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(cid:3)
One Kendall Square
Building 1400 West, 4th Floor, Suite B14402
Cambridge, MA 02139
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
(cid:134) 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
Common Stock, $0.00001 par value
Name of exchange on which registered
The Nasdaq Capital 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 (cid:134) No (cid:95)
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 (cid:134) No (cid:95)
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 (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes (cid:95) No (cid:134)
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. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:134)
Emerging growth company (cid:134)
Accelerated filer (cid:134)
Non-accelerated filer (cid:95)
Smaller reporting company (cid:95)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:95)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2018, the
last business day of the registrant’s most recently completed second fiscal quarter, was $6,914,896 based on a per share price of $1.70, which was the
closing price of the registrant’s common stock on the Nasdaq Capital Market the last trading date prior to June 30, 2018.
As of March 22, 2019, the number of shares outstanding of the registrant’s common stock, $0.00001 par value per share, was 9,311,070.
Portions of the registrant's definitive proxy statement relating to its 2019 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K where indicated. The registrant intends to file such proxy statement with the U.S. Securities and
Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates.
DOCUMENTS INCORPORATED BY REFERENCE
INVIVO THERAPEUTICS HOLDINGS CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
ITEM
Page
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.
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1B.
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9B.
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50
51
77
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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, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. These statements include statements made regarding our commercialization
strategy, future operations, cash requirements and liquidity, capital requirements, and other statements on our business
plans and strategy, financial position, and market trends. In some cases, you can identify forward-looking statements by
terms such as “may,” “might,” “will,” “should,” “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,”
and other similar expressions. These forward-looking statements are subject to risks and uncertainties that could cause
actual results or events to differ materially from those expressed or implied by the forward-looking statements in this
Form 10-K, including factors such as our ability to raise substantial additional capital to finance our planned operations
and to continue as a going concern; our ability to execute our strategy and business plan; our ability to obtain regulatory
approvals for our products, including the Neuro-Spinal Scaffold™; our ability to successfully commercialize our current
and future product candidates, including the Neuro-Spinal Scaffold; the progress and timing of our development
programs; market acceptance of our products; our ability to retain management and other key personnel; our ability to
promote, manufacture, and sell our products, either directly or through collaborative and other arrangements with third
parties; and other factors detailed under “Risk Factors” in Part I, Item 1A of this Form 10-K. These forward looking
statements are only predictions, are uncertain, and involve substantial known and unknown risks, uncertainties, and other
factors which may cause our actual results, levels of activity, or performance to be materially different from any future
results, levels of activity, or performance expressed or implied by these forward looking statements. Such factors
include, among others, the following:
•
•
•
•
•
•
•
•
•
•
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 initiate and complete the INSPIRE 2.0 Study to support our existing Humanitarian Device
Exemption application;
our ability to execute our strategy and business plan;
our ability to obtain regulatory approvals for our current and future product candidates, including our
Neuro-Spinal Scaffold implant;
our ability to successfully commercialize our current and future product candidates, including our Neuro-
Spinal Scaffold implant;
the progress and timing of our current and future development programs;
our ability to successfully open, enroll and complete clinical trials and obtain and maintain regulatory
approval of our current and future 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 and adoption of our current and future technology and products;
•
•
our ability to promote, manufacture and sell our current and future products, either directly or through
collaborative and other arrangements with third parties; and
our ability to attract and retain key personnel.
We cannot guarantee future results, levels of activity, or performance. You should not place undue reliance on
these forward looking statements, which speak only as of the date of this Annual Report on Form 10-K. These
2
3
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.
The American Spinal Injury Association, or ASIA, in collaboration with the International Spinal Cord Society,
or ISCoS, has developed a neurologic examination tool for assessing SCI known as the International Standards for
Neurological Classification of Spinal Cord Injury, or ISNCSCI. Results of the ISNCSCI examination are used to
determine the ASIA Impairment Scale, or AIS, classification.
As used herein, “we,” “us,” “our,” or the “Company” means InVivo Therapeutics Holdings Corp., together with
its consolidated subsidiaries, unless otherwise noted.
