InVivo’s Mission
To Redefine the Life of the
Spinal Cord Injury Patient
T o Our Shareholders,
Last year was marked by
meaningful and substantial
progress
Throughout
InVivo.
2016 we achieved many significant
milestones in support of our journey
toward redefining the life of the spinal
cord injury (SCI) patient.
for
We started 2016 by receiving full approval from the Food
and Drug Administration (FDA) for converting the Neuro-
Spinal Scaffold™ pilot study into the pivotal probable benefit
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).
The INSPIRE study is designed to enroll 20 evaluable
patients in support of a Humanitarian Device Exemption
(HDE) application, which provides a simpler regulatory
process with a lower approval threshold.
Completing enrollment of the INSPIRE study is our next
major corporate milestone, and we made significant
progress toward this goal in 2016. During the year, in spite
of a lengthy pre-specified enrollment hold, we enrolled five
new patients in the INSPIRE study who remain in follow-
up. Of those five patients, three (60%) achieved the primary
endpoint of conversion to partial paralysis by six months
post-injury, one has been in follow-up for less than six
months post-injury, and one did not convert by six-months
post injury. To date, our overall conversion rate has been
consistently at or above 50%, which is encouraging given
published historical benchmarks for AIS conversion rates
that indicate only roughly 15% of patients with complete
(AIS A) thoracic injury will spontaneously convert without
treatment by six months after injury.
In addition to progress with patients, InVivo has continued to
open high-quality sites for the INSPIRE study. In 2016, InVivo
added 13 new clinical sites, including two in Canada where
we received approval to initiate the INSPIRE study. Currently,
we have 31 participating sites across the U.S. and Canada,
with plans to expand to the United Kingdom. Over the past
year, we have also been active in visiting existing clinical
sites to identify opportunities in the enrollment process,
expand awareness, and gain a better understanding of how
sites evaluate patients for the INSPIRE study.
Another important initiative for InVivo over the past year has
been increasing our presence in the medical community
and continuing our SCI thought leadership. We attended
and participated in numerous international conferences,
where 13 scientific abstracts were presented to renowned
leaders within the neurosurgical, neuroscience, and SCI
communities. We also garnered media coverage around
InVivo and the Neuro-Spinal Scaffold in 18 widely-read media
outlets that resulted in nearly 30 million media impressions. In
2017, we look forward to continuing to expand our presence
in the medical community and our media coverage.
On the financial side, in 2016 we closed the company’s
largest financing to date by raising $32 million (gross) in
March. We ended 2016 with approximately $33 million in
cash, cash equivalents, and marketable securities that we
project will fund us into the second quarter of 2018. By that
time, we expect to be able to submit the HDE application for
marketing approval of the Neuro-Spinal Scaffold.
Over the past year, we also made progress with our
research-stage program dedicated to the development
of a therapy for the chronic SCI population. In 2016, we
developed a preclinical prototype of the TrailMaker™, a
device that delivers therapeutic trails to the spinal cord,
and filed two related patent applications. In addition to filing
patent applications related to the TrailMaker, in 2016 we
strengthened our core intellectual property portfolio around
the Neuro-Spinal Scaffold by receiving notice of allowances
on key patents that cover broadened compositions and
methods of use.
In 2016, we continued to strengthen our leadership
team, including the appointment of Pam Stahl as our
Chief Commercial Officer. Depth and experience on our
board were enhanced with the addition of two new board
members, Jeff Hatfield and Christina Morrison.
Our mission to redefine the life of the spinal cord injury patient
is not an easy one, and we feel that we made considerable
progress in 2016. Early in 2017, we have made additional
strides with the initiation of our pilot study for cervical spinal
cord injury, the submission of the first module of our HDE
application, the enrollment of several additional patients,
and the announcement of additional patient conversions.
With a strong start to 2017, we look forward to continued
progress this year, including the targeted completion of
enrollment for the INSPIRE study.
I am excited for the journey ahead toward the potential
approval and launch of our first product, and I thank you for
your continued support.
Sincerely,
Mark D. Perrin
Chief Executive Officer and Chairman of the Board
April 2017
Highlights
In 2017 through April 10, we:
•
received Investigational Testing Authorization from Health Canada to conduct
a cervical SCI study
•
opened the first Canadian site for cervical SCI study
• added four new clinical sites for the INSPIRE study
• enrolled four new patients into the INSPIRE study
• announced two patient conversions
• submitted the first module of our HDE application to the FDA
•
and presented at three major financial conferences
In 2016, we:
•
received approval for converting the Neuro-Spinal Scaffold pilot study to the pivotal
INSPIRE study
•
received approval to initiate the INSPIRE study in Canada (first global step for InVivo)
• added 13 new clinical sites, including our first ex-U.S. sites (both in Canada)
•
•
•
•
•
•
enrolled seven new patients, with three of those patients achieving the primary endpoint of
conversion to partial paralysis by six months post-injury1
continued our SCI thought leadership by attending and presenting at international
conferences, where we presented 13 scientific abstracts to renowned leaders within the
neurosurgical, neuroscience, and SCI communities
raised $32 million (gross), which is the company’s largest fundraising to date
successfully developed a preclinical prototype of the TrailMaker™ for the chronic SCI
market and filed two patent applications
garnered unique media coverage about InVivo and the Neuro-Spinal Scaffold in 18 widely read
outlets, resulting in nearly 30 million media impressions
hired a Chief Commercial Officer, Pamela Stahl, whose experience and expertise will
support our efforts toward commercialization while complementing the skills of our existing
management team
•
continued to make great strides in strengthening our research and intellectual property
1. Five patients remain in follow-up; two patients passed away with the cause of death deemed unrelated by the investigators and DSMB to the
Neuro-Spinal Scaffold™ or implantation.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-37350
INVIVO THERAPEUTICS HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
One Kendall Square,
Suite B14402, Cambridge, Massachusetts
(Address of principal executive offices)
36-4528166
(I.R.S. Employer
Identification No.)
02139
(Zip Code)
(617) 863-5500
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
Common Stock, $0.00001 par value
Name of exchange on which registered
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-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-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-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a
smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-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, 2016, the last
business day of the registrant’s most recently completed second fiscal quarter, was $183,453,628 based on a per share price of $5.78, which was the
closing price of the registrant’s common stock on the Nasdaq Global Market on such date.
As of March 3, 2017, the number of shares outstanding of the registrant’s common stock, $0.00001 par value per share, was 32,110,826.
Portions of the registrant’s definitive proxy statement for its 2017 annual meeting of stockholders are incorporated by reference into Part III of
this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120
days of the registrant’s fiscal year ended December 31, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
INVIVO THERAPEUTICS HOLDINGS CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
ITEM
Page
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
Exhibits, Financial Statement Schedules
PART IV
4
21
41
41
41
42
43
45
47
54
55
80
80
81
82
82
82
82
82
83
2
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Statements, other than statements of historical facts, contained in this Annual
Report on Form 10-K regarding future events, our strategy, future operations, future financial position, future revenues,
projected costs, prospects, plans, and objectives of management, are forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,”
“plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative
of these terms or other comparable terminology, and include statements about the market potential for treatment of acute
and chronic spinal cord injury, the sufficiency of our existing capital resources for continuing operations in 2017, the
safety, feasibility, and clinical benefit of our Neuro-Spinal Scaffold™ implant, the expected completion of our pivotal
probable benefit study of the Neuro-Spinal Scaffold and its related clinical development, and our ability to develop
collaborations and partnerships to support our business plan. 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:
•
•
•
•
•
•
•
our limited operating history and history of net losses;
our ability to raise substantial additional capital to finance our planned operations and to continue as a
going concern;
our ability to obtain regulatory approvals for our products, including our Neuro-Spinal Scaffold;
our ability to successfully commercialize our current and future product candidates, including our Neuro-
Spinal Scaffold;
our ability to successfully complete clinical trials and obtain and maintain regulatory approval of our
product candidates;
our ability to protect and maintain our intellectual property and licensing arrangements;
our reliance on third parties to conduct testing and clinical trials;
• market acceptance of our technology and products;
•
•
•
our ability to promote, manufacture, and sell our products, either directly or through collaborative and other
arrangements with third parties;
our ability to attract and retain key personnel; and
other factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K and in subsequent
filings we make with the Securities and Exchange Commission.
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. 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, unless otherwise noted.
3
Item 1. BUSINESS
Overview
We are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of
spinal cord injuries (“SCIs”). Our mission is to redefine the life of the SCI patient, and we are developing 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. We believe the Neuro-Spinal
Scaffold is the only SCI therapy in development focused solely on treating acute SCI directly at the epicenter of the
injury. The Neuro-Spinal Scaffold incorporates intellectual property licensed under an exclusive, worldwide license from
Boston Children’s Hospital (“BCH”) and the Massachusetts Institute of Technology (“MIT”). We are continually
evaluating other technologies and therapeutics that may be complementary to our development of the Neuro-Spinal
Scaffold or offer the potential to bring us closer to our goal of redefining the life of the SCI patient. We have also entered
into exclusive license/assignment agreements with the University of California, San Diego and James Guest, M.D.,
Ph.D. covering delivery methods and devices for our preclinical Therapeutic Trails™ injection program.
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 282,000 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 (“FDA”) through the
Humanitarian Device Exemption (“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
(“HUD”) designation for the Neuro-Spinal Scaffold, 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, the 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 (“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
2016 by NSCISC titled “Spinal Cord Injury—Facts and Figures at a Glance”, (i) during the first year, average cost of
care ranges from $347,896 to $1,065,980, depending on the severity of the injury, (ii) the net present value (“NPV”) to
maintain a quadriplegic injured at age 25 for life is $4,729,788, and (iii) the NPV to maintain a paraplegic injured at age
25 for life is $2,312,846. 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 (“ASIA”), in collaboration with the International Spinal Cord Society
(“ISCoS”), has developed a neurologic examination tool for assessing SCI known as the International Standards for
Neurological Classification of Spinal Cord Injury (“ISNCSCI”). Results of the ISNCSCI examination are used to
determine the ASIA Impairment Scale (“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,
4
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 and Preclinical Programs
We currently have a clinical development program for acute SCI and a preclinical development program for
chronic SCI.
Neuro-Spinal Scaffold™ implant for acute SCI
Our leading product under development is the Neuro-Spinal Scaffold, an investigational bioresorbable polymer
scaffold that is designed for implantation at the site of injury within a spinal cord. The Neuro-Spinal Scaffold 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 is composed of two biocompatible and bioresorbable polymers that are cast to form a
highly porous investigational product:
• Poly lactic-co-glycolic acid (“PLGA”), a polymer that is widely used in resorbable sutures and provides the
biocompatible support for Neuro-Spinal Scaffold; and
• Poly-L-Lysine (“PLL”), a positively charged polymer commonly used to coat surfaces to promote cellular
attachment.
Because of the complexity of SCIs, it is likely that multi-modal therapies will be required to maximize positive
outcomes in SCI patients. In the future, we may attempt to further enhance the performance of our Neuro-Spinal Scaffold
by multiple combination strategies involving electrostimulation devices, additional biomaterials, drugs approved by the
FDA, or growth factors.
We expect the Neuro-Spinal Scaffold will be regulated by the FDA as a Class III medical device. See
“Government Regulation” below for additional information on the regulatory pathway for the Neuro-Spinal Scaffold.
Preclinical and Non-clinical Studies relating to the Neuro-Spinal ScaffoldTM
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,
5
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 (“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 (“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
6
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 (“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 is currently being studied in a pivotal probable benefit study formally known
as 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. The FDA approved converting the pilot study
into The INSPIRE Study in January 2016. The purpose of the study is to evaluate whether the Neuro-Spinal Scaffold
implant is safe and demonstrates probable benefit for the treatment of complete T2-T12/L1 SCI. The primary endpoint is
currently defined as the proportion of patients achieving an improvement of at least one AIS grade by six months’ post-
implantation. Additional endpoints include a reduction in pain and improvements in sensory and motor scores, bladder
and bowel function, Spinal Cord Independence Measure, and quality of life.
After review of the six-month pilot study data package, the FDA approved The INSPIRE Study to expand
enrollment from 12 to up to 30 patients. This allows us to account for events such as screen failures or deaths and still
have 20 evaluable patients at the end of The INSPIRE Study. We may choose to enroll additional patients after 20
patients have received the Neuro-Spinal Scaffold implant to ensure that there are 20 evaluable patients with six months of
follow-up data for the primary endpoint analysis. We are targeting completion of enrollment of the study as currently
designed in the third quarter of 2017, with submission of an HDE application in early 2018. As of March 1, 2017, there
were 27 U.S. clinical sites and 3 Canadian clinical sites participating in The INSPIRE Study. We anticipate opening
additional sites in the United States, Canada, and the United Kingdom.
In February 2016, we received approval of a protocol amendment for The INSPIRE Study. The amended
protocol established an Objective Performance Criterion (“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. Although The INSPIRE
Study is currently 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. Approval is not guaranteed if
the OPC is met, and even if the OPC is 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 May 2016, the FDA reintroduced the request that we include a randomized, concurrent control arm in the
study as part of a study design consideration. As an alternative to a concurrent control, we plan to conduct a
Contemporary Thoracic SCI Cohort Study (the “Cohort Study”). Utilizing existing databases and registries, we plan to
develop a historical comparator that, to the extent possible, matches patients to those patients enrolled in The INSPIRE
Study. Moreover, only patients injured since 2010 will be included as part of the Cohort Study, which provides a period
that is nearly concurrent with The INSPIRE Study.
In late February 2016, the FDA accepted our proposed HDE modular shell submission and review process for
the Neuro-Spinal Scaffold. The HDE modular shell is comprised of three modules: a preclinical studies module, a
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manufacturing module, and a clinical data module. As part of its review process, the FDA reviews modules, 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, which constitutes the complete
HDE submission, the FDA will make a filing decision which may trigger the review clock for an approval decision.
As of March 1, 2017, 11 patients are in follow-up in The INSPIRE Study, and six of the patients have improved
from complete AIS A SCI to incomplete SCI (one patient to AIS C and five patients to AIS B) by the six-month post-
injury assessment. Two of the patients have not yet reached the six-month assessment point. There have been two patient
deaths in The INSPIRE Study, neither of which was determined by the principal investigators and the Data and Safety
Monitoring Board to be related to either the Neuro-Spinal Scaffold or the implant procedure. Results to date may not be
indicative of results for the entire trial and marketing approval is not guaranteed even if the OPC is met. Results from
patients enrolled to date may not be indicative of results for the entire trial and marketing approval is not guaranteed
even if the OPC is met. For further information, see “Risk Factors - 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.”
Pilot Study in Acute, Cervical SCI
In addition to the thoracic pivotal study described above, we are in active discussions with Health Canada to
initiate an early feasibility human pilot study, as the initial phase of a larger pivotal study, of our Neuro-Spinal Scaffold
under an Investigational Testing Authorization application (“ITA”) for the treatment of complete, traumatic cervical
acute SCI. We expect that the pilot study will be approved and initiated in the first half of 2017.
Although we desire to support a similar cervical study in the United States, the FDA has notified us that our
proposed study was disapproved in the United States, pending submission of additional data from The INSPIRE Study.
We remain in discussions with the FDA regarding such disapproval and are hopeful that data generated in The INSPIRE
Study will support moving into cervical SCI in the United States.
Therapeutic Trails™ injection program for chronic SCI
In December 2015, we announced our preclinical Therapeutic Trails injection program for the treatment of
chronic SCI. Therapeutic Trails are a local spinal cord delivery platform for proteins, genes, and cells. To support this
program, we entered into an exclusive license agreement with the University of California, San Diego and an assignment
agreement with James Guest, M.D., Ph.D., for issued patents covering technology related to the Therapeutic Trails
program, filed patent applications in the United States and internationally in support of the Therapeutic Trails injection
program, and developed the TrailMakerTM injection device. We are exploring the utility of the TrailMaker injection
device as a delivery platform supporting localized delivery of a variety of therapeutic agents including cells, proteins,
and gene therapy vectors. We are targeting FDA interaction and guidance on localized delivery of therapeutics by the
end of 2017. For further information on the regulatory pathway for the Therapeutic Trails injection product, please see
“Government Regulation” below.
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 (the “BCH License”). Issued patents and pending patent applications licensed under the BCH License cover
the technology underlying our Neuro-Spinal ScaffoldTM 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 eight
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issued United States patents and eight issued international patents expiring between 2018 and 2027, and one pending
United States patent application and 11 pending international patent applications.
The BCH License has a term of 15 years, 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-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
Scaffold. Together with MIT, we co-own patent application No. U.S. 14/232,525 (“Poly((lactic-co-glycolic
acid)-b-lysine) and process for synthesizing a block copolymer of PLGA and PLL- (poly-e-cbz-l-lysine)”). We also own
patent application No. U.S. 13/793,231 (“Protective packaging with product preparation features incorporated”) and
patent application No. U.S. 13/930,829 (“cupped forceps”).
