial statements of our company or any subsidiary; (ii) in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions; or (iii) in view of the Compensation Committee’s assessment of the business strategy of the company, performance of comparable organizations, economic and business conditions, personal performance of a participant, and any other circumstances deemed relevant.
Term, Amendment and Termination. The 2015 Plan became effective on April 16, 2015, and will expire on April 15, 2025, the tenth anniversary of its adoption by the Board, unless terminated earlier. The Board may amend or terminate the 2015 Plan at any time, subject to stockholder approval to the extent required by law or applicable listing standards; provided that, in the case of outstanding awards, no change may be made that materially and adversely affects the rights of the participant without his or her consent.
Pension Benefits
We do not offer to our executive officers or employees any pension plan or similar plan that provides for payments or other benefits at, following or in connection with retirement.
Non-Qualified Deferred Compensation
We do not offer to our executive officers or employees any defined contribution or similar plan that provides for the deferral of compensation on a basis that is not tax-qualified. We offer a 401(k) profit sharing plan to all of our employees eligible to participate. We make matching contributions on behalf of participating employees, in the form of cash-based matching, up to a maximum of 5% of the employee’s annual compensation. Our matching contributions become 50% vested after the employee has been employed by us for one year, and 100% vested after the employee has been employed by us for two years. Any company matching contributions made to our named executive officers are reflected in the “All Other Compensation” column of the Summary Compensation Table above.
Agreements with our Executive Officers
Richard Toselli, M.D., President and Chief Executive Officer. In connection with his appointment as acting Chief Executive Officer and Director. Under ourin December 2017, we entered into an employment agreement with Dr. Toselli,Toselli. Under the employment agreement, Dr. Toselli receives an annual base salary, subject to adjustment from time to time, and is eligible to receive an annual cash bonus equal to 50% of his annual salary, subject to his performance of specified objectives to be established by the Board (or a designated Board committee) each year. Dr. Toselli is eligible to receive all medical, dental and other benefits to the same extent as provided to our other senior management employees. For 2018, Dr. Toselli’ s salary was initially set at $445,385. Dr. Toselli received a one-time sign-on bonus in the amount of $100,000 that was conditioned on his remaining an active employee on January 31, 2018 and was paid on February 1,
2018. Additionally, Dr. Toselli is eligible forreceived a one-time bonus of $150,000 that was conditioned upon the approval by the U.S. Food and Drug Administration of the Company’scompany’s proposed plans with respect to one or more clinical trials.trials and was paid in March 2018. In connection with becoming the Company’scompany’s Chief Executive Officer rather than Acting Chief Executive Officer, Dr. Toselli isbecame eligible for certain severance benefits under his employment agreement.
Mark Perrin, Former Chief Executive Officer. Under ourIn October 2018, we entered into an amendment to Dr. Toselli’ s employment agreement with Mr. Perrin, Mr. Perrin received anto increase his annual base salary subjectfrom $435,000 to adjustment from time to time, and was eligible to receive an$480,000, clarify that Dr. Toselli’ s annual cash bonus equal totarget of 50% of his annualbase salary subject to his performancefor 2018 would be based on Dr. Toselli’ s new base salary of specified objectives to be established by$480,000 and provide for an additional bonus, in the Board (or a designated Board committee) each year. Mr. Perrinamount of $360,000, less applicable taxes and withholdings (the “Additional Bonus”). The Additional Bonus was eligible to receive all medical, dentalpaid in two installments of $120,000 on April 1, 2019 and other benefits to the same extent as provided to other senior management employees. In connection with his relocation to the Boston area, we agreed to arrange up to 12 months of corporate housing for Mr. Perrin, and we extended this corporate housing benefit through January 2017, such amount to be subject to a tax gross-up. Mr. Perrin was eligible for certain severance benefits under his employment agreement.$240,000 on July 1, 2019.
Consistent with the severance terms provided to Mr. Perrin pursuant to his employment agreement, the Company agreed, pursuant to the terms of a separation agreement effective December 18, 2017 to pay severance (consisting of base salary in effect at the time of termination) to Mr. Perrin upon his termination for a period of 18 months, plus health insurance benefits for a period of 6 months. In addition, the Company accelerated the vesting of the unvested portion of any options held by Mr. Perrin to the extent of 12 additional months upon his termination date. The severance payments are in addition to any accrued obligations to Mr. Perrin unpaid by the Company prior to the date of termination. Mr. Perrin’s separation agreement includes a general release of claims.
Thomas Ulich, Former Chief Scientific Officer. Under the employment agreement with Dr. Ulich, Dr. Ulich received an annual base salary, subject to adjustment from time to time, and was eligible to receive benefits to the same extent as provided to our other senior management employees, including medical and dental benefits. We agreed to reimburse Dr. Ulich for commuting expenses related to travel between his home in New York and our headquarters. In addition, Dr. Ulich was eligible to receive an annual target bonus equal to 35% of his annual salary, subject to his performance of specified objectives to be established by our Chief Executive Officer each year. Consistent with the severance terms provided to Dr. Ulich pursuant to his employment agreement, the Company agreed, in connection with his separation, to pay severance (consisting of base salary in effect at the time of termination) to Dr. Ulich upon his termination for a period of 12 months, plus health insurance benefits for a period of 6 months. The severance payments are in addition to any accrued obligations to Dr. Ulich unpaid by the Company prior to the date of termination. Dr. Ulich signed a general release of claims in connection with his separation.
Christopher McNulty, Chief Financial Officer. We entered into an employment agreement with Mr. McNulty in March 2017. Under the terms of his agreement, Mr. McNulty receives an annual base salary, subject to adjustment from time to time, and is eligible to receive an annual cash bonus equal to 35% of his annual salary, subject to his performance of specified objectives to be established by the Board (or a designated Board committee) each year. Mr. McNulty is eligible to receive all medical, dental and other benefits to the same extent as provided to other senior management employees. Mr. McNulty is eligible for certain severance benefits as described in more detail under the heading “Potential Payments Upon Termination or Change in Control.”
Tamara Joseph, Former SVP, General Counsel & Chief Compliance Officer. We entered into an employment agreement with Ms. Joseph in August 2015, which replaced the terms of an offer letter dated March 14, 2014, which previously governed the terms of Ms. Joseph’s employment with the Company. Under the terms of her agreement, Ms. Joseph received an annual base salary, subject to adjustment from time to time, and was eligible to receive an annual cash bonus equal to 35% of her annual salary, subject to her performance of specified objectives to be established by the Board (or a designated Board committee) each year. Ms. Joseph was eligible to receive all medical, dental and other benefits to the same extent as provided to other senior management employees.
Pursuant to a letter agreement dated January 19, 2018, Ms. Joseph’s employment terminated effective February 7, 2018 and Ms. Joseph is entitled to the severance benefits provided under her employment agreement as described in more detail under the heading “Potential Payments Upon Termination or Change in Control.” In addition, Ms. Joseph has agreed to provide consulting services to the Company for six months following the termination of her employment pursuant to the terms of a consulting agreement made and entered into as of January 19, 2018 and commencing on February 9, 2018. Under the consulting agreement, Ms. Joseph will be paid an hourly rate of $400.
Pamela J. Stahl, Former Chief Commercial Officer. We entered into an employment agreement with Ms. Stahl in August 2016. Under the terms of her agreement, Ms. Stahl received an initial annual base salary, subject to adjustment from time to time, and was eligible to receive benefits to the same extent as provided to our other senior management employees, including medical and dental benefits. In addition, under the agreement, Ms. Stahl is eligible to receive an annual target bonus equal to 35% of her annual salary, subject to her performance of specified objectives to be established by our Chief Executive Officer each year. Ms. Stahl is currently eligible for certain severance benefits under her employment agreement Pursuant to a letter agreement dated March 7, 2018, Ms. Stahl’s employment terminated effective March 7, 2018 and Ms. Stahl is entitled to the severance benefits provided under her employment agreement as described in more detail under the heading “Potential Payments Upon Termination or Change in Control”
EXECUTIVE COMPENSATION
Set forth below is information regarding the compensation of (i) all persons serving as our Chief Executive Officer or Chief Financial Officer at any time during 2017 and (ii) our other most highly compensated executive officers at the end of 2017. Such officers are collectively referred to as our “named executive officers.”
Summary Compensation Table
The following table sets forth information regarding the compensation awarded to, earned by, or paid to the named executive officers.