Item 1. BUSINESS
Overview
We are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of
spinal cord injuries, or SCIs. Our mission is to redefine the life of the SCI patient, and we seek to develop treatment
options intended to provide meaningful improvement in patient outcomes following SCI. Our approach to treating acute
SCIs is based on our investigational Neuro-Spinal Scaffold implant, a bioresorbable polymer scaffold that is designed for
implantation at the site of injury within a spinal cord and is intended to treat acute SCI. The Neuro-Spinal Scaffold
implant incorporates intellectual property licensed under an exclusive, worldwide license from Boston Children’s
Hospital and the Massachusetts Institute of Technology. We also plan to evaluate other technologies and therapeutics
that may be complementary to our development of the Neuro-Spinal Scaffold implant or offer the potential to bring us
closer to our goal of redefining the life of the SCI patient.
Market Opportunity
Our clinical program is intended to address the lack of successful treatments for SCIs, which can lead to
permanent paralysis, sensory impairment, and autonomic (bowel, bladder, and sexual) dysfunction. The current
management of acute SCI is a surgical approach consisting of spine stabilization and an external decompression
procedure of uncertain value. We believe the market opportunity for our Neuro-Spinal Scaffold implant is significant. It
is estimated that approximately 285,000 people are currently living in the United States with paralysis due to SCI
(chronic SCI), and approximately 15,000 individuals in the United States will become fully or partially paralyzed each
year (acute SCI). We are pursuing regulatory approval from the U.S. Food and Drug Administration, or FDA, through
the Humanitarian Device Exemption, or HDE, pathway. When this pathway was initiated for the Neuro-Spinal Scaffold
implant, it was limited to populations of 4,000 or less patients per year. We were granted a Humanitarian Use Device, or
HUD, designation for the Neuro-Spinal Scaffold implant, which includes thoracic and cervical patients afflicted with
complete (no motor or sensory function in the lowest sacral segments) SCI, such as paraplegia or tetraplegia, and
excludes gunshot or other penetrating wounds. Recently, 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, or NSCISC, at the University of Alabama has
been commissioned by the U.S. government to maintain a national database of SCI statistics. The financial impact of
SCIs, as reported by the NSCISC, is substantial. Direct costs, which include hospital and medical expenses, modification
of the home, and personal assistance, are highest in the first year after injury. According to the fact sheet published in
2017 by NSCISC titled “Spinal Cord Injury—Facts and Figures at a Glance”, (i) during the first year, average cost of
care ranges from $352,279 to $1,079,412, depending on the severity of the injury, (ii) the net present value, or NPV, to
maintain a quadriplegic injured at age 25 for life is $4,789,384, and (iii) the NPV to maintain a paraplegic injured at age
25 for life is $2,341,988. These costs place a tremendous financial burden on families, insurance providers, and
government agencies. Moreover, despite such a significant financial investment, the patient often remains disabled for
life because current medical interventions address only the symptoms of SCI rather than the underlying neurological
cause. We believe our approach could represent an important advance in the treatment of SCIs.
Patients with complete SCI are classified as AIS A. Patients with incomplete SCI, who have partial sensory
and/or motor function below the level of injury, including the lowest sacral segments, are classified as AIS B (partial
sensory function), AIS C (partial sensory and motor function), or AIS D (partial sensory and increased motor function,
i.e., can move at least half of the muscles against gravity). Patients who have a complete return of sensory and motor
function are classified as AIS E.
These classifications are based upon the ISNCSCI examination in which an examiner performs a neurologic
examination to assess sensory function of the entire body and motor function of the upper and lower extremities.
Our Clinical Program
We currently have an active clinical development program for the treatment of acute SCI.
Neuro-Spinal Scaffold Implant for acute SCI
Our Neuro-Spinal Scaffold implant is an investigational bioresorbable polymer scaffold that is designed for
implantation at the site of injury within a spinal cord. The Neuro-Spinal Scaffold implant is intended to promote
appositional, or side-by-side, healing by supporting the surrounding tissue after injury, minimizing expansion of areas of
necrosis, and providing a biomaterial substrate for the body’s own healing/repair processes following injury. We believe
this form of appositional healing may spare white matter, increase neural sprouting, and diminish post-traumatic cyst
formation.