To support our Therapeutic Trails program, we entered into agreements with the University of California, San
Diego (“UC San Diego”) and James Guest, M.D., Ph.D., to expand our intellectual property portfolio. We entered into
an exclusive license agreement with UC San Diego (the “UC San Diego License”) for an issued patent that expires in
2031. The UC San Diego License term runs as long as the life of the last expiring patent right under the license, unless
terminated earlier by UC San Diego. We also entered into an assignment agreement with Dr. Guest for an issued patent
that expires in 2024. We also have filed patent applications in the United States and internationally in support of the
Therapeutic Trails injection program with the United States Patent and Trademark Office.
Government Regulation
The testing, manufacturing, and potential labeling, advertising, promotion, distribution, import, and marketing
of our products are 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
(“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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product testing;
product manufacturing;
product labeling;
product storage;
premarket clearance, approval, or CE marking of products;
advertising and promotion;
product marketing, sales, and distribution; and
post-market surveillance reporting, including reporting of death or serious injuries.
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 (“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:
• warning letters, fines, injunctions, consent decrees, and civil penalties;
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unanticipated expenditures to address or defend such actions;
customer notifications for repair, replacement, or refunds;
recall, detention, or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying our requests for 510(k) clearance on HDE or premarket approval applications
(“PMA”) of new products or modified products;
operating restrictions;
• 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
criminal prosecution.
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FDA Regulation—Medical Device Products
FDA’s Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device we wish to commercially distribute in the United States will
require either prior 510(k) clearance or prior premarket approval from the FDA. The FDA classifies medical devices into
one of three classes. Devices deemed to pose lower risk are placed in either Class I or II, which requires the
manufacturer to submit to the FDA a premarket notification which must be cleared by the FDA before the medical
device may be distributed commercially. This process is known as 510(k) clearance. Most Class I devices are exempt
from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or
implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in
Class III, requiring premarket approval or approval of an HDE. We expect the Neuro-Spinal Scaffold implant will be
regulated by the FDA as a Class III medical device.
Premarket Approval Pathway
A PMA must be submitted if the device cannot be cleared through the 510(k) process. A PMA must be
supported by extensive data including, but not limited to, technical, preclinical, and other non-clinical, clinical, and
manufacturing and labeling information to demonstrate to the FDA’s satisfaction the safety and effectiveness of the
device for its intended use.
If the FDA determines that a PMA submission is sufficiently complete, the FDA will accept the application for
filing and begin an in-depth review of the submitted information. By statute, the FDA has 180 days to review the
“accepted application,” although, generally, review of the application 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, 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. In addition, the FDA will conduct a preapproval inspection of the manufacturing facility to ensure compliance
with quality system regulations. New PMAs or PMA supplements are required for modifications that affect the safety or
effectiveness of the device, including, for example, certain types of modifications to the device’s indication for use,
manufacturing process, labeling, and design. Premarket approval 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.
Humanitarian Device Exemption
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 an 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, an
HUD may only be used in facilities that have established a local institutional review board (“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 may meet the eligibility criteria to be sold for a profit.
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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;
• Quality System Regulation (“QSR”), which requires manufacturers, including third-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-label uses;
clearance of product modifications that could significantly affect safety or efficacy or that would constitute
a major change in intended use of one of our cleared devices;
approval of product modifications that affect the safety or effectiveness of one of our approved devices;
• 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-approval restrictions or conditions, including post-approval study commitments;
post-market surveillance regulations, which apply when necessary to protect the public health or to provide
additional safety and effectiveness data for the device;
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;
regulations pertaining to voluntary recalls; and
notices of corrections or removals.
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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;
customer notifications for repair, replacement, or refunds;
recall, detention, or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying our requests for 510(k) clearance on HDE or PMA of new products or modified
products;
operating restrictions;
• 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
criminal prosecution.
Regulatory Pathway for the Neuro-Spinal ScaffoldTM Implant
We expect the Neuro-Spinal Scaffold 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), 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. Full
approval of such conversion was subsequently granted in January 2016. We are currently in discussion with the FDA
regarding the clinical data package that would support future HDE approval for the Neuro-Spinal Scaffold.
In the future, if our Neuro-Spinal Scaffold 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 (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 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
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Conformity before drawing up a European Commission (“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.
In the EEA, our devices are required to comply with the Essential Requirements laid down in Annex I to the
Council Directive 93/42/EEC of 14 June 1993 concerning medical devices, known as the Medical Devices Directive
(“MDD”). Compliance with these requirements entitles us to affix the CE mark to our medical devices, without which
they cannot be commercialized in the EEA. To demonstrate compliance with the Essential Requirements laid down in
Annex I to the MDD and obtain the right to affix the CE mark to our medical devices, we must undergo a conformity
assessment procedure, which varies according to the type of medical device and its classification. Except for low risk
medical devices (Class I with no measuring function and which are not sterile), where the manufacturer can issue an EC
Declaration of Conformity based on a self-assessment of the conformity of its products with the Essential Requirements
laid down in the Medical Devices Directive, a conformity assessment procedure requires the intervention of a “Notified
Body”, which is an organization designated by the competent authorities of an EEA country to conduct conformity
assessments. The Notified Body would typically audit and examine a product’s Technical File or Design Dossier and the
quality system for the manufacture, design, and final inspection of a device before issuing a CE Certificate of
Conformity demonstrating compliance with the relevant Essential Requirements laid down in Annex I to the Medical
Devices Directive. Following the issuance of a CE Certificate of Conformity, we could draw up an EC Declaration of
Conformity and affix the CE mark to the products covered by such CE Certificate of Conformity and the EC Declaration
of Conformity. We have not yet applied for a CE Mark for the Neuro-Spinal Scaffold.
On September 26, 2012, the European Commission adopted a package of legislative proposals designed to
replace the existing regulatory framework for medical devices in the European Union. These proposals are intended to
strengthen the medical devices rules in the European Union. On February 22, 2017, after finalization of a final linguistic
review of the texts and the last revisions, the final text of the MDR and IVDR were published on the Council of the
European Union's website. The regulations are now anticipated to be definitively adopted by the Council and the
European Parliament by the end of the March 2017. The regulations, which will substantially impact medical devices
manufacturers, will be applicable from May 2020 for the MDR and May 2022 for the IVDR. Examples of the changes
which will be introduced by the regulations include the following:
• Additional scrutiny during the conformity assessment procedure for high risk medical devices;
• Strengthening of the clinical data requirements related to medical devices;
• Strengthening of the designation and monitoring processes governing notified bodies;
• The obligation for manufacturers and authorized representatives to have a person responsible for regulatory
compliance continuously at their disposal;
• Authorized representatives would be held legally responsible and liable for defective products placed on
the EU market;
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Increased traceability of medical devices following the introduction of a Unique Device Identification
(“UDI”) system;
• New rules governing the reprocessing of medical devices;
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Increased transparency with the establishment of EUDAMED III as information from several databases
concerning economic operators, CE Certificates of Conformity, conformity assessment, clinical
investigations, the UDI system, adverse event reporting, and market surveillance would be available to the
public.
After a product 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;
establishment of post-marketing surveillance and adverse event reporting procedures;
• Field Safety Corrective Actions, including product recalls and withdrawals;
• 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 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.
Further, the advertising and promotion of our products in the EEA is subject to the provisions of the Medical
Devices Directive, Directive 2006/114/EC concerning misleading and comparative advertising, and Directive
2005/29/EC on 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.
FDA Regulation - Combination Products/Biologics
We believe that our Therapeutic Trails injection investigational product under development will be defined as a
combination product consisting of two or more regulated components, that is, a medical device in combination with
either a drug or biological drug. In the United States, these various components, when standalone, would be regulated by
different centers. Specifically, the drug or biological drug component of a therapeutic product could, depending on the
nature of the product, be regulated by the FDA as either a conventional drug under either a new drug application
(“NDA”) or as a biological drug under a biologics license application (“BLA”). The FDA’s Center for Drug Evaluation
and Research (“CDER”) has primary regulatory oversight of drug products. In order to be marketed, most new
prescription drugs must be approved under an NDA in accordance with the FDCA. By contrast, biological drugs can be
regulated either by CDER or a combination product is assigned by the FDA to one of the agency’s centers, such as the
Center for Biologics Evaluation and Research (“CBER”) and, in order to be marketed, must be approved under a BLA in
accordance with the Public Health Service Act (“PHSA”). Although requirements for NDAs and BLAs are similar, each
has certain requirements that are unique to themselves. In addition, when these drugs or biological drugs are combined
with a device in a “combination product”, the resulting product is assigned by the FDA to one center (CDER, CBER or
the Center for Devices and Radiological Health (“CDRH”)) depending on the regulatory assignment of the components
and the primary mechanism of action. For example, if the combination product contains a biological drug and the
primary mode of action of the product is determined to be chemical or metabolic, then the entire combination product
would likely be assigned to CBER for regulation under the BLA process with consulting input by CDRH.
Therapeutic products such as our Therapeutic Trails could be regulated as a combination product which
involves an initial assignment by the FDA to one of the agency’s centers, such as the CDER, CBER, or CDRH, with the
chosen center to take the lead in premarketing review and approval of the combination product. Other FDA centers also
may review the product in regard to matters that are within their expertise. The FDA selects the lead center based on an
assessment of the combination product’s “primary mode of action.” Some products also may require approval or
clearance from more than one FDA center.
To determine which FDA center or centers will review a combination product submission, companies may
submit a request for assignment to the FDA. Those requests may be handled formally or informally. In some cases,
jurisdiction may be determined informally based on FDA experience with similar products. However, informal
jurisdictional determinations are not binding on the FDA. Companies also may submit a formal Request for Designation
to the FDA Office of Combination Products. The Office of Combination Products will review the request and make its
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jurisdictional determination within 60 days of receiving a Request for Designation. Stem cell-based therapies and gene
therapy vectors are typically regulated under the jurisdiction of the CBER, and require the submission of an
Investigational New Drug application (“IND”) to the FDA before clinical studies of the product may proceed;
additionally, these products generally require submission of a BLA for marketing approval. Most therapeutic proteins are
regulated under the jurisdiction of CDER, and require an IND before clinical studies may proceed, and the submission of
an NDA for marketing approval.
The IND and BLA or NDA Approval Process
As summarized above, drugs and biological drugs must satisfy the requirements of either the FDCA or the
PHSA and their implementing regulations. Additionally, most prescription drugs and biological drugs must be approved
under an NDA or BLA before they can be marketed in the United States.
Both NDAs and BLAs require extensive studies and submission of a large amount of data by the applicant. The
steps for obtaining FDA approval of an NDA or BLA in the United States include the following:
Preclinical Testing. Before testing any compound in human subjects in the United States, a company must
generate extensive preclinical data. Preclinical testing generally includes laboratory evaluation of product chemistry and
formulation, as well as toxicological and pharmacological studies in several animal species to assess the quality and
safety of the product. Animal studies must be performed in compliance with the FDA’s Good Laboratory Practice
(“GLP”) regulations and the United States Department of Agriculture’s Animal Welfare Act.
IND Submission. Human clinical trials in the United States cannot commence until an IND is submitted and
becomes effective. A company must submit preclinical testing results to the FDA as part of the IND, and the FDA must
evaluate whether there is an adequate basis for testing the drug in initial clinical studies in human volunteers. Unless the
FDA raises concerns, the IND becomes effective 30 days following its receipt by the FDA. Once human clinical trials
have commenced, the FDA may stop the clinical trials by placing them on “clinical hold” because of concerns about the
safety of the product being tested, or for other reasons.
Clinical Trials. Clinical trials involve the administration of the drug to healthy human volunteers or to patients,
under the supervision of a qualified investigator. The conduct of clinical trials is subject to extensive regulation,
including compliance with the FDA’s bioresearch monitoring, recordkeeping regulations, and Good Clinical Practice
(“GCP”) requirements, which establish standards for conducting, recording data from, and reporting requirements for the
results of clinical trials and are intended to assure that the data and reported results are credible and accurate, and that the
rights, safety, and well-being of study participants are protected. Clinical trials must be conducted under the oversight of
an IRB for the relevant clinical protocols that detail the study objectives, parameters for monitoring safety, and the
efficacy criteria, if any, to be evaluated. Each protocol is reviewed by the FDA as part of the IND. In addition, each
clinical trial site must be reviewed and approved by, and conducted under, the auspices of an IRB. Companies
sponsoring the clinical trials, investigators, and IRBs also must comply with FDA requirements, including but not
limited to those relating to GCP clinical, as applicable, regulations and guidelines for obtaining informed consent from
the study subjects, following the protocol and investigational plan, adequately monitoring the clinical trial, and timely
reporting of adverse events. Foreign studies conducted under an IND must meet the same requirements that apply to
studies being conducted in the United States. Data from a foreign study not conducted under an IND may be submitted
in support of an NDA or BLA if the study was conducted in accordance with GCP and the FDA is able to validate the
data.
Clinical trials involving drugs and biologics are typically conducted in three sequential phases, which may
overlap or be combined. These phases are described generally below.
• Phase I. Phase I clinical trials involve the initial introduction of the investigational drug or biologic into
healthy human subjects to test for safety, dosage tolerance, absorption, metabolism, distribution, and
excretion. This testing is also generally intended to determine the side effects associated with increasing
doses and, if possible, to gain early evidence of effectiveness. In the case of some products for severe or
life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to
healthy volunteers, the initial human testing is often conducted in patients with the targeted disease or
disorder.
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• Phase II. Phase II clinical trials usually involve studies in a limited patient population to identify possible
adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific, targeted
indications, to determine dosage tolerance and optimal dosage, and to identify possible adverse effects and
safety risks.
• Phase III. Phase III clinical trials involve studies undertaken to further evaluate dosage, clinical efficacy,
and safety in an expanded patient population at geographically dispersed clinical sites. These studies are
intended to evaluate the overall risk-benefit profile of the product by obtaining statistical evidence of safety
and effectiveness at the proposed dosing regimen for drugs, or the safety, purity, and potency of a
biological product. These studies also aim to provide an adequate basis for product labeling.
Clinical testing may not be completed successfully within any specified time period, if at all, and may not
generate conclusive or statistically meaningful data. The FDA closely monitors the progress of each of the three phases
of clinical trials that are conducted under an IND and may, at its discretion, reevaluate, alter, suspend, or terminate the
testing based upon the data accumulated to that point and the FDA’s assessment of the risk/benefit ratio to the patient.
The FDA, IRB, or the sponsor may suspend or terminate clinical trials at any time for various reasons, including a
finding that the subjects or patients are being exposed to an unacceptable health risk. The FDA can also request that
additional preclinical studies or clinical trials be conducted as a condition to product approval. Additionally, new
government requirements may be established that could delay or prevent regulatory approval of our products under
development.
BLA/NDA Submission and Review. After completing clinical testing of an investigational drug or biologic, a
sponsor must prepare and submit a BLA or NDA for review and approval by the FDA. The BLA or NDA is a
comprehensive, multi-volume application that includes, among other things, the results of preclinical and clinical
studies, and of the clinical trials, information about the drug’s composition, and plans for manufacturing, packaging, and
labeling the drug. In most cases, the BLA or NDA must be accompanied by a substantial user fee. The FDA will initially
review the BLA or NDA for completeness before it accepts the BLA or NDA for filing. There can be no assurance that
the submission will be accepted for filing or that the FDA may not issue a refusal-to-file (“RTF”). If an RTF is issued,
there is opportunity for dialogue between the sponsor and the FDA in an effort to resolve all concerns. If the BLA or
NDA submission is accepted for filing, the FDA will begin an in-depth review of the BLA or NDA to determine, among
other things, whether a product is safe and effective for its intended use and whether the product is being manufactured
in accordance with current Good Manufacturing Practices (“cGMP”) to assure and preserve the product’s identity,
strength, quality, and purity. If the biological product or drug contains a new active ingredient not previously approved,
the BLA or NDA automatically will be referred to an appropriate advisory committee for review prior to approval of the
biological product or drug, unless the FDA decides otherwise and specifies such reasons in a complete response letter to
the sponsor. The FDA, however, is not bound by the opinion of the advisory committee.
Companies also may seek fast track designation for their products. Fast track products are those that are
intended for the treatment of a serious or life-threatening condition and that demonstrate the potential to address unmet
medical needs for such a condition. If awarded, the fast track designation applies to the product only for the indication
for which the designation was received. Fast track products are eligible for two means of potentially expediting product
development and FDA review of BLAs or NDAs. First, a fast track product may be approved on the basis of either a
clinical endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit. Approvals of this kind may
be subject to requirements for appropriate post-approval studies to validate the surrogate endpoint or otherwise confirm
the effect on the clinical endpoint, and to certain other conditions. Second, if the FDA determines after review of
preliminary clinical data submitted by the sponsor that a fast track product may be effective, it may begin review of
portions of a BLA or NDA before the sponsor submits the complete BLA or NDA, thereby accelerating the date on
which review of a portion of the BLA or NDA can begin. There can be no assurance that any of our other products will
receive designation as fast track products. Even if they are designated as fast track products, we cannot assure you that
our products will be reviewed or approved more expeditiously for their fast track indications than would otherwise have
been the case, or that such products will be approved promptly, or at all. Furthermore, the FDA can revoke
previously-granted fast track status at any time.