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| | | | | | | | | | | | Non-Equity | | | | |
| | | | | | | | Stock | | Option | | Incentive Plan | | All Other | | |
Name and Principal | | | | | | Bonus | | Awards | | Awards | | Compensation | | Compensation | | |
Position | | Year | | Salary ($) | | ($) | | ($)(1) | | ($)(1) | | ($) | | ($) | | Total ($) |
Richard Toselli | | 2017 | | 285,785 | | — | | 264,000 | | 764,402 | | — | | 6,280 | | 1,320,467 |
President and Chief Executive Officer (2) | | | | | | | | | | | | | | | | |
Mark Perrin | | 2017 | | 537,539 | (3) | — | | — | | 1,134,088 | | — | | 799,705 | (4) | 2,471,333 |
Former Chief Executive Officer and Chairman of the Board (5) | | 2016 | | 445,050 | | — | | — | | — | | 111,263 | | 185,623 | | 741,936 |
| | 2015 | | 421,395 | | — | | — | | 1,083,088 | | 215,000 | | 200,618 | | 1,920,101 |
Christopher McNulty | | 2017 | | 328,127 | | — | | — | | 362,290 | | — | | 17,220 | (6) | 707,637 |
Chief Financial Officer | | 2016 | | 289,322 | | — | | — | | 207,902 | | 54,000 | | 15,307 | | 566,530 |
| | 2015 | | 252,200 | | — | | — | | 555,789 | | 78,244 | | 13,513 | | 899,747 |
Melanie Morel-Ferris | | 2017 | | 159,373 | (7) | 50,000 | | 75,000 | | 89,066 | | — | | 9,468 | (8) | 382,907 |
Former Chief Financial Officer (9) | | | | | | | | | | | | | | | | |
Tamara Joseph | | 2017 | | 265,491 | | — | | — | | 427,953 | | — | | 16,995 | (10) | 710,439 |
Former Senior Vice President, General Counsel and Chief Compliance Officer (11) | | 2016 | | 256,680 | | — | | — | | — | | 56,149 | | 16,377 | | 329,206 |
| | 2015 | | 231,998 | | — | | — | | 734,138 | | 85,715 | | 14,770 | | 1,066,621 |
Pamela J. Stahl (12) | | 2017 | | 335,000 | | — | | — | | 123,574 | | — | | 50,076 | (13) | 508,650 |
Former Chief Commercial Officer | | 2016 | | 92,202 | | 465,962 | | — | | 1,020,056 | | — | | 102,776 | | 1,680,996 |
Thomas Ulrich | | 2017 | | 254,788 | (14) | — | | — | | 533,873 | | — | | 367,020 | (15) | 1,155,681 |
Former Chief Scientific Officer (16) | | 2016 | | 336,375 | | — | | — | | — | | 77,997 | | 48,907 | | 463,279 |
| | 2015 | | 318,643 | | — | | — | | 722,345 | | 118,016 | | 68,505 | | 1,227,509 |
| (1)
| | The amounts shown in these columns represent the aggregate grant date fair value of awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 or ASC 718, not the actual amounts paid or realized by the named executive officer. The assumptions used in determining grant
|
date fair value of these awards are set forth in Note 12 to our Consolidated Financial Statements appearing in Item 8 of this Annual Report on Form 10-K.
|
| (2)
| | Dr. Toselli joined our company as Acting Chief Executive Officer effective December 18, 2017 and was appointed our President, Chief Executive Officer, and Director effective February 2, 2018. Previously, he served as a consultant Chief Medical Officer. The amount earned under “salary” in 2017 includes prorated salary based on a base salary of $435,000 on and after December 18, 2017 plus consulting fees before that date.
|
| (3)
| | Mr. Perrin’s salary includes a payment of 10 days salary in conjunction with his resignation in lieu of the notice period in his Employment Agreement and four days salary for unused vacation.
|
| (4)
| | Represents (i) $782,504 in severance to be paid out over 18 months from date of resignation, (ii) $13,482 in 401(k) company stock matching contributions under our 401(k) profit sharing plan and (iii) $3,720 in commuting expenses.
|
| (5)
| | Mr. Perrin resigned from his position as Chief Executive Officer effective December 18, 2017.
|
| (6)
| | Represents (i) $13,500 in 401(k) company stock matching contributions under our 401(k) profit sharing plan and (ii) $3,720 in commuting expenses.
|
| (7)
| | Ms. Morel-Ferris’s salary includes 11 days unused vacation.
|
| (8)
| | Represents (i) $6,553 in 401(k) company stock matching contributions under our 401(k) profit sharing plan and (ii) $2,915 in commuting expenses.
|
| (9)
| | Ms. Morel-Ferris resigned from the Company effective October 27, 2017.
|
| (10)
| | Represents (i) $13,275 in 401(k) company stock matching contributions under our 401(k) profit sharing plan and (ii) $3,720 in commuting expenses.
|
| (11)
| | Ms. Joseph resigned from the Company effective February 7, 2018.
|
| (12)
| | Ms. Stahl resigned from the Company effective March 7, 2018.
|
| (13)
| | Represents (i) $12,856 in 401(k) company stock matching contributions under our 401(k) profit sharing plan, (ii) $33,500 in outplacement services and (iii) $3,720 in commuting expenses.
|
| (14)
| | Dr. Ulich’s salary includes 12 days unused vacation.
|
| (15)
| | Represents (i) $327,965 in severance to be paid out over 18 months from date of resignation and (ii) $39,055 in commuting expenses.
|
| (16)
| | Dr. Ulich’s employment was terminated on August 28, 2017 as part of a strategic corporate restructuring.
|
Grants of Plan-Based Awards
The following table provides information regarding grants of plan-based awards to our named executive officers during 2017.
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | All Other | | | | |
| | | | | | | | | | All Other | | Option | | | | |
| | | | | | | | | | Stock | | Awards: | | | | Grant Date |
| | | | Estimated Future Payouts | | Awards: | | Number of | | Exercise or | | Fair Value |
| | | | Under Non-Equity Incentive | | Number of | | Securities | | Base Price | | of Stock |
| | | | Plan Awards(1) | | Shares of | | Underlying | | of Option | | and Option |
| | Award | | Threshold | | | | Maximum | | Stock or | | Options | | Awards | | Awards |
Name | | Grant Date | | ($) | | Target ($) | | ($) | | Units (#) | | (#)(2) | | ($/Sh) | | ($)(3) |
Richard Toselli | | 12/18/2017 | | n/a | | n/a | | n/a | | 300,000 | | 325,000 | | 2.55 | | 264,000 |
| | 7/5/2017 | | | | | | | | | | | | | | 764,402 |
Mark Perrin | | 1/18/2017 | | — | | 222,525 | | — | | | | 320,000 | | 4.35 | | 1,134,088 |
Christopher McNulty | | 3/29/2017 | | — | | 117,250 | | — | | | | 29,973 | | 4.00 | | 97,394 |
| | 1/18/2017 | | | | | | | | | | 75,000 | | 4.35 | | 264,896 |
Melanie Morel-Ferris | | 9/14/2017 | | — | | 36,000 | | — | | 60,000 | | 25,000 | | 4.35 | | 75,000 |
| | 1/18/2017 | | | | | | | | | | | | | | 89,066 |
Pamela J. Stahl | | 1/18/2017 | | — | | 117,250 | | — | | | | 35,000 | | 4.35 | | 123,574 |
Tamara Joseph | | 1/18/2017 | | — | | 92,982 | | — | | | | 120,000 | | 4.35 | | 427,953 |
Thomas Ulich | | 1/18/2017 | | — | | 122,150 | | — | | | | 150,000 | | 4.35 | | 533,873 |
| (1)
| | There were no set “Threshold” or “Maximum” performance bonus amounts established with respect to our 2017 incentive bonus plan. The actual amounts paid to each of the executive officers for 2017 are set forth in the Summary Compensation Table under the column entitled “Non-Equity Incentive Plan Compensation.”
|
| (2)
| | Each option award vests as to 25% of the total underlying shares on the first anniversary of the grant date and the remainder vests monthly in 36 equal monthly installments until fully vested on the fourth anniversary of the grant date.
|
| (3)
| | The amounts shown in this column represents the aggregate grant date fair value of the awards computed in accordance with ASC 718, not the actual amounts paid to or realized by the named executive officer in 2017. The
|
assumptions used in determining grant date fair value of these awards are set forth in Note 12 to our Consolidated Financial Statements appearing in Item 8 of this Annual Report.
|
Option Exercises and Stock Vested Table
None of our named executive officers exercised stock options or had stock awards vest during the fiscal year ended December 31, 2017.