The Neuro-Spinal Scaffold implant is composed of 2 biocompatible and bioresorbable polymers that are cast to
form a highly porous investigational product:
•
•
Poly lactic-co-glycolic acid, a polymer that is widely used in resorbable sutures and provides the
biocompatible support for Neuro-Spinal Scaffold implant; and
Poly-L-Lysine, a positively charged polymer commonly used to coat surfaces in order to promote cellular
attachment.
Because of the complexity of SCIs, it is likely that multi-modal therapies will be required to maximize positive
outcomes in SCI patients. In the future, we may attempt to further enhance the performance of our Neuro-Spinal Scaffold
implant through multiple combination strategies involving electrostimulation devices, additional biomaterials, drugs
approved by the FDA, or growth factors. We expect the Neuro-Spinal Scaffold implant to be regulated by the FDA as a
Class III medical device.
Preclinical and Non-clinical Studies relating to the Neuro-Spinal Scaffold
SCI can result in permanent paralysis, sensory impairment, and autonomic (bowel, bladder, and sexual)
dysfunction. These functional deficits result from damage to or loss of cells (neurons and glia) in the affected region of
the spinal cord, either from the initial mechanical trauma or through secondary mechanisms that persist for several
weeks. The ability of potential treatments for SCI to mitigate loss of function or promote recovery can be evaluated with
non-clinical models using different species and different methods of inducing SCI. In our preclinical studies, we utilized
rat, non-human primate, and pig models because each exhibits a pattern of neuropathology following SCI that is similar
to human SCI. Hemicordectomy injury models, in which sections of spinal cord are surgically removed, are useful in the
evaluation of treatment strategies that involve device implantation. Unilateral hemicordectomy models preserve function
on one side of the cord, resulting in improved recovery of bladder and bowel function. We, therefore, evaluated the
bioresorbable polymer scaffold device in both rats and non-human primates with unilateral hemicordectomy injury.
Because most human SCIs are non-penetrating contusion injuries resulting from rapid compression of spinal tissue by
intrusion of bone or disc material following mechanical disruption of the vertebral column, we also evaluated the
bioresorbable polymer scaffold device in rat and pig models of spinal contusion injury.
4
5
Our first non-clinical study was conducted by founding scientists of our wholly-owned subsidiary in rats with
surgically induced unilateral spinal cord hemicordectomy injury. This study (see Teng, Y. D., et al., Functional recovery
following traumatic spinal cord injury mediated by a unique polymer scaffold seeded with neural stem cells, Proceedings
of the National Academy of Sciences 99, pg. 3024-3029, 2002) demonstrated the baseline safety and efficacy of porous,
biodegradable scaffolds fabricated from PLGA-PLL polymer. Subsequently, the safety and efficacy of implantation of
the bioresorbable polymer scaffold device was evaluated in rats with spinal cord contusion injury. Initial studies suggest
that 24 hours after contusion injury was an appropriate time for device implantation based on both histological
evaluation and ex vivo Magnetic Resonance Imaging, or MRI, techniques. Based on these results, we conducted larger
rat contusion studies in our laboratory. We evaluated functional recovery with the 21-point Basso, Beattie, and
Bresnahan, or BBB, locomotor rating scale to assess open field locomotion. In the first model, the BBB score was not
improved by the scaffold device. However, implantation of the bioresorbable polymer scaffold device into the necrotic
zone of the injured spinal cord resulted in appositional healing and tissue remodeling that preserved spinal cord
architecture. Morphometric analysis of spinal sections stained with hematoxylin & eosin revealed that non-implanted
rats with contusion injury developed large cavities surrounded by a thin rim of spared white matter. In contrast, rats
treated with the implanted bioresorbable polymer scaffold device demonstrated decreased cavity volume along with
increased amounts of spared and remodeled tissue at the lesion epicenter. Immunofluorescence labeling within the
remodeled tissue identified high levels of laminin, an absence of GFAP-positive astrocytes, as well as beta-3 tubulin
positive axons. This indicated that the bioresorbable polymer scaffold device supports tissue formation and remodeling
favorable for axon regrowth. Following spinal contusion injury, myelin-producing nerve cells called Schwann cells arise
from either injured nerve roots or endogenous sources within the central nervous system. The Schwann cells migrate into
the injury region, promoting axonal growth and remyelinating segmentally demyelinated axons. In rats implanted with
the bioresorbable polymer scaffold device, we observed that Schwann cell myelination was extensive within preserved
penumbra white matter and also that Schwann cell myelination was detected within the remodeled tissue. These results
indicate that implantation of the bioresorbable polymer scaffold device in the acutely injured rat spinal cord can provide
the benefit of preserving spinal cord architecture through reduced cavitation, and promotion of white matter sparing and
tissue remodeling supportive to axon sprouting and spinal cord activity.