In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses
and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval and may be
approved on the basis of adequate and well-controlled clinical trials establishing that the therapeutic product has an
effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical
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endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of
a product receiving accelerated approval perform adequate and well-controlled post-approval clinical trials to verify and
further define the product’s clinical benefit and safety profile. There can be no assurance that any of our products will
receive accelerated approval. Even if accelerated approval is granted, the FDA may withdraw such approval if the
sponsor fails to conduct the required post-approval clinical trials, or if the post-approval clinical trials fail to confirm the
early benefits seen during the accelerated approval process.
Fast track designation and accelerated approval should be distinguished from priority review although products
awarded fast track status may also be eligible for priority review. Products regulated by the CBER or CDER may receive
priority review if they provide significant improvement in the safety or effectiveness of the treatment, diagnosis, or
prevention of a serious or life-threatening disease. Products awarded priority review are given abbreviated review goals
by the agency. The FDA has agreed to a performance goal of reviewing products awarded priority review within six
months, whereas products under standard review receive a ten-month target. The review process, however, is often
significantly extended by FDA requests for additional information or clarification regarding information already
provided in the submission. Priority review is requested at the time a BLA or NDA is submitted, and the FDA makes a
decision as part of the agency’s review of the application for filing.
If granted, fast track designation, accelerated approval, and priority review may expedite the approval process,
but they do not change the standards for approval.
The testing and approval processes require substantial time, effort, and financial resources, and each may take
several years to complete. Data obtained from clinical activities are not always conclusive, which could delay, limit, or
prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all. The FDA may decide to not
approve the application or issue a Complete Response letter outlining the deficiencies in the submission. The Complete
Response letter also may request additional information, including additional preclinical or clinical data. Even if such
additional information and data are submitted, the FDA may decide that the NDA still does not meet the standards for
approval. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental
approvals, which could delay or preclude us from marketing our products. The FDA may limit the indications for use or
place other conditions, such as post-approval studies, on any approvals that could restrict the commercial application of
the products. Post-approval studies, often referred to as “Phase IV” or “post-marketing” studies, may be subject to
completion deadlines. The FDA may also determine that a Risk Evaluation and Mitigation Strategy (“REMS”) is
necessary to ensure that the benefits of a new product outweigh its risks, and the product can therefore be approved. A
REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who
may prescribe or dispense the drug, depending on what the FDA considers necessary for the safe use of the drug. Under
the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on
clinical study data, of the safety and effectiveness of the subject drug or biological product in relevant pediatric
populations.
After approval, some types of changes to the approved product, such as adding new indications, manufacturing
changes, and additional labeling claims, are subject to further testing requirements and further submission of a new or
supplemental BLA or NDA for FDA review and approval.
Post-Approval Requirements
After regulatory approval of a product is obtained, companies are required to comply with a number of
post-approval requirements, including cGMP requirements, relating to manufacturing, labeling, packaging, adverse
event reporting, storage, advertising, promotion, distribution, and recordkeeping. For example, as a condition of approval
of a BLA or NDA, the FDA may require post-approval testing and surveillance to monitor the product’s safety or
efficacy. In addition, holders of an approved BLA or NDA are required to keep extensive records, to report certain
adverse reactions and production deviations and problems to the FDA, to provide updated safety and efficacy
information, and to comply with requirements concerning advertising and promotional labeling for their products. If,
after receiving approval, a company makes a material change in manufacturing equipment, location, or process (all of
which are, to some degree, incorporated in the BLA or NDA), additional regulatory review and approval may be
required. The FDA also conducts regular, periodic visits to re-inspect equipment, facilities, and processes following the
initial approval of a product. If we fail to comply with the regulatory requirements of the FDA and other applicable U.S.
and foreign regulatory authorities, or previously unknown problems with any approved commercial products,
manufacturers, or manufacturing processes are discovered, we could be subject to administrative or judicially imposed
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sanctions, including fines, civil penalties, injunctions, suspension of manufacturing operations, operating restrictions,
withdrawal of FDA approval, seizure or recall of products, and criminal prosecution. Accordingly, manufacturers must
continue to expend time, money, and effort in the area of production and quality control to maintain compliance with
cGMP and other aspects of regulatory compliance.
Post Approval (Phase IV). Post approval clinical trials are required of, or agreed to by, a sponsor as a condition
of, or subsequent to, marketing approval. Further, if the FDA becomes aware of new safety information about an
approved product, it is authorized to require post approval trials of the biological product. These trials are used to gain
additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical
benefit in the case of biologics approved under accelerated approval regulations. Failure to promptly conduct Phase IV
clinical trials could result in withdrawal of approval for products approved under accelerated approval regulations.
Regulatory Pathway for Therapeutic Trails
Our Therapeutic Trails injection investigational product is expected to be regulated as a combination product.
Combination products are therapeutic and diagnostic products that combine drugs, devices, and/or biological drug
products. As described above, a combination product is assigned to an FDA center based on a determination of the
“primary mode of action” of the combination product. We are exploring the utility of the TrailMakerTM injection device
as a delivery platform supporting localized delivery of a variety of therapeutic agents including cells, proteins, and gene
therapy vectors. Stem cell-based therapies and gene therapy vectors are regulated under the jurisdiction of the CBER,
typically requiring an IND and a BLA for marketing approval. The formal jurisdiction assignment process is achieved
through the request for designation process. Therapeutic proteins are generally regulated under the jurisdiction of CDER,
and typically require an IND and an NDA for marketing approval. We are targeting FDA interaction and guidance on
localized delivery of therapeutics by the end of 2017.
Financial Information and Research and Development Expenditures
We have incurred net losses each year since our inception, including net losses of $23.4 million for the year
ended December 31, 2016, $33.3 million for the year ended December 31, 2015, and $18.3 million for the year ended
December 31, 2014. 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 $12.6 million, $10.1 million and $10.3 million in 2016, 2015, and 2014,
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-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 one 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.
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Manufacturing
We have developed a proprietary manufacturing process to build our Neuro-Spinal ScaffoldTM implant. We
manufacture our implants following FDA regulations for design controls using two fully operational manufacturing
cleanrooms located at our facility in Cambridge, Massachusetts. These two 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 two 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 Study and a cervical
SCI Study. As we 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-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 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, 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, 2016, 2015, and 2014, all of our assets were located
in one location in the United States.
Employees
As of December 31, 2016, we had 37 employees. None of our employees is represented by a labor union and
we consider our employee relations to be good. We also utilize a number of consultants to assist with research and
development 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 incorporated under the laws of the state of Nevada on April 2, 2003 as Design Source, Inc. On October 26,
2010, we acquired the business of InVivo Therapeutics Corporation, which was founded in 2005, and are continuing the
existing business operations of InVivo Therapeutics Corporation as our wholly-owned subsidiary. We changed our name
to InVivo Therapeutics Holdings Corp. in connection with the acquisition.
Our offices are located at One Kendall Square, Suite B14402, Cambridge, Massachusetts 02139, and our
telephone number is 617-863-5500. Our website is www.invivotherapeutics.com. Information contained on, or
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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, quarterly reports on Form 10-Q, current reports on Form 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, including our consolidated financial statements and related notes. The
risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are
unaware of, or that we currently believe are not material, may also become important factors that adversely affect our
business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future
prospects could be materially and adversely affected.
Risks Related to Our Financial Position and Need for Additional Capital
We have a limited operating history and have incurred significant losses since our inception.
We have incurred net losses each year since our inception, including net losses of $23.4 million for the year
ended December 31, 2016 and $33.3 million for the year ended December 31, 2015. As of December 31, 2016, we had
an accumulated deficit of $157.0 million. We have a limited operating history on which to base an evaluation of our
business and investors should consider the risks and difficulties frequently encountered by early-stage companies in new
and rapidly evolving markets, particularly companies engaged in the development of medical devices. To date, we have
not commercialized any products or generated any revenues from the sale of products, and we do not expect to generate
any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become
profitable. Moreover, we may allocate significant amounts of capital towards products and technologies for which
market demand is lower than anticipated and, as a result, may not achieve expectations or may elect to abandon such
efforts.
We have devoted most of our financial resources to research and development, including our clinical and
preclinical development activities related to our Neuro-Spinal Scaffold implant. Overall, we expect our research and
development expenses to be substantial and to increase for the foreseeable future as we continue the development and
clinical investigation of our current and future products. Our lead product candidate, the Neuro-Spinal Scaffold implant, is
currently being studied in a pivotal probable benefit study and, as a result, we expect that it could be several years, if
ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval to market
our Neuro-Spinal Scaffold implant or other products, our future revenues will depend upon the size of any markets in
which our products have received approval, our ability to achieve sufficient market acceptance, reimbursement from
third-party payers, and other factors.
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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 our pivotal probable benefit study of our Neuro-Spinal Scaffold implant;
continue the research and development of our 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 product candidates, developing additional product candidates,
obtaining regulatory approval for these product candidates, and manufacturing, marketing, and selling any products for
which we may obtain regulatory approval. We are only in the initial stages of most of these activities. We may never
succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve
profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or
annual basis. Our failure to become and remain profitable could depress the value of our Company and could impair our
ability to raise capital, expand our business, maintain our research and development efforts, diversify our product
offerings, or even continue our operations. A decline in the value of our Company could cause you to lose all or part of
your investment.
There is substantial doubt about our ability to continue as a going concern, which will affect our ability to obtain
future financing and may require us to curtail our operations.
Our financial statements as of December 31, 2016 were prepared under the assumption that we will continue as
a going concern. At December 31, 2016, we had cash, cash equivalents, and marketable securities of $33.0 million.
Given our development plans, we estimate cash resources will be sufficient to fund our operations into the beginning of
the second 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 ability to continue as a going concern depends on our ability to obtain additional equity or debt financing,
attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. If we are unable to
continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those
assets are carried on our audited financial statements, and it is likely that investors will lose all or part of their
investment. If we seek additional financing to fund our business activities in the future and there remains substantial
doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide
additional funding to us on commercially reasonable terms or at all. Based on these factors, management determined that
there is substantial doubt regarding our ability to continue as a going concern. Our independent registered public
accounting firm has expressed substantial doubt as to our ability to continue as a going concern in its report dated March
10, 2017 included elsewhere in this Form 10-K.
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We will need additional funding in the future. If we are unable to raise capital when needed, we could be forced to
delay, reduce, or eliminate our product development programs or commercialization efforts.
We expect our expenses to increase in connection with our ongoing activities, particularly as we conduct our
pivotal probable benefit study of, and seek regulatory approval for, our Neuro-Spinal Scaffold implant. In addition, if we
obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses
related to manufacturing, marketing, sales, and distribution. Accordingly, we will need to obtain substantial additional
funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive
terms, we could be forced to delay, reduce, or eliminate our research and development programs or any future
commercialization efforts.
As of December 31, 2016, our consolidated cash, cash equivalents, and marketable securities balance was
approximately $33.0. We believe our current cash, cash equivalents, and marketable securities are adequate to fund our
operations into the beginning of the second quarter of 2018. However, since it is only an estimate and based on a number
of factors, we may consume our resources earlier than anticipated. Our independent registered public accounting firm
has expressed substantial doubt about our ability to continue as a going concern in its report on our financial statements.
Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
the scope, progress, results, and costs of preclinical development, laboratory testing, and clinical studies for
our Neuro-Spinal Scaffold implant and any other product candidates that we may develop or acquire;
future clinical trial results of our Neuro-Spinal Scaffold implant;
the timing of, and the costs involved in, obtaining regulatory approvals for the Neuro-Spinal Scaffold implant
if our pivotal probable benefit study is successful, and the outcome of regulatory review of the Neuro-Spinal
Scaffold implant;
the cost and timing of future commercialization activities for our products, if any of our product candidates
are approved for marketing, including product manufacturing, marketing, sales, and distribution costs;
the revenue, if any, received from commercial sales of our product candidates for which we receive
marketing approval;
the cost of having our product candidates manufactured for clinical trials in preparation for regulatory
approval and in preparation for commercialization;
the cost and delays in product development as a result of any changes in regulatory oversight applicable to
our product candidates;
our ability to establish and maintain strategic collaborations, licensing, or other arrangements and the
financial terms of such agreements;
the cost and timing of establishing sales, marketing, and distribution capabilities;
the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual
property portfolio;
the efforts and activities of competitors and potential competitors;
the effect of competing technological and market developments; and
the extent to which we acquire or invest in businesses, products, and technologies.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a
time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the
necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product
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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.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations, or require us to
relinquish rights to our product candidates on unfavorable terms to us.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs
through a combination of equity offerings, debt financings, and other third-party funding alternatives including license
and collaboration agreements. To raise additional capital or pursue strategic transactions, we may in the future sell
additional shares of our common stock or other securities convertible into or exchangeable for our common stock which
will dilute the ownership interest of our current stockholders, and the terms of these securities may include liquidation or
other preferences that adversely affect the rights of our current stockholders. If we raise additional funds through
collaborations, strategic alliances, or marketing, distribution, or licensing arrangements with third parties, we may have
to relinquish valuable rights to our product candidates, future revenue streams or research programs, or grant licenses on
terms that may not be favorable to us or that may reduce the value of our common stock. If we are unable to raise
additional funds when needed, we may be required to delay, limit, reduce, or terminate our product development or
commercialization efforts for our Neuro-Spinal Scaffold implant or any other product candidates that we develop or
acquire.
Our ability to use our net operating loss carryforwards and tax credit carryforwards may be limited.
We have generated significant net operating loss carryforwards (“NOLs”) and research and development tax
credits (“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. However, our
ability to utilize the NOLs and R&D credits is subject to the rules of Sections 382 and 383 of the Internal Revenue Code
of 1986 (“the Code”), as amended, respectively. 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 a change in
control as defined by Sections 382 and 383 of the Code, or could result in a change in control in the future, but we have
not completed an analysis of whether a limitation as noted above exists. We have not performed a Section 382 study yet
but we will complete an appropriate analysis before our tax attributes are utilized.
24
Acquisitions of companies, businesses, or technologies may substantially dilute our stockholders and increase our
operating losses.
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 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. Acquisitions
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, it is likely we would issue equity
securities as a 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 depend heavily on the success of one product candidate, the Neuro-Spinal ScaffoldTM implant, which is currently
being studied in a pivotal probable benefit study. Even if we 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 one 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, which is currently being studied in an ongoing pivotal probable benefit study, 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 PMA approval for our
product candidates, 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 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.
Our other product candidate, Therapeutic Trails™, is in preclinical development. The clinical trials of our
product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and
rigorous review and regulation by numerous government authorities in the United States and in other countries where we
intend to test and, if approved, market any product candidates.
We may experience delays in our ongoing pivotal probable benefit study for our Neuro-Spinal Scaffold implant, and
we do not know whether modifications to The INSPIRE Study will be necessary, including whether, future clinical
trials will need to be conducted and/or whether The INSPIRE Study will need to be redesigned. Further, we do not
know whether The INSPIRE Study and patient enrollment will be completed on schedule, if at all. Clinical studies for
other future product candidates, including those above, may experience delays or may not begin.
Before we can obtain regulatory approval for the sale of our Neuro-Spinal Scaffold implant, we must complete the
pivotal probable benefit study. Our Neuro-Spinal Scaffold implant is currently being studied in a 20-subject pivotal study
under our approved IDE application for the treatment of complete thoracic traumatic acute spinal cord injury. Even
25
though the initial results of our clinical studies in humans are promising, our results may subsequently fail to meet the
safety and probable benefit standards required to obtain regulatory approvals. Our pivotal probable benefit study may not
be successfully completed or may take longer than anticipated because of any number of factors, including potential
delays in the enrollment of subjects in the study, the availability of 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. In addition, we are currently in active discussions with the FDA regarding the
set of clinical data that would support a future approval of the product. Modifications to our ongoing study due to those
discussions may further delay completion of the study.
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 (“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 any 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 IRBs 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 impose such a suspension or termination due to a number of factors,
including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols,
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 side effects, or changes in laws or regulations. Any
delays in completing our clinical trials will increase our costs, slow down our product candidate development and
approval process, and jeopardize our ability to 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;
design of the study protocol;
size and nature of the patient population;
eligibility criteria for and design of the study in question;
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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. 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 studies and
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 sufficiently produce results to
support regulatory applications. We are currently pursuing marketing approval via our HDE 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 trials 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 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 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
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 products 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. The
HDE requires that there must be no other comparable device available to provide therapy for this condition and requires
sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk of
27
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 Objective Performance Criterion
(“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 one AIS grade by six months post‑implantation. We are
currently in discussions with the FDA regarding its request for changes to our pivotal probable benefit trial. We believe
that the current study design is sufficient to demonstrate safety and probable benefit in support of an HDE application for
marketing approval and we plan to provide to the FDA data from patient registries (the Cohort Study) that we believe
will provide 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.
However, we cannot be certain whether the FDA will approve our HDE without additional information or studies. For
example, the FDA has recommended that we include a randomized, concurrent control arm in the study as part of a
study design consideration. In addition, although the study is currently 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 and there can be no assurance that the FDA will accept the OPC as sufficient for
demonstrating probable benefit. Moreover, analysis of data from the patient registries may suggest amendments to the
protocol for The INSPIRE Study, including adjustment to the existing OPC, which might create a higher threshold for
evidencing probable benefit. In the event our assessment that the current study design, or any amended study design we
propose based upon patient registries, is not acceptable to the FDA, the ability to obtain approval under the HDE
pathway may be delayed or may not be feasible. 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.