Outstanding Equity Awards at Fiscal Year End
The following table summarizes the option and stock awards made to our named executive officers that were outstanding at December 31, 2017. Each award reflected in the below table vests as to 25% of the total underlying shares on the first anniversary of the grant date and the remainder vests monthly in 36 equal monthly installments until fully vested on the fourth anniversary of the grant date.
| | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
| | | | | | | | | | | | | | | | | | | | Equity | |
| | | | | | | | | | | | | | | | | | | | Incentive Plan | |
| | | | | | | | | | | | | | | | | | Equity Incentive | | Awards: | |
| | | | | | | | | | | | | | | | Market | | Plan | | Market or | |
| | | | No. of | | No. of | | | | | | | | Number of | | Value of | | Awards: Number | | Payout Value | |
| | | | Securities | | Securities | | | | | | | | Shares or | | Shares or | | of Unearned | | of Unearned | |
| | | | Underlying | | Underlying | | | | | | | | Units of | | Units of | | Shares, Units or | | Shares, Units | |
| | | | Unexercised | | Unexercised | | Option | | Option | | | | Stock That | | Stock That | | Other Rights That | | or Other Rights | |
| | Award | | Options (#) | | Options (#) | | Exercise | | Expiration | | Award Grant | | Have Not | | Have Not | | Have Not Vested | | That have Not | |
Name | | Grant Date | | Exercisable | | Unexercisable | | Price ($) | | Date | | Date | | Vested (#) | | Vested ($) | | (#) | | Vested ($) | |
Richard Toselli | | 7/5/2017 | | — | | 325,000 | | 2.55 | | 7/5/2027 | | 12/18/2017 | | — | | — | | 300,000 | (1) | 264,000 | (2) |
Mark Perrin | | 1/6/2014 | | 500,000 | | — | | 9.40 | | 1/6/2024 | | | | | | | | | | | |
| | 12/10/2014 | | 125,000 | | — | | 4.20 | | 12/10/2024 | | | | | | | | | | | |
| | 12/10/2015 | | 129,427 | | — | | 7.37 | | 12/10/2025 | | | | | | | | | | | |
| | 1/18/2017 | | 153,333 | | — | | 4.35 | | 1/18/2027 | | | | | | | | | | | |
Christopher McNulty | | 11/18/2013 | | 37,500 | | — | | 8.20 | | 11/18/2023 | | | | | | | | | | | |
| | 12/10/2014 | | 7,035 | | 2,340 | | 4.20 | | 12/10/2024 | | | | | | | | | | | |
| | 7/31/2015 | | 21,145 | | 13,855 | | 14.55 | | 7/31/2025 | | | | | | | | | | | |
| | 12/10/2015 | | 9,400 | | 9,400 | | 7.37 | | 12/10/2025 | | | | | | | | | | | |
| | 6/13/2016 | | 15,000 | | 25,000 | | 6.19 | | 6/13/2026 | | | | | | | | | | | |
| | 1/18/2017 | | — | | 75,000 | | 4.35 | | 1/18/2027 | | | | | | | | | | | |
| | 3/29/2017 | | — | | 29,973 | | 4.00 | | 3/29/2027 | | | | | | | | | | | |
Melanie Morel-Ferris | | 5/23/2016 | | 2,656 | | — | | 6.48 | | 5/23/2026 | | | | | | | | | | | |
Pamela J. Stahl | | 9/14/2016 | | 58,812 | | 129,388 | | 6.47 | | 9/14/2026 | | | | | | | | | | | |
| | 1/18/2017 | | — | | 35,000 | | 4.35 | | 1/18/2027 | | | | | | | | | | | |
Tamara Joseph | | 3/24/2014 | | 70,314 | | 4,686 | | 7.52 | | 3/24/2024 | | | | | | | | | | | |
| | 12/10/2014 | | 25,788 | | 8,587 | | 4.20 | | 12/10/2024 | | | | | | | | | | | |
| | 7/31/2015 | | 7,552 | | 4,948 | | 14.55 | | 7/31/2025 | | | | | | | | | | | |
| | 12/10/2015 | | 46,020 | | 46,020 | | 7.37 | | 12/10/2025 | | | | | | | | | | | |
| | 1/18/2017 | | — | | 120,000 | | 4.35 | | 1/18/2027 | | | | | | | | | | | |
| (1)
| | Represents 300,000 restricted stock units awarded to Dr. Toselli, subject to the vesting schedule described in the lead in to the table, provided that Dr. Toselli remains continually employed by the Company on each such vesting date.
|
| (2)
| | The value of the awards is based on a price per restricted stock unit award of $0.88, which was the closing sale price of our common stock on December 18, 2017.
|
All of Dr. Ulich’s options have expired.
Ms. Morel-Ferris received a restricted stock unit award for 60,000 shares on September 14, 2017. The award to Ms. Morel-Ferris vested over a two-year period, with 50% vesting on the first anniversary of the grant date and 50% vesting on the second anniversary of the grant date, provided that Ms. Morel-Ferris remained continually employed by the Company on each such vesting date. Ms. Morel-Ferris resigned from the Company effective October 27, 2017.
Pension Benefits
We do not offer to our executive officers or employees any pension plan or similar plan that provides for payments or other benefits at, following or in connection with retirement.
Non-Qualified Deferred Compensation
We do not offer to our executive officers or employees any defined contribution or similar plan that provides for the deferral of compensation on a basis that is not tax-qualified. We offer a 401(k) profit sharing plan to all of our employees eligible to participate. We make matching contributions on behalf of participating employees, in the form of
shares of our common stock, up to a maximum of 5% of the employee’s annual compensation. Our matching contributions become 100% vested after the employee has been employed by us for four years. Any company matching contributions made to our named executive officers are reflected in the “All Other Compensation” column of the Summary Compensation Table above.
Potential Payments Upon Termination or Change in Control
Certain of our named executive officers are entitled to payments upon a termination of employment or a change in control.
Richard Toselli, President,Chief Executive Officer, and Director. Under our employment agreement with Dr. Toselli, if his employment is terminated by us without cause, or by Dr. Toselli for “good reason,” in the absence of a “change in control” (as defined in our 2015 Equity Incentive Plan) then (i) we are obligated to pay severance (consisting of base salary in effect at the time of termination) to Dr. Toselli for a period of 18 months, plus continued health insurance benefits for a period of 18 months and (ii) the unvested portion of any stock options held by him will vest as with respect to an additional 12 months. If Dr. Toselli’ s employment is terminated by us without cause, or by Dr. Toselli for “good reason” within 12 months following of a “change in control,” then (a) we are obligated to pay severance (consisting of two times base salary in effect at the time of termination and 100% of his target annual bonus) to Dr. Toselli, plus continued health insurance benefits for a period of 18 months, (b) pay a pro rata portion of the annual bonus for the year in which the termination occurs based on a good faith determination of the attainment of the applicable goals and (c) the unvested portion of any stock options held by him will vest fully. The severance payments and the accelerated vesting of options are contingent on execution of a general release of claims against our company and are in addition to any accrued obligations to Dr. Toselli unpaid by us prior to the time of termination.
The employment agreement also contains various restrictive covenants, including covenants relating to non-solicitation, confidentiality and assignment of inventions.
Richard Christopher, Chief Financial Officer. In connection with his employment with the Company and pursuant to the terms of an employment agreement dated December 24, 2018, Mr. Christopher receives an annual base salary of $330,000. Mr. Christopher is also eligible for an annual bonus that targets forty percent (40%) of his annualized base salary based upon achievement of certain performance goals. On January 14, 2019, the Board granted Mr. Christopher a nonstatutory stock option to purchase up to 3,000 shares of the Company’s common stock, as an inducement grant outside of the Company’s 2015 Stock Incentive Plan pursuant to Nasdaq Listing Rule 5635(c)(4) (the “Inducement Award”). The Inducement Award has an exercise price per share equal to $45.90, the closing price of a share of our common stock on the grant date, and vested as to one-third (1/3) of the shares of the underlying stock option on January 14, 2020, and will vest as to one third (1/3) of the shares of the underlying stock option on January 14, 2021 and the remaining one third (1/3) of the shares of the underlying stock option on January 14, 2022, provided that if within one year following a change in control Mr. Christopher’s employment is terminated by him for Good Reason (as defined in the employment agreement) or by the Company or its successor without Cause (as defined in the employment agreement), the Inducement Award will be immediately exercisable in full.
Mr. Christopher is also entitled to severance payments under his employment agreement. If we terminate Mr. Christopher’s employment without Cause or if he terminates his employment for Good Reason, in each case prior to, or more than 12 months following, a change in control, then he is entitled (A) to continue to be paid his base salary as in effect on the termination date for a period of 12 months and (B) to continue to receive his benefits under the company’s employee group health insurance plan until the earlier of (i) 6 months following the termination date or (ii) the date he becomes eligible for coverage under a new employer’s group health plan.
If we terminate Mr. Christopher’s employment without Cause or he terminates his employment for Good Reason, in each case within 12 months following a Change in Control (as defined in the employment agreement), then he is entitled (A) to an amount equal to 1.5 times his base salary as in effect on the termination date, plus 100% of his target annual bonus, in each case at the salary and target annual bonus level in effect on the termination date or, if higher, at any time within the six month period preceding the Change in Control, (B) to acceleration in full of the vesting on all outstanding, unvested equity awards held by him and (C) to continue to receive his benefits under the company’s employee group health insurance plan until the earlier of (i) 12 months following the termination date or (ii) the date he
becomes eligible for coverage under a new employer’s group health plan. The severance payments are contingent upon Mr. Christopher executing a general release of claims.
The employment agreement also contains various restrictive covenants, including covenants relating to non-solicitation, confidentiality and assignment of inventions. In addition, under the terms of the employment agreement, Mr. Christopher will also be eligible for medical, dental and other fringe benefits available to our other senior management members or any benefit plans established or adopted by us.
Potential Payments Upon Termination or Change in Control
Certain of our named executive officers are entitled to payments upon a termination of employment or a change in control.