The spinal cord anatomy of non-human primates is very similar to that of humans. We performed a series of
studies in African green monkeys to evaluate the bioresorbable polymer scaffold device in a non-human primate. Our
first study in African green monkeys established that unilateral thoracic hemicordectomy SCI (a new model in this
species) produced a consistent functional deficit, and we observed a consistently positive response to scaffold
implantation (see Pritchard, et al., Establishing a model spinal cord injury in the African green monkey for the
preclinical evaluation of biodegradable polymer scaffolds seeded with human neural stem cells, Journal of Neuroscience
Methods 188, pg. 258- 269, 2010). We then conducted 2 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 2 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 2 rat SCI models, the African green monkey unilateral
hemicordectomy injury model, and the pig contusion injury model demonstrate that the bioresorbable polymer scaffold
device, surgically implanted at the epicenter of the wound after an acute SCI, acts by appositional healing to help spare
spinal cord tissue, decrease post-traumatic cyst formation, decrease spinal cord tissue pressure, and promote tissue
remodeling supportive to axon sprouting and spinal cord activity.
Completed Pilot Study
We conducted an early feasibility human pilot study, as the initial phase of a larger pivotal study, of our Neuro-
Spinal Scaffold under our approved Investigational Device Exemption, or IDE, application for the treatment of complete,
traumatic acute SCI. The study was intended to assess the safety and feasibility of the Neuro-Spinal Scaffold for the
treatment of complete thoracic functional SCI, as well as to gather preliminary evidence of the clinical effectiveness of
the Neuro-Spinal Scaffold.
The pilot study was initially approved for 5 subjects in up to 6 clinical sites across the United States and was
later modified to increase the number of allowable clinical sites to up to 20 and to permit enrollment of up to 10 subjects.
The pilot study was initially staggered such that each patient that met the eligibility criteria would be followed for
3 months prior to enrolling the next patient in the study. In December 2014, the FDA approved an expedited enrollment
plan that allowed us to continue enrolling patients more rapidly barring any significant safety issues. We enrolled 5
subjects in the pilot study between October 2014 and September 2015. The FDA approved conversion of this pilot study
to a pivotal probable benefit study, which we refer to as The INSPIRE Study, that includes data from the patients
enrolled in the pilot study.
The INSPIRE Study
Our Neuro-Spinal Scaffold implant has been studied in The INSPIRE Study: the “InVivo Study of Probable
Benefit of the Neuro- Spinal Scaffold for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A
Spinal Cord Injury,” under an Investigational Device Exemption, or IDE, application for the treatment of neurologically
complete thoracic traumatic acute SCI. We commenced an FDA-approved pilot study in 2014 that the FDA approved
converting into The INSPIRE Study in January 2016. As of December 31, 2017, we had implanted our Neuro-Spinal
Scaffold implant in a total of 19 patients in The INSPIRE Study, 16 of whom reached the 6-month primary endpoint
visit, and 3 of whom died. In July 2017, after the third patient death, enrollment of patients in The INSPIRE Study was
placed on hold as we engaged with the FDA to address the patient deaths. We subsequently closed enrollment in The
INSPIRE Study and will follow the remaining active subjects until completion. Following discussions with the FDA, in
March 2018, we received FDA approval for a randomized controlled trial to supplement the existing clinical evidence
for the Neuro-Spinal Scaffold implant that we obtained from The INSPIRE Study. We refer to this herein as the
INSPIRE 2.0 Study.