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, an
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. The legislation related to HUD/HDE profit eligibility expires on October 1, 2017 and may or may not be
renewed.
Some of our future products will be viewed by the FDA as combination products comprised of a biologic and medical
device component, and the review of combination products is often more complex and more time consuming than the
review of other types of products.
It is possible that some of our products, including our Therapeutic Trails injection, may be regulated by the
FDA as combination products. As explained above in the Government Regulation section, for a combination product, the
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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. We are currently developing our regulatory strategies with respect to
which regulatory pathway will be necessary to obtain clearance or approval, if medical device clearance or approval is
required at all. We believe that the biologic component of the Therapeutic Trails injection will be reviewed by the
CBER, although it is possible that it will be regulated by the FDA’s CDER. The delivery tools associated with that
product may be reviewed by the CDRH, either separately as a medical device, or in consultation with CBER or CDER as
part of the BLA or NDA. The process of obtaining FDA marketing clearance or approval is lengthy, expensive, and
uncertain, and we cannot be sure that our biologic device combination products, or any other products, will be cleared or
approved in a timely fashion, or at all. In addition, the review of combination products is often more complex and more
time consuming than the review of a product candidate under the jurisdiction of only one center within the FDA. We
cannot be sure that the FDA will not select to have our combination products reviewed and regulated by only one FDA
center and/or different legal authority, in which case the path to regulatory approval would be different and could be
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 one or more established companies. There is no assurance that
we will be successful in having our products approved or gaining significant market share for any of our products. Our
technologies and products also may be rendered obsolete or noncompetitive as a result of products introduced by our
competitors.
The results of our clinical trials may not support our product candidate claims or may result in the discovery of
adverse side effects.
Our ongoing research and development, preclinical testing, and clinical trial activities are subject to extensive
regulation and review by numerous governmental authorities both in the United States and abroad. We are currently
conducting a pivotal study of our Neuro-Spinal Scaffold implant to gather information about the product’s safety and
probable benefit. In the future, we may conduct clinical trials to support approval of new products. 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.
29
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 products, 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 ongoing FDA regulatory requirements, or if we experience unanticipated
problems with our products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain regulatory clearance or approval, and the manufacturing processes, reporting
requirements, post-approval clinical data, and promotional activities for such product, will be subject to continued
regulatory review, oversight, and periodic inspections by the FDA. In particular, we and our third-party suppliers will be
required to comply with the FDA’s 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 (“GMPs”) and
Good Tissue Practices (“GTPs”) with respect to any human cells and biologic products we may develop, and
International Standards Organization (“ISO”) regulations for the manufacture of our products and other regulations
which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling,
packaging, storage, and shipping of any product for which we obtain clearance or approval. Manufacturing may also be
subject to controls by the FDA for parts of the combination products that the FDA may find are controlled by the
biologics regulations.
The FDA audits compliance with the QSR and other similar regulatory requirements through periodic
announced and unannounced inspections of manufacturing and other facilities. The failure by us or one of our suppliers
to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately
respond to any adverse inspectional observations or product safety issues, could result in any of the following
enforcement actions:
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•
•
•
•
untitled letters, warning letters, fines, injunctions, consent decrees, and civil penalties;
unanticipated expenditures to address or defend such actions;
customer notifications or repair, replacement, refunds, recall, detention, or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying our requests for premarket approval of new products or modified products;
• withdrawing PMA approvals that have already been granted;
•
refusal to grant export approval for our products; or
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•
criminal prosecution.
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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•
•
design, development, and manufacturing;
testing, labeling, content, and language of instructions for use and storage;
clinical trials;
product safety;
• marketing, sales, and distribution;
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regulatory clearances and approvals including premarket clearance and approval;
conformity assessment procedures;
product traceability and record keeping procedures;
advertising and promotion;
product complaints, complaint reporting, recalls, and field safety corrective actions;
post-market surveillance, including reporting of deaths or serious injuries, and malfunctions that, if they
were to recur, could lead to death or serious injury;
post-market studies; and
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 result in restrictions on our ability to carry on or expand our operations 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. An 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 a PMA generally need FDA
approval. The process of obtaining a PMA is costly and generally takes from one to three years, or even longer, from the
time the application is submitted to the FDA until an approval is obtained.
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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 BLA 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:
• we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for
their intended uses;
•
•
the data from our preclinical studies and clinical trials may be insufficient to support clearance or approval,
where required; and
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.
In addition, even after we have obtained the proper regulatory clearance or approval to market a product, the
FDA has the power to 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:
• warning letters;
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fines;
injunctions;
civil penalties;
termination of distribution;
recalls or seizures of products;
delays in the introduction of products into the market;
total or partial suspension of production;
refusal of the FDA or other regulators to grant future clearances or approvals;
• withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our
products; and/or
•
in the most serious cases, criminal penalties.
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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 medical device products, or malfunction of our medical device 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 one 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 medical device 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 authority 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 one 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 produce 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.
33
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 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.
For example, on September 26, 2012, the European Commission adopted a package of legislative proposals
designed to replace the existing regulatory framework for medical devices in the European Union. These proposals are
intended to strengthen the medical devices rules in the European Union. On June 17, 2016, the Dutch Presidency of the
Council of the European Union formally informed the Council of Ministers of the agreement that was reached on May
25, 2016 with the European Parliament as part of the discussion concerning the text of the proposed Medical Devices
Regulation (“MDR”) and the In Vitro Diagnostic Medical Devices Regulation (“IVDR”). On February 22, 2017, after
finalization of a final linguistic review of the texts and the last revisions, the final text of the MDR and IVDR were
published on the Council of the European Union's website. The regulations are now anticipated to be definitively
adopted by the Council and the European Parliament by the end of the March 2017. The regulations, which will
substantially impact medical devices manufacturers, will be applicable from May 2020 for the MDR and May 2022 for
the IVDR. When adopted and applicable, the proposed MDR may prevent or delay the CE marking of our products
under development or impact our ability to modify our currently CE marked products on a timely basis.
Similarly, in the United States, legislative changes have been enacted in the past and further changes are
proposed that would impact 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, and Congressional leaders and the recently elected President have stated that they intend to
repeal or modify some or all of the provisions of the Affordable Care Act, as well as make additional changes to portions
of Medicare and Medicaid. 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. Because of the continued uncertainty about the effects,
implementation, and potential repeal or modification of the Affordable Care Act and other federal healthcare legislation,
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.
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In addition, in June 2016, eligible members of the electorate in the United Kingdom decided by referendum to
exit the European Union, which is commonly referred to as Brexit. Since a significant proportion of the regulatory
framework in the United Kingdom is derived from European Union directives and regulations, the referendum could
materially impact the regulatory regime with respect to the approval of our product candidates in the United Kingdom or
the European Union. We are currently planning to open sites for The INSPIRE Study and anticipate that we will be
subject to applicable U.K. regulations. Because of the continued uncertainty about the effects, implementation, or
potential repeal of Brexit, we cannot quantify or predict with any certainty the likely impact of Brexit or related
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 ScaffoldTM 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 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 BCH and 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 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.
35
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 one 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 one 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 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,
36
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. The loss of any of these individuals
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 subject to lawsuits, which could divert management’s attention and harm our business.
We are the subject of a securities class action lawsuit. The lawsuit, filed in July 2014, alleges violations of the
Securities Exchange Act of 1934 in connection with allegedly false and misleading statements related to the timing and
completion of the clinical study of our Neuro-Spinal Scaffold implant. That lawsuit was dismissed with prejudice in April
2015. Plaintiffs filed an appeal of that dismissal to the United States Court of Appeals for the First Circuit. On January 9,
2017, the Court of Appeals issued an order and opinion affirming the dismissal of all claims with prejudice. The time for
filing a petition for a writ of certiorari to the United States Supreme Court has not yet expired. If a petition for a writ of
certiorari is filed, we cannot provide any assurance that we will be successful in defending against such an appeal or, if
the dismissal is overturned, in defending the underlying lawsuit. Nor can we be certain that insurance proceeds will be
sufficient to cover any liability under such claims. Additionally, we may face additional lawsuits, including class action
or securities derivative lawsuits. We are also involved in litigation with our former Chairman, Chief Executive Officer,
and Chief Financial Officer. We were previously the subject of a securities derivative lawsuit, which was dismissed in
January 2017, and the deadline for appealing that decision has passed. See “Legal Proceedings” below for further
information regarding our litigation.
37
The amount of time that will be required to resolve these lawsuits is unpredictable and these actions 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.
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:
•
•
•
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;
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;
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;
•
•
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
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.
Risks Related to Investment in Our Securities
The price of our common stock may become 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:
•
•
•
•
•
•
the status, completion, and/or results of our clinical trials;
actual or anticipated variations in our operating results;
announcements of developments by us or our competitors;
regulatory actions regarding our products;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures,
or capital commitments;
adoption of new accounting standards affecting our industry;
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•
•
•
additions or departures of key personnel;
sales of our common stock or other securities in the open market; and
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.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of
our common stock.
As of December 31, 2016, there were outstanding warrants to purchase 3,391,439 shares of our common stock,
and outstanding options to purchase 3,193,785 shares of our common stock. We expect to issue additional equity awards
to compensate employees, consultants, and directors, and may issue additional shares to raise capital, to acquire other
companies or technologies, to pay for services, or for other corporate purposes. Any such issuances will have the effect
of diluting the interest of current stockholders. The future issuance of any such additional shares of common stock may
create downward pressure on the trading price of the common stock. There can be no assurance that we will not be
required to issue additional shares, warrants, or other convertible securities in the future in conjunction with any capital
raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock are
currently quoted on the Nasdaq Global Market.
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 three classes, with three-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 corporations and “interested
stockholders” for three years after the interested stockholder first becomes an interested stockholder, unless the
corporation’s board of directors approves the combination in advance. 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.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
We lease approximately 26,150 square feet of office, laboratory, and manufacturing space in Cambridge,
Massachusetts, which is used primarily for corporate, manufacturing, and research and development functions. The lease
commenced in November 2011, and is for an initial term of six years and three months, with one five-year extension
exercisable by us. In March 2016, we entered into a short-term lease with CRISPR Therapeutics, as subtenant, to sub-
lease 5,233 square feet of our building. This sub-lease was terminated on January 31, 2017. We believe this facility is
adequate to meet our current needs and that additional space could be available on commercially reasonable terms as
needed.
Item 3. LEGAL PROCEEDINGS
Lawsuits with Former Employee
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 related to Mr. Reynolds’s allegations that
we and the 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. Discovery
has now been completed and our motion for summary judgment on all counts of the complaint and Reynolds’ opposition
to the motion for summary judgment was filed with the court on March 3, 2017.
We intend to continue to defend ourselves against these claims and, to date, we have not recorded any provision
for losses that may arise.
On July 22, 2016, Mr. Reynolds filed a lawsuit against us, certain present and former members of our Board of
Directors and an employee of ours in Hillsborough County Superior Court, Southern District, Hillsborough County, New
Hampshire (Reynolds v. InVivo Therapeutics Holdings Corp, et al.) alleging defamation, conspiracy, and tortious
interference, and seeking monetary damages. In August 2016, the lawsuit was removed to the United States District
Court for the District of New Hampshire. We filed a motion to dismiss this action and after oral argument on November
28, 2016, the Court on November 30, 2016 issued an order dismissing the case for lack of personal jurisdiction. The
judgment was entered on the docket on December 1, 2016, and the deadline for appealing that decision has passed.
Shareholder Matters and Investigations
On July 31, 2014, a putative securities class action lawsuit was filed in the United States District Court for the
District of Massachusetts, naming us and Mr. Reynolds as defendants (the “Securities Class Action”). The lawsuit
alleges violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements
related to the timing and completion of the clinical study of our Neuro-Spinal Scaffold™ implant. The plaintiff sought
class certification for purchasers of our common stock during the period from April 5, 2013 through August 26, 2013
and unspecified damages. On April 3, 2015, the United States District Court for the District of Massachusetts dismissed
the plaintiff’s claim with prejudice.
On May 4, 2015, the plaintiff filed a notice of appeal of this decision. Following the submission of briefs by the
parties, the Court of Appeals heard oral arguments on April 6, 2016. On January 9, 2017, the Court of Appeals for the
41
First Circuit issued an order and opinion affirming the dismissal of the Securities Class Action with prejudice. Plaintiff
has until April 10, 2017 to file a petition for certiorari to the United States Supreme Court.
We intend to continue to defend ourselves against these claims and, to date, we have not recorded any provision
for losses that may arise.
On January 23, 2015, Shawn Luger, a purported shareholder of ours, sent us a letter (the “Shareholder
Demand”) demanding that the Board of Directors take action to remedy purported breaches of fiduciary duties allegedly
related to the claimed false and misleading statements that are the subject of the Securities Class Action. Our Board of
Directors completed its investigation of the matters raised in the Shareholder Demand and voted unanimously not to
pursue any litigation against any current or former director, officer, or employee of ours with respect to the matters set
forth in the Shareholder Demand.
On August 14, 2015, Mr. Luger filed a shareholder derivative lawsuit in the Superior Court of Suffolk County
for the Commonwealth of Massachusetts on our behalf against certain present and former board members and company
executives alleging the same breaches of fiduciary duties purportedly set forth in the Shareholder Demand. On February
5, 2016, the Superior Court of Suffolk County dismissed the plaintiff’s claims with prejudice. On March 4, 2016, the
plaintiff filed a notice of appeal of this decision. Following the submission of brief by the parties, the Appeals Court
heard oral argument on December 13, 2016. On January 3, 2017, the Appeals Court issued an order and opinion
affirming the dismissal of all claims with prejudice. The time period for Mr. Luger to appeal the Appeals Court’s
judgment has expired.
In addition, we received investigation subpoenas from the Boston Regional Office of the SEC and the
Massachusetts Securities Division of the Secretary of the Commonwealth of Massachusetts (“MSD”) requesting
corporate documents concerning, among other topics, the allegations raised by the Securities Class Action and the
Shareholder Demand. On October 21, 2015, after responding to the SEC’s subpoena, we received a letter from the SEC
notifying us that it had concluded its investigation of us and that it did not intend to recommend an enforcement action
against us. We responded to the MSD’s subpoena on September 22, 2014 and October 8, 2014. On February 18, 2015,
we received a second subpoena from the MSD requesting additional documents and information related to the same
topics. We responded to this second subpoena on March 24, 2015. We have not further heard from the MSD since we
responded to this last subpoena.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
42
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 Global 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 bid prices for our common stock for our two most recent fiscal years:
Fiscal Quarter Ended
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
Fiscal Quarter Ended
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
High Bid
Low Bid
$
$
$
$
6.65
7.77
6.99
9.85
$
$
$
$
4.05
5.63
5.51
3.66
High Bid
Low Bid
$
$
$
$
11.80
17.65
19.68
12.48
$
$
$
$
6.55
7.33
11.20
5.04
These market quotations reflect inter-dealer prices, without retail mark-up, markdown, or commissions and may
not necessarily represent actual transactions. The prices give effect to the 1-for-4 reverse stock split of our outstanding
shares of common stock that occurred on April 8, 2015. The high and low bid prices listed have been rounded up to the
nearest penny.
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 3, 2017, we had approximately 320 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” with 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, except to the extent that we
specifically incorporate it by reference into any such filing.
43
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, 2011 through
December 31, 2016. This graph assumes an investment of $100 on December 31, 2011 in our common stock and in each
of the comparative indices and assumes reinvestment of dividends, if any.
The comparisons shown in the graph below are based on historical data. We caution that 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.
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, 2011 in stock or index, including reinvestment of dividends. Fiscal year ending
December 31.
InVivo Therapeutics Holdings Corp
NASDAQ Composite
NASDAQ Biotechnology
2011
2012
December 31,
2013
2014
2015
2016
$ 100.00 $ 63.27 $ 83.49 $ 48.00 $ 65.45 $ 38.18
$ 100.00 $ 116.41 $ 165.47 $ 188.69 $ 200.32 $ 216.54
$ 100.00 $ 134.68 $ 232.37 $ 307.67 $ 328.76 $ 262.08
44
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.