Richard Toselli, M.D., President, Chief Executive Officer, and Director. Under our employment agreement with Dr. Toselli, if his employment is terminated by us without cause, or by Dr. Toselli for “good reason,” in the absence of a “change in control” (as defined in the 2015 Plan) then (i) we are obligated to pay severance (consisting of base salary in effect at the time of termination) to Dr. Toselli for a period of 18 months, plus continued health insurance benefits for a period of 18 months and (ii) the unvested portion of any stock options held by him will vest as with respect to an additional 12 months. If Dr. Toselli’s employment is terminated by us without cause, or by Dr. Toselli for “good reason” within 12 months following of a “change in control,” then (a) we are obligated to pay severance (consisting of two times base salary in effect at the time of termination and 100% of his target annual bonus) to Dr. Toselli, plus continued health insurance benefits for a period of 18 months, (b) pay a pro rata portion of the annual bonus for the year in which the termination occurs based on a good faith determination of the attainment of the applicable goals and (c) the unvested portion of any stock options held by him will vest fully. The severance payments and the accelerated vesting of options are contingent on execution of a general release of claims against our company and are in addition to any accrued obligations to Dr. Toselli unpaid by us prior to the time of termination. Had his employment been terminated on December 31, 2017, Dr. Toselli would not have been entitled to any payment.
Richard Christopher, McNulty, Chief Financial Officer.Under our employment agreement with Mr. McNulty,Christopher, if we terminate Mr. Christopher’s employment without Cause or if he terminates his employment for Good Reason, in each case prior to, or more than 12 months following, a change in control, then he is terminated by us without cause, or by Mr. McNulty for “good reason,” in the absence of a “change in control” (as defined in our 2015 Equity Incentive Plan) then we are obligatedentitled (A) to pay severance (consisting ofcontinue to be paid his base salary as in effect aton the time of termination) to Mr. McNultytermination date for a period of one year, plus continued12 months and (B) to continue to receive his benefits under the company’s employee group health insurance benefitsplan until the earlier of (i) 6 months following the termination date or (ii) the date he becomes eligible for coverage under a period of 6 months.new employer’s group health plan. If we terminate Mr. McNulty’sChristopher’s employment is terminated by us without cause,Cause or by Mr. McNultyhe terminates his employment for “good reason”Good Reason, in each case within 12 months following a “changeChange in control,”Control (as defined in the employment agreement), then (i) we are obligatedhe is entitled (A) to pay severance (consisting ofan amount equal to 1.5 times his base salary as in effect aton the time of termination anddate, plus 100% of his target annual bonus)bonus, in each case at the salary and target annual bonus level in effect on the termination date or, if higher, at any time within the six month period preceding the Change in Control, (B) to Mr. McNulty, plus continued health insurance benefits for a periodacceleration in full of one year, and (ii) the vesting on all outstanding, unvested portion of any stock optionequity awards held by him will vest fully.and (C) to continue to receive his benefits under the company’s employee group health insurance plan until the earlier of (i) 12 months following the termination date or (ii) the date he becomes eligible for coverage under a new employer’s group health plan. The severance payments and the accelerated vesting of options are contingent upon execution ofMr. Christopher executing a general release of claims against our company and are in addition to any accrued obligations to Mr. McNulty unpaid by us prior to the date of termination. Had his employment been terminated on December 31, 2017 by us without cause or by Mr. McNulty for “good reason” in the absence of a “change in control,” Mr. McNulty would have been entitled to $346,315. Had his employment been terminated on December 31, 2017 by us without cause, or by Mr. McNulty for “good reason” within 12 months following a “change in control,” Mr. McNulty would have been entitled to $642,381.claims.
Pamela J. Stahl, Former Chief Commercial Officer. Under our agreement with Ms. Stahl, if her employment is terminated by us without cause, or by Ms. Stahl for “good reason,” in the absence of a “change in control” (as defined in our 2015 Equity Incentive Plan) then we are obligated to pay severance (consisting of base salary in effect at the time of termination) to Ms. Stahl for a period of one year, plus continued health insurance benefits for a period of 6 months. If Ms. Stahl’s employment is terminated by us without cause, or by Ms. Stahl for “good reason” within 12 months following a “change in control,” then (i) we are obligated to pay severance (consisting of 1.5 times base salary in effect at the time of termination and 100% of her target annual bonus) to Ms. Stahl, plus continued health insurance benefits for a period of one year, and (ii) the unvested portion of any stock option held by her will vest fully. The severance payments and the accelerated vesting of options are contingent upon execution of a general release of claims against our company and are in addition to any accrued obligations to Ms. Stahl unpaid by us prior to the date of termination. Ms. Stahl resigned from the Company effective March 7, 2018. In connection with her resignation, Ms. Stahl will receive $392,700 in termination related benefits, which includes $33,500 in outplacement services.
Tamara Joseph, Former SVP, General Counsel & Chief Compliance Officer. Under our agreement with Ms. Joseph, if her employment is terminated by us without cause, or by Ms. Joseph for “good reason,” in the absence of a “change in control” (as defined in our 2015 Equity Incentive Plan) then we are obligated to pay severance (consisting of base salary in effect at the time of termination) to Ms. Joseph for a period of one year, plus continued health insurance
benefits for a period of 6 months. If Ms. Joseph’s employment is terminated by us without cause, or by Ms. Joseph for “good reason” within 12 months following a “change in control,” then (i) we are obligated to pay severance (consisting of 1.5 times base salary in effect at the time of termination and 100% of her target annual bonus) to Ms. Joseph, plus continued health insurance benefits for a period of one year, and (ii) the unvested portion of any stock option held by her will vest fully. The severance payments and the accelerated vesting of options are contingent upon execution of a general release of claims against our company and are in addition to any accrued obligations to Ms. Joseph unpaid by us prior to the date of termination. Ms. Joseph resigned from the Company effective February 7, 2018. In connection with her resignation, Ms. Joseph will receive $287,024 in termination related benefits.
Pay Ratio
Following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of our other employees. We determined our median employee based on base salary (annualized in the case of full- and part-time employees who joined the Company during 2017) of each of our 16 employees (excluding the Chief Executive Officer) as of December 1, 2017. Of the two potential median employees, we selected the employee without significant severance payments. The annual total compensation of our median employee (other than the Chief Executive Officer) for 2017 was $384,528. As disclosed in the Summary Compensation Table appearing on page 76, our former Chief Executive Officer’s annual total compensation for 2017 was $2,471,333. Our former Chief Executive Officer served in this capacity from January 1, 2017 to December 18, 2017, which includes December 1, 2017, the date of determination for the median employee. As noted in the footnotes of the Summary Compensation Table, Mr. Perrin’s salary in the Summary Compensation Table includes a payment of 10 days salary in conjunction with his resignation in lieu of the notice period in his Employment Agreement, so his annual total compensation includes salary for a full year. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 6.4 to 1. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.
DIRECTOR COMPENSATION
20172020 Director Compensation
The following table sets forth the compensation of our non-employee directors for 2017. Mr. Perrin, as an employee, did not receive any compensation as a director.2020. For information on Mr. Perrin’sthe compensation of Dr. Toselli, our current President and Chief Executive Officer, see “Executive Compensation” above.
| | | | | | |
| | Fees Earned or | | Option | | |
| | Paid in Cash | | Awards | | Total |
Name | | ($) | | ($)(1)(2) | | ($) |
Kenneth DiPietro | | 48,750 | | 44,085 | | 92,835 |
Daniel Marshak | | 47,500 | | 44,085 | | 91,585 |
C. Ann Merrifield(3) | | 65,000 | | 44,085 | | 109,085 |
Richard Roberts | | 43,750 | | 44,085 | | 87,835 |
Christina Morrison | | 53,219 | | 44,085 | | 97,304 |
Jeffrey Hatfield | | 46,969 | | — | | 46,969 |
| | | | | | | | | | | | | | |
| | | | | | | | Non-Equity | | Nonqualified | | | | |
| | | | | | | | Deferred | | Deferred | | | | |
| | Fees Earned or | | | | Option | | Compensation | | Compensation | | All Other | | |
| | Paid in Cash | | Stock Awards | | Awards | | Earnings | | Earnings | | Compensation | | Total |
Name | | ($) | | ($)(1) | | ($)(1)(2) | | ($) | | ($) | | ($) | | ($) |
Daniel R. Marshak, Ph.D. | | 54,489 | | — | | — | | — | | — | | 418 | | 54,907 |
C. Ann Merrifield | | 74,489 | | — | | — | | — | | — | | — | | 74,489 |
Richard J. Roberts, Ph.D. | | 45,739 | | — | | — | | — | | — | | — | | 45,739 |
Christina Morrison | | 52,614 | | — | | — | | — | | — | | — | | 52,614 |
Robert J. Rosenthal, Ph.D. | | 50,114 | | — | | — | | — | | — | | — | | 50,114 |
| | | | | | | | | | | | | | |
| (1) | | The amounts shown in this column represent the aggregate grant date fair valueNone of the Company’s directors received stock awards or option awards computed in accordance with ASC 718, not the actual amounts paid to or realized by the director during 2017. The assumptions used in determining grant date fair value of these awards are set forth in Note 12 to our Consolidated Financial Statements appearing in Item 8 of this Annual Report on 10-K.