Consolidated Statement of Operations
(in thousands)
Operating expenses:
Research and development
General and administrative
Total operating expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Modification of warrants
Derivatives gain (loss)
Other income (expense), net
Net income (loss)
Net income (loss) per share, basic
Net income (loss) per share, diluted
Weighted average number of common
shares outstanding, basic
Weighted average number of common
shares outstanding, diluted
Year Ended December 31,
2016
2015
2014
2013
2012
$
12,557 $
11,506
24,063
(24,063)
10,058 $
12,340
22,398
(22,398)
10,273 $
7,566
17,839
(17,839)
10,533 $
8,472
19,005
(19,005)
6,376
6,403
12,779
(12,779)
187
(155)
—
593
625
(23,438) $
(0.76) $
(0.76) $
60
(172)
—
(10,804)
(10,916)
(33,314) $
(1.26) $
(1.26) $
5
(136)
—
(376)
(507)
(18,346) $
(0.83) $
(0.83) $
15
(130)
(765)
(18,871)
(19,751)
(38,756) $
(2.10) $
(2.10) $
35
(72)
—
17,480
17,443
4,664
0.30
0.26
$
$
$
31,025,585
26,461,374
22,080,761
18,497,922
15,806,725
31,025,585
26,461,374
22,080,761
18,497,922
17,979,855
As of December 31,
Condensed Consolidated Balance Sheet (in
thousands)
Cash, cash equivalents and marketable securities
Working capital
Total assets
Long-term liabilities
Derivative warrant liability
Accumulated deficit
Stockholder's equity (deficit)
$
2016
33,041 $
29,005
34,784
987
1,314
(157,007)
28,949
2015
20,194 $
17,427
21,792
1,551
1,907
(133,569)
16,929
2012
2014
2013
13,459 $ 13,980 $ 12,825
(3,221)
12,334
16,062
17,096
1,581
1,938
14,585
—
(43,153)
(81,909)
(2,310)
12,890
6,169
16,693
1,991
7,224
(100,255)
5,918
We have derived our statements of operations data for the years ended December 31, 2013 and 2012 and our
balance sheet data as of December 31, 2014, 2013, and 2012 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, 2016, 2015 and 2014 and our balance sheet data as of December 31, 2016 and 2015 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).
45
Supplementary Quarterly Financial Data (Unaudited—In thousands)
Operating expenses:
Research and development
General and administrative
Total operating expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Derivatives gain (loss)
Other income (expense), net
Net loss
Operating expenses:
Research and development
General and administrative
Total operating expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Derivatives gain (loss)
Other income (expense), net
Net loss
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
Quarter Ended
$
$
3,900
2,932
6,832
(6,832)
47
(31)
1,381
1,397
(5,435)
$
$
3,294
2,584
5,878
(5,878)
50
(32)
(336)
(318)
(6,196)
$
$
2,795
2,991
5,786
(5,786)
36
(29)
595
602
(5,184)
$
$
2,568
2,999
5,567
(5,567)
54
(63)
(1,047)
(1,056)
(6,623)
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
Quarter Ended
$
$
2,777
2,481
5,258
(5,258)
48
(67)
544
525
(4,733)
$
$
2,432
3,437
5,869
(5,869)
9
(39)
3,591
3,561
(2,308)
$
$
2,546
3,214
5,760
(5,760)
2,303
3,208
5,511
(5,511)
2
(32)
(4,653)
(4,683)
(10,443)
$
1
(34)
(10,286)
(10,319)
(15,830)
$
46
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. The following discussion contains forward-looking
statements that involve risks and uncertainties that could cause actual results or events to differ materially from those
expressed or implied by such forward-looking statements as a result of many important factors, including those set forth
in Part I of this Annual Report on Form 10-K under the caption “Risk Factors”. Please see also the “Special Note
Regarding Forward-Looking Statements” in Part I above. We do not undertake any obligation to update forward-
looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.
All share amounts presented in this Item 7 give effect to the 1-for-4 reverse stock split of our outstanding shares
of common stock that occurred on April 8, 2015.
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 (“SCIs”). Our mission is to redefine the life of the SCI patient, and we are developing 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 ScaffoldTM 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. We believe the Neuro-Spinal
Scaffold is the only SCI therapy in development focused solely on treating acute SCI directly at the epicenter of the
injury. The Neuro-Spinal Scaffold incorporates intellectual property licensed under an exclusive, worldwide license from
Boston Children’s Hospital (“BCH”) and the Massachusetts Institute of Technology (“MIT”). We are continually
evaluating other technologies and therapeutics that may be complementary to our development of the Neuro-Spinal
Scaffold or offer the potential to bring us closer to our goal of redefining the life of the SCI patient. We have also entered
into exclusive license/assignment agreements with the University of California, San Diego and James Guest, M.D.,
Ph.D. covering delivery methods and devices for our preclinical Therapeutic Trails™ injection program.
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.
47
There can be no assurance that we will be able to successfully develop or acquire any product, or that we will
be able to recover our development or acquisition costs, whether upon commercialization of a developed product or
otherwise. We cannot provide assurance that any of our programs under development or any acquired technologies or
products will result in products that can be marketed or marketed profitably. If our development-stage programs or any
acquired products or technologies do not result in commercially viable products, our results of operations could be
materially adversely affected.
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-owned subsidiary.
Critical Accounting Policies and Estimates
Our consolidated financial statements, which appear in Item 8 of this Annual Report on Form 10-K, have been
prepared in accordance with accounting principles generally accepted in the United States, which require that our
management make certain assumptions and estimates and, in connection therewith, adopt certain accounting policies.
Our significant accounting policies are set forth in Note 2, “Significant Accounting Policies”, in the Notes to
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Of those policies, we believe that the
policies discussed below may involve the highest degree of judgment and may be the most critical to an accurate
reflection of our financial condition and results of operations.
Stock-Based Compensation
Our stock options are granted with an exercise price set at the fair market value of our common stock on the
date of grant. Our stock options generally expire ten years from the date of grant and vest upon terms determined by our
Board of Directors.
We recognize compensation costs resulting from the issuance of stock-based awards to employees,
non-employees and directors as an expense in our statement of operations over the service period based on a measure of
fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the
Black-Scholes option pricing model. The fair value is amortized as a compensation cost on a straight-line basis over the
requisite service period of the award, which is generally the vesting period. We use historical data, as well as subsequent
events occurring prior to the preparation of our consolidated financial statements, to estimate option exercises and
employee departures within the valuation model. The expected term of any options granted under our stock plans is
based on the average of the contractual term (generally, 10 years) and the vesting period (generally, 48 months). The
risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the expected term of the
option. See Note 13, “Stock Options,” in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report
on Form 10-K for more information about the assumptions underlying these estimates.
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 12,
“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;
48
•
•
•
•
•
expenses incurred under agreements with contract research organization (“CROs”), and clinical sites
that conduct our clinical studies;
facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and
maintenance of facilities, insurance, and other supplies;
costs associated with our research platform and preclinical activities;
costs associated with our regulatory, quality assurance, and quality control operations; and
amortization of intangible assets.
Our research and development costs are expensed as incurred. We are required to estimate our accrued research
and development expenses. This process involves reviewing open contracts and purchase orders, communicating with
our personnel to identify services that have been performed on our behalf and estimating the level of service performed
and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual
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.
General and Administrative Expense
General and administrative expenses consist primarily of salaries and related costs for personnel, including
stock-based compensation and travel expenses for our employees in executive, operational, finance, legal, business
development, commercial, and human resource functions. Other general and administrative expenses include facility-
related costs, professional fees for accounting, tax and legal and consulting services, directors' fees and expenses
associated with obtaining and maintaining patents.
We anticipate that our general and administrative expenses will increase in the future as we increase our
headcount to support our continued research and development and potential commercialization of our product
candidates. Additionally, if and when we believe a regulatory approval of the first product candidate appears likely, we
anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially
as it relates to the sales and marketing of our product candidates.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-15, Presentation of Financial Statements—Going Concern, on disclosure of uncertainties about an
entity's ability to continue as a going concern. This guidance addresses management's responsibility in evaluating
whether there is substantial doubt about a company's ability to continue as a going concern and to provide related
footnote disclosures. The guidance is effective for fiscal years ending after December 15, 2016 including interim
reporting periods within each annual reporting period, with early adoption permitted. We adopted this guidance as of
December 31, 2016. The adoption of ASU 2014-15 impacted our presentation and disclosure only and did not have any
impact on financial position or results of operations.
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 to 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 No. 2015-14, Revenue from
49
Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09
by one year. Accordingly, ASU 2014-09 is effective for public business entities for annual reporting periods beginning
after December 15, 2017, including interim reporting periods within each annual reporting period. In March 2016, the
FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross Versus Net), which clarifies the implementation guidance on principal versus
agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic
606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance
obligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which relates to
disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash
consideration and the presentation of sales and other similar taxes collected from customers. These standards have the
same effective date and transition date of December 15, 2017. Currently, this guidance is not applicable to us as we are
still in the research and development stage. However, we will continue to evaluate the impact of adopting ASU 2014-09
on our consolidated financial statements when we begin to generate revenue.
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 periods beginning after December 15, 2018,
including interim reporting periods within each annual reporting period. We are currently evaluating the impact of the
adoption of this ASU on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) to require changes to several areas 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, accounting for income taxes, forfeitures, and
intrinsic value accounting for private entities. ASU 2016-09 is effective for annual reporting periods beginning after
December 15, 2016, including interim reporting periods within each annual reporting period. We will adopt this standard
on January 1, 2017, and the adoption is not expected to have a material impact on our consolidated 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. We do not expect the adoption of this guidance to have a material impact on our 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 their statements 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 their statements 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 are currently evaluating the impact of the adoption of this ASU on our the financial
statements.
Results of Operations
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 due to an increase in the number of patients in The INSPIRE Study and the opening of additional clinical
trial sites, and higher contract services costs of $439 associated with research development initiatives. The increase is
also due to compensation-related expenses of $656, intellectual property costs of $229, consulting fees of $110,
50
recruiting costs of $102, and packaging and lab-related expenses of $123.
General and Administrative Expenses
General and administrative expenses decreased by $834 to $11,506 for the year ended December 31, 2016 from
$12,340 for the year ended December 31, 2015. This decrease in general and administrative expenses is attributable to a
decrease in legal expenses of $1,737 as well as decreases in public and investor relations costs of $116 and overhead
expense of $93. These decreases are partially offset by increases in compensation-related expenses of $342, stock-based
compensation expense of $292, convention and meeting costs of $178, recruiting related costs of $162, insurance
expense of $118, and consulting fees of $54.
Interest Income
Interest income increased by $127 to $187 for the year ended December 31, 2016 from $60 for the year ended
December 31, 2015. This increase is due to a higher average balance of funds in our short-term investments.
Interest Expense
Interest expense decreased by $17 to $155 for the year ended December 31, 2016 from $172 for the year ended
December 31, 2015. This decrease in interest expense is primarily due to lower average borrowings.
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.
Comparison of the Years Ended December 31, 2015 and 2014 (in thousands, except share and per share amounts)
Research and Development Expenses
Research and development expenses decreased by $215 to $10,058 for the year ended December 31, 2015 from
$10,273 for the year ended December 31, 2014. After adjusting for the $621 insurance settlement related to business
interruption, research and development expenses were $10,894 for 2014. The decrease in adjusted research and
development expenses for 2015 of $836 was primarily attributable to decreases in consulting costs of $612, testing costs
of $375, packaging and lab supplies of $359, compensation-related expense attributable to the 2014 reduction in force of
$564, and other various expenses of $338. These reductions were partly offset by higher clinical trial costs of $729,
stock compensation expense of $147, and bonus expense of $536. Bonus expense was higher in 2015 compared to 2014
due to the fact that in 2014 the accrual, which related to the 2013 bonus accrual, was reversed because of the Company’s
decision not to pay out 2013 bonuses.
General and Administrative Expenses
General and administrative expenses increased by $4,774 to $12,340 for the year ended December 31, 2015
from $7,566 for the year ended December 31, 2014. This increase in general and administrative expenses for 2015 was
primarily attributable to increases in legal costs of $1,361, related to the Securities and Exchange Commission (“SEC”)
and Massachusetts Securities Division of the Secretary of the Commonwealth of Massachusetts inquiries as well as the
Securities Class Action lawsuit, stock compensation expense of $1,789, investor relation expense and NASDAQ listing
fees of $425, Board and audit fees of $251, consulting costs of $387, and other various expenses of $561.
51
Interest Income
Interest expense increased by $55 to $60 for the year ended December 31, 2015 from $5 for the year ended December
31, 2014. This increase was due to interest earned on our short-term investments.
Interest Expense
Interest expense increased by $36 to $172 for the year ended December 31, 2015 from $136 for the year ended
December 31, 2014. This increase in interest expense was primarily due to the amortization of the premium or discount
values of our short-term investments compared to the maturity value.
Derivatives Gain (Loss)
Derivative losses decreased by $10,428 to a loss of $10,804 for the year ended December 31, 2015 from a loss
of $376 for the year ended December 31, 2014. The loss of $10,804 for the year ended December 31, 2015 reflects the
increase in the fair value of our derivative warrant liability, which was due primarily to the increase in the fair value of
the underlying common stock, the decreasing term to expiration of the warrants as well as the exercise of approximately
78% of the outstanding warrants during 2015.
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, 2016, our accumulated deficit was $157,007.
At December 31, 2016, we had total assets of $34,784, total liabilities of $5,835, and total stockholders’ equity
of $28,949. We recorded a net loss of $23,438 for the year ended December 31, 2016. 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 have limited liquidity and
capital resources and must obtain significant additional capital resources in order to fund our operations and sustain our
product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical
testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and
office facilities, establishment of production capabilities, for selling, general and administrative expenses and for other
working capital requirements. We also expect that we will need to raise additional capital through a combination of
equity offerings, debt financings, other third party funding, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements.
Since 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 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 Company intends to use the net
proceeds from the offering to fund ongoing clinical trials and for general corporate purposes.
At December 31, 2016, our consolidated cash, cash equivalents, and marketable securities balance was $33,041.
We believe our current cash, cash equivalents, and marketable securities are adequate to fund our operations into the
beginning of the second quarter of 2018.
52
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 used 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.
We may pursue various other dilutive and non-dilutive funding alternatives depending upon the results of our
ongoing pivotal probable benefit study 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.
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.
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, 2016 was $16,740,
the most significant drivers of which were our net loss of $23,438, offsetting share-based compensation of $5,063 and
change in accrued expenses of $1,471.
Net cash used in investing activities was $6,508 for the year ended December 31, 2016, attributable to the
purchases of marketable securities of $18,916 and capital equipment of $107, partially offset by sales of marketable
securities of $12,515.
Net cash provided by financing activities was $29,792 for the year ended December 31, 2016, consisting of the
proceeds from issuances of common stock and warrants of $29,905 and proceeds from the exercises of stock options and
Employee Stock Purchase Plan issuances of $282. These proceeds were partially offset by the repayment of loan
principal of $395.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future
material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources.
Contractual Obligations
The following summarizes our significant contractual obligations at December 31, 2016, and the effects such
obligations are expected to have on our liquidity and cash flows in future periods:
In thousands
Long-term debt
Operating lease payments
Total
Payments Due
Less than
Total
1-3 years
1 year
$ 1,275 $ 423 $ 852
1,088
1,289
$ 3,652 $ 1,712 $ 1,940
2,377
53
Commitments
See Note 17, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements in Item 8
of this Annual Report on Form 10-K for information regarding our commitments.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (in thousands)
We are exposed 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, cash equivalents, and
marketable securities of $33,041, or 95% of our total assets at December 31, 2016, and $14,920, or 93% of our total
assets at December 31, 2015. Interest income earned on these assets was $187 in 2016 and $60 in 2015. Our interest
income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates. At December 31, 2016,
our cash equivalents were primarily composed of money market accounts comprised of U.S. Treasury debt securities and
repurchase agreements.
54
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.
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
56
59
60
61
62
63
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
InVivo Therapeutics Holdings Corp. and Subsidiary
Cambridge, Massachusetts
We have audited the accompanying consolidated balance sheets of InVivo Therapeutics Holdings Corp. and
Subsidiary (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2016. We
also have audited InVivo Therapeutics Holdings Corp. and Subsidiary's internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission in 2013. InVivo Therapeutics Holdings Corp. and
Subsidiary’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on these financial statements and schedules and an opinion on the Company's internal control over
financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.
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 (a) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (b) 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 (c) 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of InVivo Therapeutics Holdings Corp. and Subsidiary as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in
conformity with accounting principles generally accepted in the United States of America, and in our opinion, the related
financial statement schedules, when considered in relation to the consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein. Also in our opinion, InVivo Therapeutics
Holdings Corp. and Subsidiary maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.
The accompanying financial statements have been prepared assuming that the Company will continue as a
56
going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from
operations which 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.
/s/ RSM US LLP
Boston, MA
March 10, 2017
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of InVivo Therapeutics Holdings Corp.:
We have audited the accompanying consolidated statements of operations, changes in stockholders’ equity and
cash flows of InVivo Therapeutics Holdings Corp. and subsidiary for the year ended December 31, 2014. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
results of operations and cash flows of InVivo Therapeutics Holdings Corp. and subsidiary for the year ended December
31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 11, 2015
58
InVivo Therapeutics Holdings Corp.