2020. |
| (2) | | As of December 31, 2017,2020, the aggregate number of options to purchase shares of our common stock outstanding for each director listed above, including both vested and unvested shares, was as follows: Mr. DiPietro, 75,000Dr. Marshak, 85 shares; Mr. Marshak, 50,000; Ms. Merrifield, 50,000;85 shares; Dr. Roberts, 100,000136 shares; Ms. Morrison, 37,500; Mr. Hatfield, 25,000. In accordance with our director compensation policy, Mr. Hatfield68 shares; and Dr. Rosenthal, did not receive an annual grant of stockhave any options in 2017 because he joined the Board within three months of the annual grant date. outstanding. |
| (3)
| | Ms. Merrifield was appointed as Chair of the Board of Directors effective December 18, 2017 and the annual retainer for her role as Chair of the Board was established as $25,000 effective January 1, 2018, replacing her annual retainer of $15,000 as independent Lead Director.
|
Our director compensation policy in place in 2017 providedprovides for the following compensation to our non-employee directors:
| ·
● | | an annual retainer of $35,000$40,000 per year, paid quarterly, to each non-employee director; |
| ·
● | | an annual retainer of $15,000, paid quarterly, to the Audit Committee chairperson, and an annual retainer of $7,500, paid quarterly, to each member of the Audit Committee of the Board; |
| ·
● | | an annual retainer of $10,000, paid quarterly, to the Compensation Committee chairperson, and an annual retainer of $5,000, paid quarterly, to each member of the Compensation Committee of the Board; |
| ·
● | | an annual retainer of $7,500, paid quarterly, to the Nominating and Corporate Governance Committee chairperson, and an annual retainer of $3,750, paid quarterly, to each member of the Nominating and Corporate Governance Committee of the Board; and |
| ·
● | an annual retainer of $25,000, paid quarterly, to the Chair of the Board; and |
| ● | when applicable, an annual retainer of $15,000, paid quarterly, to any Lead Director of the independent Lead Director.Board. |
Non-employee directors are reimbursed for reasonable travel expenses in connection with attendance at meetings of the Board or any of its committees that are conducted in person and other activities directly related to the service to the Company.company.
EachAt the Board’s discretion, each non-employee director may also receivesreceive an annual grant of a stock option to purchase 12,500 shares of our common stock at an exercise price equal to the closing price of our common stock on the date of grant. TheAny such options vest in 12 equal installments on each monthly anniversary of the date of grant until fully vested on the first anniversary of the date of grant, provided that such director remains a director of our company on each such vesting date.
Compensation Committee Interlocks and Insider Participation
None Alternatively, the Board may elect to grant restricted stock units or restricted stock awards. The Company did not grant any equity awards to any of the membersnon-employee directors in 2020.
Pay Ratio
We are a smaller reporting company as defined by Rule 12b-2 of the Compensation Committee was at any time during 2017 or at any other time an officer or employee of our company. None of our executive officers serves as a member ofExchange Act and are not required to provide the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Board or the Compensation Committee.information under this item.
The current members of our Compensation Committee are Mr. DiPietro (Chairman), Mr. Hatfield and Drs. Marshak and Roberts.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Form 10-K statement. Based on those reviews and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement for filing with the Securities and Exchange Commission.
| | |
| | |
| | By the Compensation Committee of the Board of Directors of InVivo Therapeutics Holdings Corp.
|
|
|
Kenneth DiPietro, Chairman
Jeffrey Hatfield
Daniel Marshak
Richard Roberts
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 5, 2018,February 12, 2021 with respect to the beneficial ownership of our common stock by:
| ·
● | | each of our directors; directors |
| ·
● | | each of our named executive officers; and |
| ·
● | | all of our current executive officers and directors as a group; and group |
| ·
| | each person that is known by us to beneficially own more than 5% of the outstanding shares of our common stock.
|
Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power, and his or her address is c/o InVivo Therapeutics Holdings Corp., One Kendall Square, Suite B14402, Cambridge, MA 02139. Shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days of March 5, 2018February 12, 2021 are deemed outstanding for computing the share ownership and percentage of the person holding such options and warrants, but are not deemed outstanding for computing the percentage of any other person. The percentage ownership of our common stock of each person or entity named in the following table is based on 36,079,85129,268,289 shares of our common stock outstanding as of March 5, 2018.February 12, 2021.
| | | | | |
| | | | Percentage of | |
| | Number of Shares | | Common Stock | |
| | of Common Stock | | Beneficially | |
Name of Beneficial Owner | | Beneficially Owned | | Owned | |
Directors and Named Executive Officers | | | | | |
Richard Toselli, M.D. (1) | | 10,181 | | * | % |
Richard Christopher (2) | | 10,856 | | * | |
Daniel R. Marshak, Ph.D. (3) | | 85 | | * | |
C. Ann Merrifield (4) | | 7,360 | | * | |
Richard J. Roberts, Ph.D. (5) | | 426 | | * | |
Christina Morrison (6) | | 68 | | * | |
Robert J. Rosenthal, Ph.D. (7) | | — | | * | |
All current directors and executive officers as a group (7 persons) (8) | | 28,976 | | 0.1 | % |
Directors and Officers
| | | | | |
| | | | Percentage of | |
| | Number of Shares | | Common Stock | |
| | of Common Stock | | Beneficially | |
Name of Beneficial Owner | | Beneficially Owned | | Owned | |
Richard Toselli | | — | (1) | * | |
Mark Perrin | | 956,855 | (2) | 2.7 | % |
Christopher McNulty | | 158,294 | (3) | * | |
Melanie Morel-Ferris | | 3,641 | (4) | * | |
Tamara Joseph | | 214,067 | (5) | * | |
Pamela Stahl | | 92,167 | (6) | * | |
Tom Ulich | | 5,357 | (7) | | |
Kenneth DiPietro | | 78,125 | (8) | * | |
Daniel Marshak | | 53,125 | (9) | * | |
C. Ann Merrifield | | 55,125 | (10) | * | |
Richard Roberts | | 320,012 | (11) | * | |
Christina Morrison | | 38,542 | (12) | * | |
Jeffrey Hatfield | | 21,875 | (13) | * | |
All directors and executive officers as a group (13 persons) | | 1,997,185 | (14) | 5.5 | % |
*Percentage of shares beneficially owned does not exceed one percent.
| (1) | | NoneConsists of (a) 3,838 shares of common stock owned by Dr. Toselli’sToselli, (b) 407 shares of common stock underlying options held by Dr. Toselli that are exercisable as of February 12, 2021 or RSUs will become exercisable or vested within 60 days after such date, (c) 3,636 shares of March 5, 2018.
common stock underlying warrants held by Dr. Toselli that are exercisable as of February 12, 2021 and (d) 2,300 shares of restricted Common Stock granted to Dr. Toselli. |
| (2) | | Includes 907,760Consists of (a) 3,636 shares issuable upon the exercise of common stock owned by Mr. Christopher (b) 2,000 shares of common stock underlying options held by Mr. Christopher that are exercisable as of February 12, 2021 or will become exercisable within 60 days after such date, (c) 3,636 shares of March 5, 2018.
common stock underlying warrants held by Mr. Christopher that are exercisable as of February 12, 2021 and (d) 1,584 shares of restricted Common Stock granted to Mr. Christopher. |
| (3) | | Includes 130,230Consists solely of shares issuable upon the exercise of common stock underlying options held by Dr. Marshak that are exercisable as of February 12, 2021 or will become exercisable within 60 days of March 5, 2018.
after such date. |
| (4) | | AllConsists of (a) 3,639 shares of common stock owned by Ms. Morel-Ferris’sMerrifield, (b) 3,636 shares of common stock underlying warrants held by Ms. Merrifield that are exercisable as of February 12, 2021 and (c) 85 shares of common stock underlying options have expired.
|
| (5)
| | Includes 184,128 shares issuable upon the exerciseheld by Ms. Merrifield that are exercisable as of stock optionsFebruary 12, 2021 or will become exercisable within 60 days of March 5, 2018.
after such date. |
| (6)
(5) | | Includes 85,432Consists of (a) 290 shares issuable upon the exercise of common stock owned by Dr. Roberts and (b) 136 shares of common stock underlying options held by Dr. Roberts that are exercisable as of February 12, 2021 or will become exercisable within 60 days of March 5, 2018.
after such date. |
| (7)
| | All of Dr. Ulich’s options have expired.
|
| (8)
| | Represents 78,125 shares issuable upon the exercise of stock options within 60 days of March 5, 2018.
|
| (9)
| | Represents 53,125 shares issuable upon the exercise of stock options within 60 days of March 5, 2018.
|
| (10)
| | Includes 53,125 shares issuable upon the exercise of stock options within 60 days of March 5, 2018.
|
| (11)
| | Includes 103,125 shares issuable upon the exercise of stock options within 60 days of March 5, 2018.
|
| (12)
(6) | | Represents 38,542Consists solely of shares issuable upon the exercise of common stock underlying options held by Ms. Morrison that are exercisable as of February 12, 2021 or will become exercisable within 60 days of March 5, 2018.