Consolidated Balance Sheets
(In thousands, except share and per-share data)
ASSETS:
Current assets:
Cash and cash equivalents
Restricted cash
Marketable securities
Prepaid expenses and other current assets
Total current assets
Property, equipment and leasehold improvements, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
Loan payable, current portion
Derivative warrant liability
Deferred rent, current portion
Accrued expenses
Total current liabilities
Loan payable, net of current portion
Deferred rent, net of current portion
Total liabilities
Commitments and contingencies
Stockholders’ equity:
$
$
$
December 31,
2016
2015
21,464 $
361
11,577
451
33,853
510
421
34,784 $
14,920
361
5,274
184
20,739
938
115
21,792
1,011 $
423
1,314
141
1,959
4,848
852
135
5,835
521
395
1,907
115
374
3,312
1,275
276
4,863
Common stock, $0.00001 par value, authorized 100,000,000 shares, issued and
outstanding 32,044,087 shares at December 31, 2016; and authorized 50,000,000
shares, issued and outstanding 27,555,948 shares at December 31, 2015
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
1
185,955
(157,007)
28,949
34,784 $
1
150,497
(133,569)
16,929
21,792
$
See notes to the consolidated financial statements.
59
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Operations
(In thousands, except share and per-share data)
Operating expenses:
Research and development
General and administrative
Total operating expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Derivatives gain (loss)
Other income (expense), net
Net loss
Net loss per share, basic and diluted
Weighted average number of common shares outstanding, basic and
diluted
Year Ended December 31,
2015
2014
2016
$
12,557 $
11,506
24,063
(24,063)
10,058 $
12,340
22,398
(22,398)
187
(155)
593
625
(23,438) $
(0.76) $
60
(172)
(10,804)
(10,916)
(33,314) $
(1.26) $
$
$
10,273
7,566
17,839
(17,839)
5
(136)
(376)
(507)
(18,346)
(0.83)
31,025,585
26,461,374
22,080,761
See notes to the consolidated financial statements.
60
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Changes in Stockholders’ Equity
Balance as of December 31, 2013
Share-based compensation expense
Issuance of common stock in public offering
Issuance of common stock for services
Issuance of common stock upon exercise of warrants
Issuance of common stock upon exercise of stock options
Issuance of common stock to 401(k) plan
Net loss
Balance as of December 31, 2014
Share-based compensation expense
Issuance of common stock in public offerings
Issuance of common stock upon exercise of warrants
Issuance of common stock upon exercise of stock options
Fair value of derivative warrant liability reclassified to
additional paid-in capital
Fractional shares issued due to reverse stock split
Issuance of common stock to 401(k) plan
Net loss
Balance as of December 31, 2015
Share-based compensation expense
Issuance of common stock and warrants in public
offerings, net of $2,040 issuance costs
Issuance of common stock for services
Issuance of common stock upon cashless exercise of
warrants
Issuance of common stock upon exercise of stock options
Issuance of common stock under ESPP
Issuance of common stock to 401(k) plan
Net loss
Balance as of December 31, 2016
Accumulated Stockholders’
Deficit
Common Stock
Shares
19,693,434 $
—
3,500,312
74,626
9,975
132,900
41,753
—
23,453,000
—
2,388,245
1,379,575
316,177
Additional
Paid-in
Amount Capital
1 $
—
—
—
—
—
—
—
1
—
—
—
—
94,798 $
2,730
7,770
477
12
212
173
—
106,172
4,666
14,480
7,789
1,068
(81,909)$
—
—
—
—
—
—
(18,346)
(100,255)
—
—
—
—
—
1,514
17,437
—
27,555,948
—
—
—
—
—
1
—
16,121
—
201
—
150,497
5,063
—
—
—
(33,314)
(133,569)
—
4,293,333
365
—
—
29,905
—
—
—
4,979
135,205
16,729
37,528
—
32,044,087 $
—
191
91
208
—
—
—
—
(23,438)
1 $ 185,955 $ (157,007)$
—
—
—
—
Total
Equity
12,890
2,730
7,770
477
12
212
173
(18,346)
5,918
4,666
14,480
7,789
1,068
16,121
—
201
(33,314)
16,929
5,063
29,905
—
—
191
91
208
(23,438)
28,949
See notes to the consolidated financial statements.
61
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Derivatives (gain) loss
Common stock issued to 401(k) plan
Common stock issued for services
Share-based compensation expense
Other non-cash investment activities
Changes in operating assets and liabilities:
Restricted cash
Prepaid expenses
Insurance receivable
Other assets
Accounts payable
Accrued expenses
Net cash used in operating activities
Cash flows from investing activities:
Purchases of marketable securities
Sales of marketable securities
Non-cash disposals of property and equipment
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
Proceeds from issuance of stock under ESPP
Proceeds from exercise of warrants
Repayment of note payable
Principal payments on capital lease obligation
Repayment of loan payable
Proceeds from issuance of common stock and warrants
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Years Ended December 31,
2016
2015
2014
$ (23,438) $ (33,314) $ (18,346)
553
(593)
208
—
5,063
98
689
10,804
201
—
4,666
—
752
376
173
477
2,730
—
—
(267)
—
(324)
489
1,471
(16,740)
61
888
—
3
(48)
(279)
(16,329)
180
(363)
(689)
4
(330)
(248)
(15,284)
(18,916)
12,515
—
(107)
(6,508)
(5,274)
—
—
(5)
(5,279)
—
—
45
(47)
(2)
212
1,068
191
—
—
91
12
7,789
—
(56)
(18)
—
(21)
—
—
—
(250)
(395)
14,618
14,480
29,905
14,765
23,069
29,792
(521)
1,461
6,544
14,920
13,980
13,459
$ 21,464 $ 14,920 $ 13,459
Supplemental disclosure of cash flow information and non-cash investing and
financing activities:
Cash paid for interest
Cash paid for taxes
Fair value of warrants issued in connection with underwriting agreement
Cashless exercise of equity-classified warrants to common stock
Reclassification of derivative warrant liability to additional paid-in capital
$
$
$
$
$
121 $
103 $
— $
— $
— $
— $
90 $
251 $
— $ 16,121 $
132
—
6,848
—
—
See notes to the consolidated financial statements.
62
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 and the
Massachusetts Institute of Technology, as well as intellectual property that has been developed internally in
collaboration with its advisors and partners.
Since its inception, the Company has devoted substantially all of its efforts to business planning, research and
development, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company
has historically financed its operations primarily through the sale of equity-related securities. At December 31, 2016, the
Company has consolidated cash, cash equivalents, and marketable securities of $33,041. The Company has not achieved
profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. The
Company does not expect to be profitable in the next several years, but rather expects to incur additional operating
losses. The Company has limited liquidity and capital resources and must obtain significant additional capital resources
in order to sustain its product development efforts, for acquisition of technologies and intellectual property rights, for
preclinical and clinical testing of its anticipated products, pursuit of regulatory approvals, acquisition of capital
equipment, laboratory and office facilities, establishment of production capabilities, for selling, general and
administrative expenses, and other working capital requirements. The Company expects that it will need additional
capital to fund its operations, which it may raise through a combination of equity offerings, debt financings, other third
party funding, marketing and distribution arrangements, and other collaborations, strategic alliances, and licensing
arrangements.
Going Concern
The Company’s financial statements as of December 31, 2016 were prepared under the assumption that the
Company will continue as a going concern. At December 31, 2016, the Company had cash, cash equivalents, and
marketable securities of $33,041. Given the Company’s development plans, it estimates cash resources will be sufficient
to fund its operations into the beginning of the second 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.
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 the Company seeks additional financing to fund its business activities in the future and there remains
substantial doubt about its ability to continue as a going concern, investors or other financing sources may be unwilling
to provide additional funding to the Company on commercially reasonable terms or at all. Based on these factors,
management determined that there is substantial doubt regarding the Company’s ability to continue as a going concern.
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:
63
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-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 three months from date of purchase to be cash equivalents.
At December 31, 2016 and 2015, cash equivalents were comprised of money market funds and other short-term
investments.
Cash and cash equivalents consist of the following:
Cash
Money market funds
Total cash and cash equivalents
Marketable securities
December 31,
2016
2015
111 $
116
$
21,353
14,804
$ 21,464 $ 14,920
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, 2016, the Company’s
investment portfolio consists 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, 2016, the aggregate fair value of the Company’s marketable securities was $11,577. At
December 31, 2015, the aggregate fair value of the Company’s marketable securities was $5,274. Gross unrealized gains
and losses were insignificant for the years ended December 31, 2016 and 2015.
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).
64
Restricted cash
Restricted cash as of December 31, 2016 and 2015 was $361 and included a $50 security deposit related to the
Company’s credit card account and a $311 standby letter of credit in favor of a landlord (see Note 17).
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-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-line method. A summary of the estimated useful lives is as follows:
Classification
Computer hardware
Software
Office furniture and equipment
Research and lab equipment
Leasehold improvements
Research and development expenses
Estimated Useful Life
5 years
3 years
5 years
5 years
Remaining life of lease
Costs incurred for research and development are expensed as incurred.
Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally
of cash, cash equivalents, and marketable securities. 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, 2016 and 2015, 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” of being sustained
by the applicable tax authority.
Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the
current year. There were no material uncertain tax positions that required accrual or disclosure to the financial statements
65
as of December 31, 2016 or 2015. Tax years subsequent to 2013 remain open to examination by U.S. federal and state
tax authorities.
Impairment of long-lived assets
The Company continually monitors events and changes in circumstances that could indicate that carrying
amounts of long-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. No impairment charges were recorded for the years ended December 31, 2016, 2015,
and 2014.
Share-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 employee 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-flow or market risks;
however, certain warrants to purchase common stock that do not meet the requirements for classification as equity are
classified as liabilities. In such instances, net-cash settlement is assumed for financial reporting purposes, even when the
terms of the underlying contracts do not provide for a net-cash settlement. Such financial instruments are initially
recorded at fair value, with subsequent changes in fair value charged (credited) 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 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 related to the Company’s May 2014 capital raise, which include an anti-
dilution provisions, and convertible securities are anti-dilutive and therefore excluded from diluted loss per share
calculations.
For the year ended December 31, 2016, 2015, and 2014, the following potentially dilutive securities were not
included in the computation of net loss per share because the effect would be anti-dilutive:
Stock options
Warrants
2016
2015
2014
3,193,785
3,391,439
6,585,224
3,253,310
1,156,779
4,410,089
2,606,737
10,208,849
12,815,586
66
Reclassifications
Certain amounts in prior period financial statements have been reclassified to conform to the current period
presentation. Marketable securities were previously included in cash and cash equivalents on the balance sheet but are
now reflected as a separate line item on the balance sheet. Cash activities related to the purchase and sale of marketable
securities have been reflected within investing activities in the statement of cash flows. The unrealized gains or losses
related to these marketable securities are immaterial for all periods presented.
Recent accounting pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-15, Presentation of Financial Statements—Going Concern, on disclosure of uncertainties about an
entity's ability to continue as a going concern. This guidance addresses management's responsibility in evaluating
whether there is substantial doubt about a company's ability to continue as a going concern and to provide related
footnote disclosures. The guidance is effective for fiscal years ending after December 15, 2016 including interim
reporting periods within each annual reporting period, with early adoption permitted. The Company adopted this
guidance as of December 31, 2016. The adoption of ASU 2014-15 impacted presentation and disclosure only and did not
have any impact on the Company’s financial position or results of operations.
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 of the Effective Date, which deferred the effective date of ASU
2014-09 by one year. Accordingly, ASU 2014-09 is effective for public business entities for annual reporting periods
beginning after December 15, 2017, including interim reporting periods within each annual reporting period. In March
2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross Versus Net), which clarifies the implementation guidance on principal versus
agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic
606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance
obligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which relates to
disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash
consideration and the presentation of sales and other similar taxes collected from customers. These standards have the
same effective date and transition date of December 15, 2017. Currently, this guidance is not applicable to the Company
as the Company is still in the research and development stage. However, the Company will continue to evaluate the
impact of adopting ASU 2014-09 on its consolidated financial statements when the Company begins to generate
revenue.
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 periods beginning after December 15, 2018,
including interim reporting periods within each annual reporting period. The Company is currently evaluating the impact
of the adoption of this ASU on the financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Accounting (“ASU 2016-09”) to require changes to several areas 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, accounting for income taxes, forfeitures, and intrinsic value accounting
for private entities. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including
67
interim reporting periods within each annual reporting period. The Company will adopt this standard on January 1, 2017,
and the adoption is not expected to have a material impact on the Company’s 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 does 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. The Company is currently evaluating the impact of the adoption of this ASU on the financial
statements.
3. MARKETABLE SECURITIES
The Company invests 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.
The following table summarizes the Company’s cash, cash equivalents, and marketable securities as of
December 31, 2016 and 2015:
Cash
Money market funds
Marketable securities
Total cash, cash equivalents and marketable securities
December 31,
2016
2015
111 $
21,353
11,577
33,041 $
116
14,804
5,274
20,194
$
$
As of December 31, 2016, the Company’s investment portfolio consists 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. As of December 31, 2016, the fair value of the Company’s
marketable securities approximates amortized cost and therefore the insignificant gains/losses on these securities have
been included within Other Income (Expense) on the Statement of Operations.
The following table summarizes the Company’s short-term investments in marketable securities by category as
of December 31, 2016 and 2015:
December 31, 2016
Commercial paper
Corporate obligations
Total
December 31, 2015
Commercial paper
Corporate obligations
Total
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
4,240
7,337
11,577 $
349
4,925
5,274 $
$
$
—
— $
—
— $
—
— $
—
— $
4,240
7,337
11,577
349
4,925
5,274
As of December 31, 2016 and 2015, the Company’s investments in marketable securities are classified in
current assets as they are due in one year or less.
68
4. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following:
Computer software and hardware
Research and lab equipment
Leasehold improvements
Office equipment
Less accumulated depreciation and amortization
Property and equipment, net
2016
2015
$
606 $
1,895
431
796
(3,218)
$
510 $
562
1,874
392
792
(2,682)
938
Depreciation and amortization expense for the years ended December 31, 2016, 2015, and 2014 was $536,
$672, and $735, respectively. Maintenance and repairs are charged to expense as incurred and any additions or
improvements are capitalized. The Company had no disposals for the years ended December 31, 2016 and 2015.
5. INTANGIBLE ASSETS
Intangible assets, included in “other assets,” consisted of patent licensing fees paid to license intellectual
property (see Note 16). The Company is amortizing the license fee as a research and development expense over the 15–
year term of the license.
Patent licensing fee
Accumulated amortization
2015
2016
$ 200 $ 200
(104)
96
(122)
$ 78 $
For each of the years ended December 31, 2016, 2015, and 2014, the amortization expense was $17.
Amortization expense is expected to be $17 per year for 2017, 2018, 2019, and 2020, and $10 in 2021.
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
Accrued bonus
Accrued payroll
Accrued vacation
Accrued severance
Other accrued expenses
Total accrued expenses
December 31,
2016
2015
$
906 $
126
91
385
451
$ 1,959 $
—
85
81
—
208
374
7. FAIR VALUES OF ASSETS AND LIABILITIES
The Company groups its assets and liabilities generally measured at fair value in three levels, based on the
markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets
and liabilities, generally include debt and equity securities that are traded in an active exchange market. Valuations are
obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2—Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
69
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, 2016
Cash equivalents
Marketable securities
Derivative warrant liability
Cash equivalents
Marketable securities
Derivative warrant liability
8. NOTE PAYABLE
Level 1
$ 21,353 $
Level 2
— $
11,577
—
— $ 1,314 $
$
Level 3 Fair Value
— $ 21,353
11,577
—
— $ 1,314
At December 31, 2015
Level 1
$ 14,804 $
— $
Level 2 Level 3 Fair Value
— $ 14,804
5,274
—
— $ 1,907
—
— $ 1,907 $
5,274
$
In May 2013, the Company entered into a contract for the purchase of an enterprise resource planning (“ERP”)
system for $150. The total cost for the ERP system, including interest, is $159, with an implicit interest rate of
approximately 6%. This non-cancelable purchase agreement was still in effect at December 31, 2016, but there are no
future minimum principal payments to be made under the agreement due to the fact that any amounts due have been paid
in full. In the third quarter of 2013, the Company decided to abandon the implementation of the ERP system. As such,
the ERP system cost of $150 was fully expensed in 2013. The Company reserves the right to implement the ERP system
at a future date.
9. 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, for the years ending
December 31, 2017, 2018, and 2019, principal payments of $423, $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. The fair value of the
warrant was determined to be $32 and is being amortized through interest expense over the life of the note. For each of
the years ended December 31, 2016, 2015, and 2014, 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 $99, $126, and $127 for
the years ended December 31, 2016, 2015, and 2014, respectively.
70
At December 31, loans payable consisted of the following:
December 31,
MassDev Loan
Less: current portion
10. INCOME TAXES
2015
2016
$ 1,275 $ 1,670
(395)
$ 852 $ 1,275
(423)
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, 2016, the Company had U.S. federal and Massachusetts net operating loss carryforwards of
$95,872 and $88,041, respectively, of which federal carryforwards will expire in varying amounts beginning in 2026.
Massachusetts net operating losses begin to expire in 2029. Utilization of net operating losses 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 an 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 $944 and $183, respectively, at December
31, 2016, which will begin to expire in 2025 unless previously utilized.
Significant components of the Company’s net deferred tax assets are as follows:
December 31,
2016
2015
Net operating loss carryforward
Research and development credit carryforward
Stock-based compensation
Depreciation and amortization
Accrued expenses
Charitable contributions
Subtotal
Valuation allowance
Net deferred taxes
$ 37,245 $ 30,014
942
3,307
(48)
186
96
34,497
(34,497)
—
1,065
5,235
31
264
63
43,903
(43,903)
— $
$
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. In the years ended December 31, 2016
and 2015, the valuation allowance increased by $9,406 and $8,727, respectively.