after such date. |
| (13)
(7) | Mr. Rosenthal does not own any shares of the Company. |
| Represents 21,875(8)
| Consists of (a) 11,403 shares issuable upon the exercise of common stock owned by all current executive officers and directors as a group (b) 2,781 shares of common stock underlying options that are exercisable as of February 12, 2021 or will become exercisable within 60 days after such date, (c) 10,908 shares of March 5, 2018.common stock underlying warrants that are exercisable as of February 12, 2021 and (c) 3,884 shares of restricted Common stock. |
| (14)
| | Includes an aggregate of 1,655,467 shares issuable upon the exercise of stock options within 60 days of March 5, 2018.
|
Stockholders Known by Us to Own 5% or More of Our Common Stock
| | | | | |
| | | | Percentage of | |
| | Number of Shares | | Common Stock | |
| | of Common Stock | | Beneficially | |
Name of Beneficial Owner | | Beneficially Owned | | Owned | |
Intracoastal Capital LLC (1) | | 1,555,715 | | 6.8 | % |
Lind Global Macro Fund, LP (2) | | 2,269,025 | | 9.9 | % |
No stockholders are known by us to own 5% or more of our common stock.
| (1) | The information regarding Intracoastal Capital LLC is based solely on its Schedule 13/G filed with the SEC on January 29, 2021, wherein Intracoastal Capital LLC declared beneficial ownership of 1,555,715 shares of the Company’s common stock, which consisted of (i) 305,715 shares of common stock issuable upon exercise of a warrant held by Intracoastal (“Intracoastal Warrant 1”) and (ii) 1,250,000 shares of common stock issuable upon exercise of a second warrant held by Intracoastal (“Intracoastal Warrant 2”), and all such shares of common stock represented beneficial ownership of approximately 6.8% of the common stock, based on (1) 21,171,836 shares of common stock outstanding as of November 2, 2020 as reported by the Company, plus (2) 305,715 shares of common stock issuable upon exercise of Intracoastal Warrant 1 and (3) 1,250,000 shares of common stock issuable upon exercise of Intracoastal Warrant 2. |
| (2) | The information regarding Lind Global Macro Fund, LP. is based solely on its Schedule 13/G filed with the SEC on January 20, 2021, wherein Lind Global Macro Fund, LP declared beneficial ownership consisting of (a) 727,725 common shares and (b) warrants to purchase 3,638,000 common shares (the “Warrants”), however, due to the exercise limitations of the Warrants, the beneficial ownership of the Warrants, at the time of the 13/G filing, was limited to 1,541,300 Warrants. |
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides certain information about shares of our common stock that may be issued under our existing equity compensation plan as of March 5, 2018,December 31, 2020, which consists of our 2007 Equity Incentive Plan, 2010 Equity Incentive Plan, 2015 Equity Incentive Plan, and Employee Stock Purchase Plan.Plan or other equity compensation plans not approved by security holders.
Equity Compensation Plan Information
| | | | | | | | |
| | (a) | | | | | (c) | |
| | Number of | | | | | Number of securities | |
| | securities | | (b) | | remaining available | |
| | to be issued upon | | Weighted-average | | for future issuance | |
| | the exercise of | | exercise price | | under equity | |
| | outstanding | | of outstanding | | compensation plans | |
| | options, | | options, | | (excluding securities | |
| | warrants and | | warrants | | reflected in column | |
| | | | | | | | |
| | | (a) | | | | | (c) |
| | | Number of | | | | | Number of securities |
| | | securities | | (b) | | remaining available |
| | | to be issued upon | | Weighted-average | | for future issuance |
| | | the exercise of | | exercise price | | under equity |
| | | outstanding | | of outstanding | | compensation plans |
| | | options, | | options, | | (excluding securities |
| | | warrants and | | warrants | | reflected in column |
Plan Category | | rights | | and rights | | (a)) | | rights | | and rights | | (a)) |
Equity compensation plans approved by security holders | | 3,670,779 | | $ | 5.50 | | 2,776,974 | | 7,571 | | $ | 562.20 | | 427,272 |
Equity compensation plans not approved by security holders | | — | | | — | | — | | 3,000 | | | 45.90 | | — |
Total | | 3,670,779 | | $ | 5.50 | | 2,776,974 | | 10,571 | | $ | 415.68 | | 427,272 |
| (1) | Consists of a stock option award approved by our Board as an inducement material to our Chief |
| | Financial Officer’s acceptance of employment with us in accordance with Nasdaq Listing Rule 5635(c)(4). The inducement award has an exercise price per share equal to $45.90, the closing price of a share of our common stock on the grant date, and vested as to one-third (1/3) of the shares of the underlying stock option on January 14, 2020, and will vest as to one third (1/3) of the shares of the underlying stock option on January 14, 2021 and the remaining one third (1/3) of the shares of the underlying stock option on January 14, 2022, provided that if within one year following a change in control our Chief Financial Officer’s employment is terminated by him for good reason or by us or our successor without cause, the inducement award will be immediately exercisable in full. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Related Persons
Indemnification Agreements
Our articles of incorporation require that we indemnify our officers, directors, employees, and agents to the full extent permitted by the laws of the State of Nevada. Our bylaws include an indemnification provision under which we have the power to indemnify our directors and officers against all costs, charges and expenses actually and reasonably incurred, including an amount paid to settle an action or satisfy a judgment to which a director or officer is made a party by reason of being or having been a director or officer of the company. In addition, we have entered into an indemnification agreement with each of our officers and directors pursuant to which they will be indemnified by us, subject to certain limitations, for any liabilities incurred by them in connection with their role as officers or directors of the company.
Related Party Transaction Policy
Our board of directorsBoard has adopted written policies and procedures for the review of related party transactions. The Audit Committee reviews and oversees all related party transactions on an ongoing basis. A “related party transaction” is a transaction that meets the minimum threshold for disclosure in the proxy statement under applicable SEC rules (generally, transactions involving amounts exceeding $120,000 in which a “related person” or entity has a direct or indirect material interest). “Related persons” include our executive officers, directors, beneficial owners of 5% or more of our common stock, immediate family members of these persons and entities in which one of these persons has a direct or indirect material interest. When a potential related party transaction is identified, management presents it to the Audit Committee to determine whether to approve or ratify it.
The Audit Committee reviews the material facts of any related party transaction and either approves or disapproves of entering into the transaction. In the course of reviewing the related party transaction, the Audit Committee considers whether (i) the transaction is fair and reasonable to our company, (ii) the transaction is in, or not inconsistent with, our company’s best interests under all possible circumstances, and (iii) the transaction will be on terms no less favorable to our company than we could have obtained in an arm’s-length transaction with an unrelated third party. If advance approval of a related party transaction is not feasible, then the transaction will be considered and, if the Audit Committee determines it to be appropriate, ratified by the Audit Committee. No director may participate in the approval of a transaction for which he or she is a related party. When a related party transaction is ongoing, any amendments or changes are reviewed, and the transaction is reviewed annually for reasonableness and fairness to our company.
Related Party Transactions
In January 2017, we entered into a consulting agreement with Dr. Robert Langer, a member of our Scientific Advisory Board, who at the time of entering into the consulting agreement was a holder of over 5% of our common stock, for certain consulting services. Dr. Langer was one of the original co-founders of our company. Pursuant to the terms of the agreement, we initially agreed to pay Dr. Langer $250,000 per year in consulting fees, but that amount was reduced effective October 2017 to $100,000 per year in consulting fees. For the year ended December 31, 2017 the Company paid Dr. Langer $204,166 in consulting fees.
Director Independence
Rule 5605 of the Nasdaq Listing Rules requires a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, the Nasdaq Listing Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance committees be independent, that audit committee members also satisfy independence criteria set forth in Rule 10A-310A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that compensation committee members also satisfy heightened independence requirements contained in the Nasdaq Listing Rules as well as Rule 10C-110C-1 under the Exchange Act. Under Nasdaq Rule 5605(a)(2), a director will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-310A-3 under the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the Board, or any other Board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. When determining the independence of the members of our compensation committee under the heightened independence requirements contained in the Nasdaq Listing Rules and Rule 10C-110C-1 under the Exchange Act, our Board is required to consider all factors specifically relevant to determining whether a director has a relationship with us that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (1)
the source of compensation of that director, including any consulting, advisory, or other compensatory fee paid by us to that director; and (2) whether that director is affiliated with our company, a subsidiary of our company, or an affiliate of a subsidiary of our company.
Our Board has reviewed the composition of our Board and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment, and affiliations, including family relationships, our Board has determined that each of our directors, other than Dr. Toselli, is an “independent director” as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules.
Our Board also determined that Ms. Morrison, Mr. Hatfield, Dr. Marshak, and Ms. Merrifield,Dr. Rosenthal, who comprise our audit committee, and Mr. DiPietro, Mr. Hatfield,Ms. Merrifield, Ms. Morrison, Dr. Marshak, and Dr. Roberts, who comprise our compensation committee, satisfy the independence standards for such committees established by the SECSecurities and Exchange Commission (“SEC”) and the Nasdaq Listing Rules, as applicable. In making such determinations, our Board considered the relationships that each such non-employee director has with our company and all other facts and circumstances our Board deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Registered Public Accounting Firm Fees.Fees.
Audit Fees
| | | | | | |
Firm | | Year | | Fees ($)(1) |
RSM US, LLP | | | 2017 | | | 227,874 |
| | | 2016 | | | 205,800 |
WOLF & COMPANY, P.C. | | | 2017 | | | — |
| | | 2016 | | | 8,300 |
| | | | | | |
Firm | | Year | | Fees ($)(1) |
RSM US LLP | | | 2020 | | | 212,588 |
| | | 2019 | | | 208,859 |
Audit fees in each of 2017 and 2016 consisted of fees incurred for professional services rendered for the audit of consolidated financial statements and internal control over financial reporting and for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q.
| (1) | Audit fees in each of 2020 and 2019 consisted of fees incurred for professional services rendered for the audit of consolidated financial statements and for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10‑Q. |
Audit-Related Fees
| | | | | | |
Firm | | Year | | Fees ($)(1) |
RSM US, LLP | | | 2017 | | | 78,750 |
| | | 2016 | | | 111,921 |
WOLF & COMPANY, P.C. | | | 2017 | | | 9,000 |
| | | 2016 | | | 10,670 |
| | | | | | |
Firm | | Year | | Fees ($)(1) |
RSM US LLP | | | 2020 | | | 136,500 |
| | | 2019 | | | 97,120 |
| (1) | | Audit-related fees in 20172020 and 2019 paid to RSM US LLP or RSM consisted of fees related to the delivery of comfort letters in conjunction with proposed common stock financings. Audit-related fees in 2016 paid to RSM consisted of fees related to the delivery of a comfort letterfinancings and consents in conjunction with a common stock financing and fees related to a Form S-3. Audit-related fees in 2017 paid to Wolf & Co. consisted of fees related to consents provided in connection with December 2016 Form 10-K filing. Audit-related fees in 2016 paid to Wolf & Co. consisted of fees related to consents provided in connection with a Form S-3 filing and a common stock financing. registration statements. |
Tax Fees
There were no fees paid to RSM or Wolf & Company, P.C. for any tax-related services in 20172020 or 2016.2019.
All Other Fees
There were no other fees paid to RSM in 2020 or Wolf & Company, P.C. in 2017 or 2016.2019.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
Our Audit Committee is responsible for pre-approving all services provided by our independent registered public accounting firm. All of the above services and fees were reviewed and approved by the Audit Committee before the services were rendered. The Audit Committee has considered the nature and amount of fees billed by RSM US LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining RSM'sRSM US LLP’s independence.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements.
The financial statements listed in the Index to Consolidated Financial Statements appearing in Item 8 are filed as part of this report.
Financial Statement Schedules.
All financial statement schedules have been omitted as they are either not required, not applicable, or the information is otherwise included.
Exhibits.
The following is a list of exhibits filed as part of this Annual Report on 10-K.
| | |
Exhibit
No. | | Description |
Exhibit No.2.1
| | Description
|
2.1 | | Agreement and Plan of Merger, dated October 4, 2010, by and between Design Source, Inc. and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 2.2 to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on October 6, 2010). |
2.2 | | Agreement and Plan of Merger and Reorganization, dated as of October 26, 2010, by and among InVivo Therapeutics Holdings Corp. (f/k/a Design Source, Inc.), a Nevada corporation, InVivo Therapeutics Acquisition Corp., a Delaware corporation and InVivo Therapeutics Corporation, a Delaware corporation (incorporated by reference from Exhibit 2.1 to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on November 1, 2010). |
3.1 | | Articles of Incorporation of InVivo Therapeutics Holdings Corp., as amended (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10 Q for the quarter ended June 30, 2016, as filed with the SEC on August 4, 2016). |
3.2 | | Amended and Restated Bylaws of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, as filed with the SEC on May 6, 2016). |
4.13.3 | | Certificate of Change Pursuant to NRS 78.209 filed with Nevada Secretary of State, dated April 13, 2018 (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on April 16, 2018). |
3.4 | | Certificate of Amendment to Articles of Incorporation of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC June 1, 2018.) |
3.5 | | Certificate of Amendment to Articles of Incorporation of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC January 21, 2020) |
3.6 | | Certificate of Change Pursuant to NRS 78.209 filed with Nevada Secretary of State, dated February 10, 2020 (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on February 11, 2020) |
3.7 | | Certificate of Amendment to Articles of Incorporation of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC August 5, 2020). |
3.8 | | Amended and Restated Bylaws of InVivo Therapeutics Holdings Corp, as amended (incorporated by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on June 5, 2020). |
4.1+ | | Description of the Registrant’s Securities. |
4.2 | | Specimen Common Stock Certificate (incorporated by reference from Exhibit 4.84.2 to the Company’s Annual Report on Form 10‑K10-K for the fiscal year ended December 31, 2011,2019, as filed with the SEC on March 15, 2012)February 20, 2020). |
4.2 | 4.3 | Warrant dated October 5, 2012 issued to Massachusetts Development Finance Agency (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8‑K, as filed with the SEC on October 9, 2012).
|
4.3 | | Form of Warrant of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 6, 2014). |
4.4 | | Form of Warrant Agreement (incorporated by reference from Exhibit 4.5 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 3, 2016). |
4.5 | | Form of Series A Warrant (incorporated by reference from Exhibit 10.35 to the Company’s Registration Statement on Form S-1/A (File No. 333- 224424) as filed with the SEC on June 14, 2018). |
4.6 | | Amendment to Warrant Agency Agreement, by and between InVivo Therapeutics Holdings Corp. and Continental Stock Transfer & Trust Company, as Warrant Agent, dated September 27, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on September 28, 2018). |
4.7 | | Second Amendment to Warrant Agency Agreement and Warrant, by and between InVivo Therapeutics Holdings Corp. and Continental Stock Transfer & Trust Company, as Warrant Agent, dated November 20, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on November 21, 2019). |
4.8 | | Form of Series A Warrant, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on November 21, 2019). |
4.9 | | Form of Placement Agent Warrant of InVivo Therapeutics Holdings Corp. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on January 24, 2020). |
4.10 | | Form of Series A Warrant (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 3, 2016)11, 2020). |
4.11 | | Form of Series B Pre-Funded Warrant (incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 11, 2020). |
4.12 | | Form of Placement Agent Warrant (incorporated by reference from Exhibit 4.3 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 11, 2020). |
4.13 | | Form of Series C Warrant (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on April 16, 2020). |
4.14 | | Form of Placement Agent Warrant (incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on April 16, 2020). |
4.15 | | Form of Series A Warrant (incorporated by reference from Exhibit 4.12 to the Company’s Amendment No. 1 to Registration Statement on Form S-1/A (File No. 333-249353), as filed with the SEC on October 16, 2020) |
4.16 | | Form of Series B Pre-Funded Warrant (incorporated by reference from Exhibit 4.13 to the Company’s Amendment No. 1 to Registration Statement on Form S-1/A (File No. 333-249353), as filed with the SEC on October 16, 2020) |
4.17 | | Form of Placement Agent Warrant (incorporated by reference from Exhibit 4.14 to the Company’s Amendment No. 1 to Registration Statement on Form S-1/A (File No. 333-249353), as filed with the SEC on October 16, 2020) |
10.1* | | InVivo Therapeutics Corp. 2007 Employee, Director and Consultant Stock Plan (incorporated by reference from Exhibit 10.9 to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on November 1, 2010). |
10.2(i) | * | Form of Incentive Stock Option Agreement by and between InVivo Therapeutics Corp. and participants under the 2007 Employee, Director and Consultant Stock Plan (incorporated by reference from Exhibit 10.11(i) to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on November 1, 2010). |
10.2(ii)* | | Form of Non‑QualifiedNon-Qualified Stock Option Agreement by and between InVivo Therapeutics Corp. and participants under the 2007 Employee, Director and Consultant Stock Plan (incorporated by reference from Exhibit 10.11(ii) to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on November 1, 2010). |
10.4(ii)* | | Form of Non‑QualifiedNon-Qualified Stock Option Agreement by and between InVivo Therapeutics Holdings Corp. and participants under the 2010 Equity Incentive Plan (incorporated by reference from Exhibit 10.12(ii) to the Company’s Annual Report on Form 10‑K10-K for the fiscal year ended December 31, 2010, as filed with the SEC on March 24, 2011). |
10.5 | | Form of Scientific Advisory Board Agreement entered into by InVivo Therapeutics Corp. (incorporated by reference from Exhibit 10.13 to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on November 1, 2010). |
10.6 | | Exclusive License Agreement dated July 2007 between InVivo Therapeutics Corporation and Children’s Medical Center Corporation (incorporated by reference from Exhibit 10.1 to Amendment No. 2 to the Company’s Quarterly Report on Form 10‑Q/10-Q/A for the quarter ended March 31, 2011, as filed with the SEC on July 18, 2011). |
10.7 | | Amendment One to the Exclusive License, dated May 12, 2011, by and between Children’s Medical Center Corporation and InVivo Therapeutics Corporation (incorporated by reference from Exhibit 10.22 to the Amendment No. 4 to the Company’s Registration Statement on Form S‑1/S-1/A (File No. 333‑171998)333-171998), as filed with the SEC on July 19, 2011). |
10.8 | | Amendment Two to the Exclusive License, dated August 29, 2017, by and between Children’s Medical Center Corporation and InVivo Therapeutics Corporation (incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2017, as filed with the SEC on January 3, 2018). |
10.9 | | Form of Indemnification Agreement (for directors and officers) (incorporated by reference from Exhibit 10.19 to the Company’s Registration Statement on Form S‑1S-1 (File No. 333‑171998)333-171998), as filed with the SEC on February 1, 2011). |
10.10 | | Lease Agreement, dated November 30, 2011, between InVivo Therapeutics Corporation and RB Kendall Fee, LLC (incorporated by reference from Exhibit 10.25 to the Company’s Registration Statement on Form S‑1S-1 (File No. 333‑178584)333-178584), as filed with the SEC on December 16, 2011). |
10.11 | | Lease Guaranty, dated November 30, 2011, by InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.26 to the Company’s Registration Statement on Form S‑1S-1 (File No. 333‑178584)333-178584), as filed with the SEC on December 16, 2011). |
10.12 | | First Amendment of Lease between InVivo Therapeutics Corporation and RB Kendall Fee, LLC, dated September 17, 2012 (incorporated by reference from Exhibit 10.31 to the Company’s Annual Report on Form 10‑K10-K for the fiscal year ended December 31, 2012, as filed with the SEC on March 12, 2013). |
10.13 | +
| Second Amendment of Lease between InVivo Therapeutics Corporation and RB Kendall Fee, LLC, dated October 31, 2017. |
10.14*
| | InVivo Therapeutics Holdings Corp. Annual Cash Bonus Plan for Executive Officers2017 (incorporated by reference from Exhibit 10.210.13 to the Company’s CurrentAnnual Report on Form 8‑K,10-K for the fiscal year ended December 31, 2017, as filed with the SEC on March 8, 2012).