The Company has no uncertain tax positions at December 31, 2016 and 2015 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 twelve
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.
71
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:
Statutory rate
State taxes, net of benefit
Permanent differences:
Derivative losses
Other
R&D tax credit
Other
Increase in valuation reserve
Effective tax rate
11. COMMON STOCK
December 31,
2016 2015 2014
(34.0)% (34.0)% (34.0)%
(5.4)% (3.5)% (4.8)%
0.7 %
(0.9)% 11.0 %
0.2 %
0.3 % 2.6 %
(0.5)% (0.4)% (1.0)%
0.5 %
0.4 % 2.2 %
40.1 % 26.2 % 34.3 %
0.0 % 0.0 %
0.0 %
The Company has authorized 100,000,000 shares of common stock, $0.00001 par value per share, of which
32,044,087, shares were issued and outstanding as of December 31, 2016 and 27,555,948 shares were issued and
outstanding as of December 31, 2015.
During the year ended December 31, 2016, the Company issued an aggregate of 135,205 shares of
common stock upon the exercise of stock options and received cash proceeds from such exercises of $191.
During the year ended December 31, 2016, 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 Company’s Employee Stock Purchase Plan (the “ESPP”) and received cash proceeds of $91.
In March 2016, the Company 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 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 contain a cashless exercise feature whereby shares
are withheld to cover the exercise cost and the warrant holder receives a net issuance 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.
During the year ended December 31, 2015, the Company issued an aggregate of 316,177 shares of common
stock upon the exercise of stock options, including stock options to purchase 52,224 shares of common stock exercised
through cashless exercise provisions resulting in the issuance of 14,961 shares of common stock and stock options to
purchase 301,216 shares of common stock exercised for cash, providing cash proceeds of $1,068.
During the year ended December 31, 2015, the Company issued an aggregate of 1,379,575 shares of common
stock upon the exercise of warrants, including warrants to purchase 40,955 shares of common stock exercised through
cashless exercise provisions resulting in the issuance of 25,052 shares of common stock and warrants to purchase
1,354,523 shares of common stock exercised for cash, providing net cash proceeds of $7,789.
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) plan as a matching contribution.
72
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, the Company issued 1,514 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 million 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.
During the year ended December 31, 2014, the Company issued an aggregate of 132,900 shares of common
stock upon the exercise of stock options and received cash proceeds of $212.
During the year ended December 31, 2014, the Company issued an aggregate of 9,975 shares of common stock
upon the exercise of warrants, including warrants to purchase 15,655 shares of common stock exercised through cashless
exercise provisions resulting in the issuance of 6,903 shares of common stock and warrants to purchase 3,072 shares of
common stock exercised for cash, providing cash proceeds of $12.
During the year ended December 31, 2014, the Company issued an aggregate of 41,753 shares of common
stock with a fair value of $173 to the Company’s 401(k) plan as a matching contribution.
In January 2014, the Company issued 27,212 and 5,594 shares of common stock to Michael J. Astrue, the
Company’s then-Interim Chief Executive Officer, and Gregory D. Perry, the Company’s then-Interim Chief Financial
Officer, respectively, in lieu of executive cash bonuses. Such shares had an aggregate fair value of approximately $282.
In December 2014, the Company issued 41,821 shares of common stock to certain employees of the Company
in lieu of cash bonuses. Such shares had an aggregate fair value of approximately $195.
During the year ended December 31, 2014, the Company closed an underwritten public offering of an aggregate
of 3,500,312 shares of common stock and warrants to purchase up to an aggregate of 1,750,156 shares of common stock,
at a price to the public of $4.60 per share of common stock and $0.00001 per warrant. The net proceeds to the Company,
after deducting underwriting discounts and offering expenses, were approximately $14,600. The warrants have a per
share price of $5.75, or 125% of the public offering of the common stock, and expire on May 9, 2019.
Common Stock Reserves
As of December 31, 2016, the Company had the following reserves established for the future issuance of
common stock as follows:
Reserves for the exercise of warrants
Reserves for the exercise of stock options
Total Reserves
3,391,439
3,193,785
6,585,224
12. 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 11) 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. 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. 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, 2016,
73
2015, and 2014, a (gain) loss of $(593), $10,804 and $376, 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, 2016 and 2015 was $1,314 and $1,907,
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:
Risk-free interest rate
Expected dividend yield
Contractual term
Expected volatility
2016
Year Ended December 31,
2015
0.65 %
0 %
3.4 years
100 %
1.20 %
0 %
2.4 years
89 %
2014
1.47 %
0 %
4.4 years
119 %
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, 2016,
2015, and 2014:
Year Ended December 31,
Balance at beginning of year
Issuance of warrants
(Decrease) increase in the fair value of the warrants
Fair value of derivative warrant liability reclassified to additional paid in capital
Balance at end of year
$
$
2014
2016
1,907 $
—
(593)
—
1,314 $
2015
7,224 $
—
10,804
(16,121)
—
6,848
376
—
1,907 $ 7,224
ty
13. STOCK OPTIONS
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 the 2007 Plan, the Company’s
Board of Directors (or committees and/or executive officers delegated by the Board of Directors) may grant incentive
and nonqualified stock options to the Company’s employees, officers, directors, consultants and advisors. As of
December 31, 2016, there were options to purchase an aggregate of 150,207 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
provides for grants of incentive stock options to employees, and nonqualified stock options and restricted common stock
to employees, consultants, and non-employee directors of the Company.
In April 2015, the Company’s Board of Directors adopted, and the Company’ 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, 2016, 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, the 2010 Plan was terminated and no additional shares or share awards have
been subsequently granted under the 2010 Plan.
As of December 31, 2016, there were outstanding options to purchase an aggregate of 1,222,085 and 1,821,487
shares of common stock under the 2015 Plan and 2010 Plan, respectively. Options issued under the Plans are exercisable
for up to 10 years from the date of issuance.
74
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 187,500 shares for issuance under the
ESPP. Commencing on the first day of the year ended December 31, 2016 and on the first day of each year thereafter
during the term of the ESPP, the number of shares of common stock reserved for issuance shall be increased by the
lesser of (i) 1% of the Company’s outstanding shares of common stock on such date, (ii) 50,000 shares or (iii) a lesser
amount determined by the Board of Directors. Under the terms of the ESPP, in no event shall the aggregate number of
shares reserved for issuance during the term of the ESPP exceed 1,250,000 shares.
The 2015 ESPP is considered a compensatory plan with the related compensation cost recognized over each
respective six month offering period. As of December 31, 2016, approximately $51 of employee payroll deductions had
been withheld since July 1, 2016, 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 the years ended December 31, 2016 and
2015 was $46 and $41, respectively, and is included in stock-based compensation expense. In January 2017, 7,986
shares that were purchased as of December 31, 2016 were issued under the ESPP.
Share-based compensation
For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock-based compensation
expense of $5,063, $4,666, and $2,730, respectively, net of forfeitures, inclusive of the expense related to the ESPP.
The fair value of each option award is estimated on the date of grant using the Black-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 and employee terminations
within the valuation model. The expected term of options granted under the Plans, all of which qualify as “plain vanilla,”
is based on the average of the contractual term (10 years) and the vesting period (generally, 48 months). For
non-employee options, the expected term is the contractual term. The risk-free rate is based on the yield of a U.S.
Treasury security with a term consistent with the option.
The assumptions used principally in determining the fair value of options granted were as follows:
Risk-free interest rate
Expected dividend yield
Expected term (employee grants)
Expected volatility
2016
December 31,
2015
1.20 - 1.52% 1.53 - 1.89% 1.62 - 2.06%
0%
6.03 years
124%
0%
5.99 years
111%
0%
6.00 years
116%
2014
A summary of option activity as of December 31, 2016 and changes for the year then ended are presented
below:
Weighted
Average
Weighted
Average
Exercise
Remaining
Contractual
Aggregate
Intrinsic
Options
Outstanding at December 31, 2015
Granted
Forfeited
Exercised
Outstanding at December 31, 2016
Vested at December 31, 2016
Vested and expected to vest at December 31, 2016
Shares
Price
Term in Years Value
3,253,310 $ 7.47
333,250 $ 6.27
(257,570) $ 8.47
(135,205) $ 1.41
3,193,785 $ 7.52
1,811,996 $ 7.54
2,741,045 $ 7.52
6.93 $
6.32 $
6.81 $
571
563
568
The weighted average grant-date fair value of options granted during the years ended December 31, 2016, 2015,
75
and 2014 was $5.23, $7.37, and $6.15 per share, respectively. The total fair value of options that vested in the years
ended December 31, 2016, 2015, and 2014 was $5,179, $5,144, and $2,329, respectively. As of December 31, 2016,
there was $5,630 of total unrecognized compensation expense related to non-vested share-based option compensation
arrangements. The unrecognized compensation expense is estimated to be recognized over a period of 2.37 years at
December 31, 2016.
14. WARRANTS
The following table presents information about warrants to purchase common stock issued and outstanding at
December 31, 2016:
Year Issued
2010
2010
2012
2014
2016
Total
Weighted average exercise price
Weighted average life in years
Classification Warrants
Price
Date of Expiration
Number of Exercise
Equity
Equity
Equity
Liability
Equity
343,931 $ 5.60 10/26/2017 - 12/3/2017
306,838 $ 4.00 8/30/2017 - 12/3/2017
6,054 $ 6.64
587,950 $ 3.87
2,146,666 $ 10.00
3,391,439
$ 7.94
10/5/2019
5/9/2019
3/18/2021
3.24
In March 2016, the Company 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 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.
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 Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives
and Hedging. As such, the Company has concluded the warrants meet the scope exception for determining whether the
instruments require accounting as derivatives and should be classified in stockholders’ equity.
15. 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. For the years ended December 31, 2016, 2015, and 2014, the Company made matching contributions in
the form of shares of the Company’s common stock. For the years ended December 31, 2016, 2015, and 2014, the
Company issued 37,528, 17,437, and 41,753 shares of its common stock, respectively, with related fair values of $208,
$201, and $173, respectively, which were recorded as expense in the statement of operations.
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16. 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”) and the Massachusetts Institute of Technology 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-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
licensing fee and is required to pay certain annual maintenance fees, milestone payments and royalties. License fees and
milestone payments are capitalized and the gross total at December 31, 2016 and 2015 was $200 (see Note 5).
Maintenance and royalty costs are expensed as incurred.
17. COMMITMENTS AND CONTINGENCIES
Leases
On November 30, 2011, the Company entered into a commercial lease for 26,150 square feet of office,
laboratory and manufacturing space in Cambridge, Massachusetts (as amended on September 17, 2012, the “Cambridge
Lease”). The term of the Cambridge Lease is six years and three months, with one five-year extension option. The terms
of the Cambridge Lease require a standby letter of credit in the amount of $311 (see Note 2).
The Cambridge Lease contains rent holidays and rent escalation clauses. The Company recognizes rent expense
on a straight-line basis over the term of the Cambridge Lease and records the difference between the amount charged to
expense and the rent paid as a deferred rent liability. As of December 31, 2016 and 2015, the amount of the deferred rent
liability is $276 and $391, respectively, and is included in accrued expenses.
It is 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, which are
amortized to rent expense over the term of the Cambridge Lease. As of December 31, 2016 and 2015, such leasehold
improvements totaled $143 and $185, net of accumulated depreciation.
Pursuant to the terms of the non-cancelable lease agreements in effect at December 31, 2016, the future
minimum rent commitments are as follows:
Year Ended December 31,
2017
2018
Total
1,289
1,088
2,377
$
Total rent expense for the years ended December 31, 2016, 2015, and 2014, including month-to-month leases,
was $918, $1,123 and $1,148, respectively, net of sublease income of $230 for the year ended December 31, 2016.
On September 4, 2013, the Company entered into a legal settlement agreement for $286 in connection with the
Cambridge Lease. The settlement amount has been included in the deferred rent liability and the benefit is being
amortized over the remainder of the term of the Cambridge Lease.
On March 31, 2016, the Company entered into a short-term lease with CRISPR Therapeutics, 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
terms of the Sublease. The funds received for the security deposit, $26, are classified as a component of accrued
expenses in the financial statements. The Sublease was terminated on January 31, 2017.
77
Compensation Commitment
The Company entered into a compensation arrangement with an executive during September 2016 which
provides 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 is earned over a period of one year. Accordingly, the expense related to the
compensation arrangement was approximately $89 for the three months and $101 for the twelve months ended
December 31, 2016. The liability is included within accrued expenses on the balance sheet and was recorded at fair value
on a recurring basis until the final payment was determined on February 13, 2017.
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 $500,000 worth of personal and/or exorbitant
expenses that the Company alleges Mr. Reynolds inappropriately caused it to pay while he was serving as the
Company’s Chief Executive Officer, Chief Financial Officer, President, and Chairman of the Company’s Board of
Directors. On December 6, 2013, Mr. Reynolds answered the complaint, and filed counterclaims against the Company
and the Company’s Board of Directors. The counterclaims allege two counts of breach of contract, two counts of breach
of the covenant of good faith and fair-dealing, and tortious interference with a contract, and seek monetary damages and
a declaratory judgment. The counterclaims related to Mr. Reynolds’s allegations that the Company and the Company’s
Board of Directors interfered with the performance of his duties under the terms of his employment agreement, and that
Mr. Reynolds was entitled to additional shares upon the exercise of certain stock options that he did not receive. On
January 9, 2014, the Company, along with the directors named in the counterclaims, filed the Company’s answer.
Discovery has now been completed and the Company’s motion for summary judgment on all counts of the complaint
and Reynolds’ opposition to the motion for summary judgment was filed with the court on March 3, 2017.
The Company intends to continue to defend itself against these claims and, to date, the Company has not
recorded any provision for losses that may arise.
On July 22, 2016, Mr. Reynolds filed a lawsuit against the Company, certain present and former members of
the Company’s Board of Directors and an employee of the Company in Hillsborough County Superior Court, Southern
District, Hillsborough County, New Hampshire (Reynolds v. InVivo Therapeutics Holdings Corp, et al.) alleging
defamation, conspiracy, and tortious interference, and seeking monetary damages. In August 2016, the lawsuit was
removed to the United States District Court for the District of New Hampshire. The Company filed a motion to dismiss
this action and after oral argument on November 28, 2016, the Court on November 30, 2016 issued an order dismissing
the case for lack of personal jurisdiction. The judgment was entered on the docket on December 1, 2016, and the
deadline for appealing that decision has passed.
Shareholder Matters and Investigations
On July 31, 2014, a putative securities class action lawsuit was filed in the United States District Court for the
District of Massachusetts, naming the Company and Mr. Reynolds as defendants (the “Securities Class Action”). The
lawsuit alleges violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading
statements related to the timing and completion of the clinical study of the Company’s Neuro-Spinal Scaffold™ implant.
The plaintiff sought class certification for purchasers of the Company’s common stock during the period from April 5,
2013 through August 26, 2013 and unspecified damages. On April 3, 2015, the United States District Court for the
District of Massachusetts dismissed the plaintiff’s claim with prejudice.
On May 4, 2015, the plaintiff filed a notice of appeal of this decision. Following the submission of briefs by the
parties, the Court of Appeals heard oral arguments on April 6, 2016. On January 9, 2017, the Court of Appeals for the
First Circuit issued an order and opinion affirming the dismissal of the Securities Class Action with prejudice. Plaintiff
has until April 10, 2017 to file a petition for certiorari to the United States Supreme Court.
78
The Company intends to continue to defend itself against these claims and, to date, has not recorded any
provision for losses that may arise.
On January 23, 2015, Shawn Luger, a purported shareholder of the Company, sent the Company a letter (the
“Shareholder Demand”) demanding that the Board of Directors take action to remedy purported breaches of fiduciary
duties allegedly related to the claimed false and misleading statements that are the subject of the Securities Class Action.
The Board of Directors completed its investigation of the matters raised in the Shareholder Demand and voted
unanimously not to pursue any litigation against any current or former director, officer, or employee of the Company
with respect to the matters set forth in the Shareholder Demand.
On August 14, 2015, Mr. Luger filed a shareholder derivative lawsuit in the Superior Court of Suffolk County
for the Commonwealth of Massachusetts on behalf of the Company against certain present and former board members
and company executives alleging the same breaches of fiduciary duties purportedly set forth in the Shareholder Demand.
On February 5, 2016, the Superior Court of Suffolk County dismissed the plaintiff’s claims with prejudice. On March 4,
2016, the plaintiff filed a notice of appeal of this decision. Following the submission of brief by the parties, the Appeals
Court heard oral argument on December 13, 2016. On January 3, 2017, the Appeals Court issued an order and opinion
affirming the dismissal of all claims with prejudice. The time period for Mr. Luger to appeal the Appeals Court’s
judgment has expired.