|
10.15 | | Promissory Note dated October 5, 2012 in favor of Massachusetts Development Finance Agency (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8‑K, as filed with the SEC on October 9, 2012).
|
10.16 | | Purchase Agreement, dated January 25, 2018, between InVivo Therapeutics Holdings Corp. and Lincoln Park Capital Fund, LLC (incorporated by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on January 26,12, 2018).
|
10.17 | | Registration Rights Agreement, dated January 25, 2018, between InVivo Therapeutics Holdings Corp. and Lincoln Park Capital Fund, LLC (incorporated by reference from Exhibit 1.2 to the Company’s Current Report on Form 8-K, as filed with the Commission on January 26, 2018).
|
10.18*
| | Employment Agreement, dated as of December 23, 2013, between the Company and Mark D. Perrin (incorporated by reference from Exhibit 10.28 to the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2013, as filed with the SEC on March 17, 2014).
|
10.1910.14*
| | InVivo Therapeutics Holdings Corp. Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8‑K, as filed with the SEC on June 16, 2015). |
10.20*
| | InVivo Therapeutics Holdings Corp. 2015 Equity Incentive Plan (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on June 16, 2015).
|
10.2110.15*
| | Letter Agreement regarding Amendments to Employment Agreement, dated as of July 21, 2015, by and between Mark D. Perrin and InVivo Therapeutics HoldingHoldings Corp. 2015 Equity Incentive Plan, as amended (incorporated by reference from Exhibit 10.199.1 to the Company’s QuarterlyCurrent Report on Form 10‑Q for the quarter ended September 30, 2015,8-K, as filed with the SEC on November 4, 2015).
|
10.22*
| | Employment Agreement, dated July 21, 2015, by and between Thomas R. Ulich, M.D and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.3 to the Company’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2015, as filed with the SEC on November 4, 2015)August 5, 2020).
|
10.2310.16*
| | Employment Agreement, dated August 3, 2015, by and between Tamara L. Joseph and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2015, as filed with the SEC on November 4, 2015).
|
10.24*
| | Employment Agreement, dated August 10, 2016, by and between Pamela Stahl and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, as filed with the SEC on November 4, 2016).
|
10.25*
| | Employment Agreement, dated March 29, 2017, between InVivo Therapeutics Holdings Corp. and Christopher McNulty (incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, as filed with the SEC on May 4, 2017).
|
10.26*
| | Consulting Agreement, dated June 29, 2017, by and between InVivo Therapeutics Holdings Corp. and Richard Toselli, M.D. (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, as filed with the SEC on August 8, 2017). |
10.27*10.17*
| | Letter Agreement, dated December 17, 2017, by and between Mark D. Perrin and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.26 to the Company’s Registration Statement on Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
|
10.28*
| | Employment Agreement, dated December 18, 2017, by and between Richard Toselli and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.27 to the Company’s Registration Statement on Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)2018). |
10.29*10.18
| | Consulting Agreement, dated January 3, 2018, by and between Mark D. Perrin and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.28 to the Company’s Registration Statement on Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
|
10.30*
| | Letter Agreement, dated January 19, 2018, by and between Tamara L. Joseph and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.29 to the Company’s Registration Statement on Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
|
10.31*+
| | Letter Agreement, dated March 7, 2018, by and between Pamela Stahl and InVivo Therapeutics Holdings Corp
|
10.32*
| | Consulting Agreement, dated January 19, 2018, by and between Tamara L. Joseph and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.30 to the Company’s Registration Statement on Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
|
10.33 | | Form of Exchange Agreement, dated as of August 10, 2017, between InVivo Therapeutics Holdings Corp. and certain holders of warrants (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on August 10, 2017). |
2110.19 | | Assignment and Assumption of Lease and Consent at Landlord, dated May 3, 2018 by and among Shiseido Americas Corporation, ARE-MA Region No. 59 LLC and InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.34 to the Company’s Registration Statement on Form S-1/A (File No. 333- 224424) as filed with the SEC on June 14, 2018). |
10.20 | | Sublease, dated May 3, 2018, by and between Shiseido Americas Corporation and InVivo Therapeutics Holdings Corp.(incorporated by reference from Exhibit 10.35 to the Company’s Registration Statement on Form S-1/A (File No. 333- 224424) as filed with the SEC on June 14, 2018). |
10.21* | | Amendment to Employment Agreement, by and between InVivo Therapeutics Holdings Corp. and Richard Toselli, dated October 1, 2018 (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on October 5, 2018). |
10.22* | | Employment Agreement, dated December 24, 2018, between the Company and Richard Christopher (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on January 14, 2019). |
10.23* | | Nonstatutory Stock Option Agreement, dated January 14, 2019, between the Company and Richard Christopher (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on January 14, 2019). |
10.24* | | Form of Restricted Stock Agreement under the Company’s 2015 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on September 27, 2019). |
10.25* | | Form of Restricted Stock Unit Agreement under the Company’s 2015 Equity Incentive Plan (incorporated by reference from Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 20, 2020). |
21.1 | | Subsidiaries of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 21.1 to the Company’s Current Report on Form 8‑K,8-K, as filed with the SEC on November 1, 2010). |
23.123.1+ | | Consent of RSM US LLPLLP. |
31.131.1+ | | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
31.231.2+ | | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
32.132.1+ | | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
32.232.2+ | | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
101.INS | | XBRL Instance Document. |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
101.CAL | | XBRL Taxonomy Calculation Linkbase Document. |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | XBRL Taxonomy Label Linkbase Document. |
101.PRE | | XBRL Taxonomy Presentation Linkbase Document. |
*Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of Form 10‑K. | Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of Form 10-K. |
+ Filed herewith.
Item 16. FORM 10-K SUMMARY
None.
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| INVIVO THERAPEUTICS HOLDINGS CORP. |
Date: March 12, 20181, 2021 | By: | /s/ RICHARD TOSELLI, M.D |
| | Name: | Richard Toselli |
| | Title: | President, Chief Executive Officer and Director (Principal Executive Officer) |
| | |
Date: March 12, 20181, 2021 | By: | /s/ RICHARD CHRISTOPHER McNULTY |
| | Name: | Richard Christopher McNulty |
| | Title: | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | | Title | | Date |
| | | | |
/s/ Richard Toselli M.D Richard Toselli | | President, Chief Executive Officer and Director (Principal Executive Officer) | | March 12, 20181, 2021 |
| | | | |
/s/ Richard Christopher McNulty Richard Christopher McNulty | | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | | March 12, 20181, 2021 |
| | | | |
/s/ C. Ann Merrifield C. Ann Merrifield | | Chair of the Board | | March 12, 20181, 2021 |
| | | | |
/s/ Kenneth DiPietroDaniel R. Marshak Kenneth DiPietroDaniel R. Marshak
| | Director | | March 12, 20181, 2021 |
| | | | |
/s/ Jeffrey S. HatfieldChristina Morrison Jeffrey S. HatfieldChristina Morrison
| | Director | | March 12, 20181, 2021 |
| | | | |
/s/ Daniel R. MarshakRichard J. Roberts | | Director | | March 12, 20181, 2021 |
Daniel R. Marshak
|
| | | | |
/s/ Christina Morrison
Christina Morrison
| | Director
| | March 12, 2018
|
| | | | |
/s/ Richard J. Roberts
Richard J. Roberts | | | | |
| | | | |
/s/ Robert Rosenthal | | Director | | March 12, 20181, 2021 |
Robert Rosenthal | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
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