In addition, the Company received investigation subpoenas from the Boston Regional Office of the SEC and the
Massachusetts Securities Division of the Secretary of the Commonwealth of Massachusetts (“MSD”) requesting
corporate documents concerning, among other topics, the allegations raised by the Securities Class Action and the
Shareholder Demand. On October 21, 2015, after responding to the SEC’s subpoena, the Company received a letter from
the SEC notifying the Company that it had concluded its investigation of the Company and that it did not intend to
recommend an enforcement action against the Company. The Company responded to the MSD’s subpoena on
September 22, 2014 and October 8, 2014. On February 18, 2015, the Company received a second subpoena from the
MSD requesting additional documents and information related to the same topics. The Company responded to this
second subpoena on March 24, 2015. The Company has not further heard from the MSD since it responded to this last
subpoena.
18. INSURANCE CLAIM
During the year ended December 31, 2014, the Company settled an insurance claim of $621 for business
interruption that covered the disruption of the Company’s operations at its facility in Cambridge, Massachusetts caused
by water damage that occurred in September 2014. The insurance settlement reimburses the Company for costs incurred
as a result of the disruption and is included as reduction of research and development expense in the consolidated
statement of operations for the year ended December 31, 2014.
19. RELATED PARTY TRANSACTIONS
The Company has entered into a consulting agreement with Dr. Robert Langer, a member of the Company’s
Scientific Advisory Board and 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 has
agreed to pay Dr. Langer $250 per year in consulting fees.
20. SUBSEQUENT EVENTS
The Company has evaluated all events or transactions that occurred after December 31, 2016. In the judgment
of management, there were no material events that impacted the consolidated financial statements or disclosures.
79
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Our Disclosure Controls
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the
effectiveness of our disclosure controls and procedures as of December 31. 2016. 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”). Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of December
31, 2016, the Company’s chief executive officer and chief financial officer concluded that, as of such date, the
Company’s disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over 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.
With the participation of our chief executive officer and our chief financial officer, our management conducted
an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the
framework in Internal Control—Integrated Framework 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 as of December 31, 2016.
Our registered public accounting firm has issued an attestation report on our internal control over financial
reporting. This report appears on page 56 of this Annual Report on Form 10-K.
80
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended December 31, 2016, there were no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. OTHER INFORMATION
None.
81
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this Item is incorporated herein by reference to the information regarding
directors, executive officers and corporate governance included in our proxy statement for our 2017 annual meeting of
stockholders.
Code of Ethics
We previously adopted a Code of Business Conduct and Ethics 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 in
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, Massachusetts 02139. We intend to satisfy the disclosure
requirement under Item 5.05 of Form 8-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.
Item 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated herein by reference to the information regarding
executive compensation included in our proxy statement for our 2017 annual meeting of stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item is incorporated herein by reference to the information regarding
security ownership of certain beneficial owners and management and related stockholder matters included in our proxy
statement for our 2017 annual meeting of stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated herein by reference to the information regarding
certain relationships and related transactions and director independence included in our proxy statement for our 2017
annual meeting of stockholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required under this Item is incorporated herein by reference to the information regarding
principal accounting fees and services included in our proxy statement for our 2017 annual meeting of stockholders.
82
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements.
PART IV
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 exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this report.
83
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.
SIGNATURES
Date: March 10, 2017
Date: March 10, 2017
INVIVO THERAPEUTICS HOLDINGS CORP.
By:
/s/ MARK D. PERRIN
Name: Mark D. Perrin
Title: Chief Executive Officer (Principal Executive
Officer)
By:
/s/ MELANIE GOLARZ
Name: Melanie Golarz
Title: Interim Chief Financial Officer (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/ MARK D. PERRIN
Mark D. Perrin
Chief Executive Officer and Chairman of
the Board (Principal Executive Officer)
/s/ MELANIE GOLARZ
Melanie Golarz
Interim Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ CHRISTINA MORRISON
Christina Morrison
/s/ KENNETH DIPIETRO
Kenneth DiPietro
/s/ DANIEL R. MARSHAK
Daniel R. Marshak
Director
Director
Director
/s/ JEFFREY S. HATFIELD
Jeffrey S. Hatfield
Director
/s/ C. ANN MERRIFIELD
C. Ann Merrifield
/s/ RICHARD J. ROBERTS
Richard J. Roberts
Director
Director
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
84
EXHIBIT INDEX
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, 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, 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).
4.1 Form of Bridge Warrant of InVivo Therapeutics Corporation (incorporated by reference from Exhibit 4.1 to
the Company’s Current Report on Form 8-K, as filed with the SEC on November 1, 2010).
4.2 Form of Investor Warrant of InVivo Therapeutics Holdings Corp. (incorporated by reference from
Exhibit 4.3 to the Company’s Current Report on Form 8-K, as filed with the SEC on November 1, 2010).
4.3(i) Form of Warrant of InVivo Therapeutics Holdings Corp. ($1.00 exercise price) issued to Placement Agent
(incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K, as filed with the
SEC on December 9, 2010).
4.3(ii) Form of Warrant of InVivo Therapeutics Holdings Corp. ($1.40 exercise price) issued to Placement Agent
(incorporated by reference from Exhibit 4.3 to the Company’s Current Report on Form 8-K, as filed with the
SEC on December 9, 2010).
4.4 Form of Warrant of InVivo Therapeutics Holdings Corp. issued to Bridge Lenders (incorporated by reference
from Exhibit 4.5 to the Company’s Current Report on Form 8-K, as filed with the SEC on November 1,
2010).
4.5 Warrant dated June 17, 2011 issued to Square 1 Bank (incorporated by reference from Exhibit 4.7 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the SEC
on March 15, 2012).
4.6 Specimen Common Stock Certificate (incorporated by reference from Exhibit 4.8 to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the SEC on March 15,
2012).
4.7 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).
4.8 Form of New Warrant issued on May 17, 2013 in exchange for Merger Warrants (incorporated by reference
from Exhibit (a)(1)(D)(1) to the Company’s Tender Offer Statement on Schedule TO (File No. 005-85686),
as filed with the SEC on April 8, 2013).
4.9 Form of New Warrant issued on May 17, 2013 in exchange for Placement Agent Warrants (incorporated by
reference from Exhibit (a)(1)(D)(3) to the Company’s Tender Offer Statement on Schedule TO (File
No. 005-85686), as filed with the SEC on April 8, 2013)
4.10 Form of Warrant Agreement (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).
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, 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, as filed with the SEC on November 1,
2010).
85
10.2(ii)* Form of Non-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, as filed with the SEC on November 1,
2010).
10.3* InVivo Therapeutics Holdings Corp. 2010 Equity Incentive Plan, as amended (incorporated by reference to
Appendix A to the Company’s Schedule 14A Proxy Statement, as filed with the SEC on April 19, 2013).
10.4(i)* Form of Incentive 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(i) to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the SEC
on March 24, 2011).
10.4(ii)* Form of Non-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-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, 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/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/A (File No. 333-171998), as filed
with the SEC on July 19, 2011).
10.8 Form of Indemnification Agreement (for directors and officers) (incorporated by reference from
Exhibit 10.19 to the Company’s Registration Statement on Form S-1 (File No. 333-171998), as filed with the
SEC on February 1, 2011).
10.9 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-1 (File No. 333-178584), as filed with the SEC on December 16, 2011).
10.10 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-1 (File No. 333-178584),
as filed with the SEC on December 16, 2011).
10.11 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-K for the fiscal year ended December 31, 2012, as filed with the SEC on March 12, 2013).
10.12 Common Stock Purchase Warrant dated December 21, 2011 and issued by the Company to Ingenieria E
Inversiones Ltda. (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on
Form 8-K, as filed with the SEC on December 22, 2011).
10.13* InVivo Therapeutics Holdings Corp. Annual Cash Bonus Plan for Executive Officers (incorporated by
reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on
March 8, 2012).
10.14 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).
10.15* Employment Agreement, dated as of August 22, 2013, between the Company and Michael J. Astrue
(incorporated by reference from Exhibit 10.26 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).
10.16* Employment Agreement, dated as of September 16, 2013, between the Company and Gregory D. Perry
(incorporated by reference from Exhibit 10.27 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).
10.17* 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).
86
10.18* Employment Agreement, dated as of December 31, 2013, between the Company and Steven F. McAllister
(incorporated by reference from Exhibit 10.29 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).
10.19* Amendment to the December 31, 2013 Employment Agreement, dated as of April 29, 2014, between the
Company and Steven F. McAllister (incorporated by reference from Exhibit 10.23 to the Company’s Annual
Report on Form 10 K for the fiscal year ended December 31, 2014, as filed with the SEC on March 11,
2015).
10.20* Amended and Restated Employment Agreement, dated as of May 30, 2014, between the Company and
Steven F. McAllister (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on
Form 8-K, as filed with the SEC on May 30, 2014).
10.21* Second Amended and Restated Employment Agreement, dated as of June 17, 2014, between the Company
and Steven F. McAllister (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on
Form 8-K, as filed with the SEC on June 23, 2014).
10.22 Letter Agreement, dated as of December 10, 2014, between the Company and H.C. Wainwright & Co., LLC
(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the
SEC on January 29, 2015).
10.23 Securities Purchase Agreement, dated as of January 28, 2015, between the Company and the purchasers
signatory thereto (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on
Form 8-K/A, as filed with the SEC on January 29, 2015).
10.24* 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).
10.25* 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, as filed with the SEC on June 16, 2015).
10.26* Letter Agreement regarding Amendments to Employment Agreement, dated as of July 21, 2015, by and
between Mark D. Perrin and InVivo Therapeutics Holding Corp. (incorporated by reference from
Exhibit 10.1 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).
10.27* Letter Agreement regarding Amendments to Employment Agreement, dated as of July 21, 2015, by and
between Steven F. McAllister and InVivo Therapeutics Holdings Corp. (incorporated by reference from
Exhibit 10.2 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).
10.28* 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).
10.29* 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).
10.30* 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).
10.31*+ Employment Agreement, dated January 31, 2015, and Letter Agreement regarding Amendments to such
Employment Agreement, dated as of July 21, 2015, in each case by and between Lorianne Masuoka and
InVivo Therapeutics Holdings Corp.
10.32*+ Letter Agreement, dated October 6, 2016, by and between Lorianne Masuoka and InVivo Therapeutics
Holdings Corp.
10.33+ Consulting Agreement, dated January 3, 2017, by and between Lorianne Masuoka and InVivo Therapeutics
Holdings Corp.
10.35 Exclusive License Agreement dated November 23, 2015 between InVivo Therapeutics Corporation and the
University of California, San Diego
21 Subsidiaries of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 21.1 to the
Company’s Current Report on Form 8-K, as filed with the SEC on November 1, 2010).
23.1 Consent of RSM US LLP
23.2 Consent of Wolf & Company, P.C.
31.1 Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
87
32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer 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.
+ Filed herewith.
88
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Forms S-8 (File Nos. 333-205471, 333-
205469, 333-189002, 333-183491, 333-176111, 333-176110 and 333-173208) and Forms S-3 (File Nos. 333-211939,
333-211937, 333-211936, 333-201535 and 333-171998) of InVivo Therapeutics Holdings Corp. and Subsidiary of our
report dated March 10, 2017 relating to the consolidated financial statements (which report includes an emphasis
paragraph relating to an uncertainty as to the Company’s ability to continue as a going concern) and the effectiveness of
internal control over financial reporting of InVivo Therapeutics Holdings Corp. and Subsidiary appearing in this Annual
Report on Form 10-K of InVivo Therapeutics Holdings Corp. and Subsidiary for the year ended December 31, 2016.
Exhibit 23.1
/s/ RSM US LLP
Boston, Massachusetts
March 10, 2017
1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements (File Nos. 333-205471, 333-205469, 333-
189002, 333-183491, 333-176111, 333-176110 and 333-173208) on Form S 8 and Registration Statements (File Nos.
333-211939, 333-211937, 333-211936, 333-201535 and 333-171998) on Form S 3 of our report dated March 11, 2015
relating to our audit of the consolidated financial statements of InVivo Therapeutics Holdings Corp. for the year ended
December 31, 2014 which appears in this Annual Report on Form 10-K.
Exhibit 23.2
/s/ Wolf & Company, P.C.
Wolf & Company, P.C.
Boston, Massachusetts
March 10, 2017
1
Exhibit 31.1
SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, Mark D. Perrin, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of InVivo Therapeutics Holdings Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 10, 2017
/s/ MARK D. PERRIN
Mark D. Perrin
Principal Executive Officer
1
Exhibit 31.2
SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, Melanie Golarz, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of InVivo Therapeutics Holdings Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 10, 2017
/s/ MELANIE GOLARZ
Melanie Golarz
Interim Chief Financial Officer (Principal Financial and
Accounting Officer)
1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of InVivo Therapeutics Holdings Corp. (the “Company”) on Form 10-K
for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Mark D. Perrin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: March 10, 2017
/s/ MARK D. PERRIN
Mark D. Perrin
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of InVivo Therapeutics Holdings Corp. (the “Company”) on Form 10-K
for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Melanie Golarz, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: March 10, 2017
/s/ MELANIE GOLARZ
Melanie Golarz
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
1
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2016
Annual Report
BOARD OF DIRECTORS
Mark D. Perrin
Chief Executive Officer and Chairman of the Board
InVivo Therapeutics Holdings Corp.
Kenneth DiPietro
Executive Vice President, Human Resources
Biogen, Inc.
Compensation Committee (Chair)
Nominating and Corporate Governance
Committee (Member)
Jeffrey Hatfield
Former President & CEO,
Vitae Pharmaceuticals, Inc.
Compensation Committee (Member)
Audit Committee (Member)
Daniel R. Marshak, Ph.D.
Former Senior Vice President & Chief Scientific
Officer, PerkinElmer, Inc.
Compensation Committee (Member)
Audit Committee (Member)
Ann Merrifield
Former President & CEO, PathoGenetix, Inc.
Lead Director
Nominating and Corporate Governance
Committee (Member)
Christina Morrison
Former Senior Vice President of Finance
Aramark
Audit Committee (Chair)
Nominating and Corporate Governance
Committee (Member)
Sir Richard J. Roberts, Ph.D.
Chief Scientific Officer, New England Biolabs
Scientific Advisory Board (Member)
Compensation Committee (Member)
Nominating and Corporate Governance
Committee (Member)
SENIOR MANAGEMENT
Mark D. Perrin
Chief Executive Officer and Chairman of the Board
Thomas R. Ulich, M.D.
Chief Scientific Officer
Christopher McNulty
Chief Financial Officer
Pamela Stahl
Chief Commercial Officer
Lou Vaickus, M.D.
Interim Chief Medical Officer
Tamara L. Joseph, J.D.
Senior Vice President, General Counsel/
Chief Compliance Officer
William D’Agostino
Senior Vice President, Operations
STOCKHOLDER INFORMATION
Corporate Headquarters
InVivo Therapeutics Holdings Corp.
One Kendall Square, 4th Floor
Suite B14402
Cambridge, MA 02139
(617) 863-5500
www.invivotherapeutics.com
Transfer Agent
Continental Stock Transfer & Trust Company
17 Battery Place
New York, NY 10004
(212) 509-4000
www.continentalstock.com
Independent Auditors
RSM US LLP
80 City Square
Boston, MA 02129
Stock Listing
InVivo Therapeutics Holdings Corp.
is listed on NASDAQ Global Market
under the symbol “NVIV”
Forward-Looking Statements
We have included, in this annual report, “forward-looking statements,” including statements regarding our goals and expectations for 2017 and beyond, and anticipated regulatory filings and
actions. These statements can be identified by words such as “believe,” “anticipate,” “intend,” “estimate,” “will,” “may,” “should,” “expect,” “designed to,” “potentially,” and similar expressions,
and include statements regarding the safety and effectiveness of the Neuro-Spinal Scaffold TM, the Company’s plans with respect to the INSPIRE study, the expansion of clinical sites, the enrollment
of patients in the INSPIRE study, the Company’s ability to submit a Humanitarian Device Exemption (HDE) application for the Neuro-Spinal Scaffold and the approval of such application, the
Company’s cash runway, and the launching of the Company’s first product. Any forward-looking statements contained herein are based on current expectations, and are subject to a number of
risks and uncertainties. Factors that could cause actual future results to differ materially from current expectations include, but are not limited to, risks and uncertainties relating to the Company’s
ability to successfully enroll patients in the INSPIRE study; the FDA approval process, including whether the INSPIRE study will be sufficient to support an HDE application; the Company’s ability to
commercialize its products; the Company’s ability to develop, market, and sell products based on its technology; the expected benefits and efficacy of the Company’s products and technology in
connection with the treatment of spinal cord injuries; the availability of substantial additional funding for the Company to continue its operations and to conduct research and development, clinical
studies and future product commercialization; and other risks associated with the Company’s business, research, product development, regulatory approval, marketing and distribution plans and
strategies identified and described in more detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and its other filings with the SEC. The Company does not
undertake to update these forward-looking statements.
The 2016 Annual Report, 2016 Form 10-K, and other investor information can be viewed online
at the InVivo Therapeutics Holdings Corp. website: www.invivotherapeutics.com
www.invivotherapeutics.com
One Kendall Square / Building 1400 East, 4th Floor / Suite B14402
Cambridge, MA 02139