The purpose of The INSPIRE Study, which was the original study, was to evaluate whether the Neuro-Spinal
Scaffold implant is safe and demonstrates probable benefit for the treatment of complete T2-T12 neurological level of
injury, or (NLI), SCI. The primary endpoint was defined as the proportion of patients achieving an improvement of at
least 1 AIS grade at 6 months post-implantation. Additional endpoints included measurements of pain, sensory and
motor scores, bladder and bowel function, Spinal Cord Independence Measure (a disability scale for patients with SCI),
and quality of life. The INSPIRE Study included an Objective Performance Criterion, or OPC, which is a measure of
study success used in clinical studies designed to demonstrate safety and probable benefit in support of a Humanitarian
Device Exemption, or HDE, approval. At the time enrollment of patients in The INSPIRE Study was placed on hold, the
OPC was defined as 25% or more of the patients in the study demonstrating an improvement of at least 1 AIS grade at
the 6-month post-implantation visit.
The FDA approved the enrollment of up to 30 patients in The INSPIRE Study so that there would be at least 20
evaluable patients at the primary endpoint analysis, accounting for events such as screen failures or deaths that would
prevent a patient from reaching the primary endpoint visit. Of the 19 patients implanted in The INSPIRE Study,
16 patients have reached the 6 month primary endpoint visit. Of these 16, 7 had improved from complete AIS A SCI to
incomplete SCI (2 patients to AIS C and 5 patients to AIS B) at the 6 month primary endpoint visit and 9 had not
demonstrated improvement at that visit. 3 of the 7 patients who improved were assessed to have AIS B SCI at the
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6 month primary endpoint and were later assessed to have improved to AIS C SCI at the 12 or 24-month visits. 2 of the
16 patients were initially assessed to have improved from complete AIS A SCI to incomplete AIS B SCI, but each was
later assessed to have reverted to complete AIS A SCI prior to the 6 month examination. 1 of these 2 was then assessed
at the 6 month visit to have improved again to AIS B and the other remained AIS A. Since we have closed enrollment,
the target of enrolling 20 evaluable patients into The INSPIRE Study will not be reached.
The FDA had previously recommended that we include a randomized, concurrent control arm in The INSPIRE
Study. Acting on the FDA’s recommendation, we proposed and received approval for the INSPIRE 2.0 Study
(described below) to supplement the existing clinical evidence for the Neuro-Spinal Scaffold implant. In addition, as 1
source of comparator data, we initiated the Contemporary Thoracic SCI Registry Study, or the CONTEMPO Registry
Study. The CONTEMPO Registry Study utilizes existing databases and registries to develop a historical comparator that,
to the extent possible, matches patients to those patients enrolled in The INSPIRE Study. The CONTEMPO Registry
Study is designed to provide comprehensive natural history benchmarks for The INSPIRE Study results that include SCI
patients with similar baseline characteristics treated since 2006. The CONTEMPO Registry Study includes data from the
Christopher & Dana Reeve Foundation North American Clinical Trials Network Registry, or NACTN, as well as the
Model Systems Registry and the European Multicenter Study about Spinal Cord Injury, or EMSCI. We have submitted a
protocol for the CONTEMPO Registry Study to the FDA and we announced top-line findings from CONTEMPO in
March 2018 from a total of 170 patients from the 3 registries consisting of: 12 individuals from NACTN, 64 from
EMSCI, and 94 from the Model Systems Registry. AIS conversion rates at approximately 6 months post-injury varied
from 16.7% – 23.4% across the 3 registries. In 2 of the registries, there was a skew of the patient population to low
(T10- T12) thoracic injuries, representing 46-47% of the registry population. This compares to just 4 out of 16 patients
(25%) in follow-up in the INSPIRE study with low thoracic injuries. Patients with low thoracic injuries are known to
have the best prognoses, and the conversion rates were the highest in the low thoracic group in all 3 registries and the
INSPIRE study. When all 3 registries were normalized to the INSPIRE patient population distribution across T2-T5, T6-
T9 and T10-T12 injury groups, the normalized conversion rate for CONTEMPO registries ranged from 15.5%-20.6%.
We cannot be certain what additional information or studies will be required by the FDA to approve our HDE
submission.
INSPIRE 2.0 Study
Our Neuro-Spinal Scaffold implant has been approved to be studied under our approved IDE in the INPSIRE
2.0 Study, which is titled the “Randomized, Controlled, Single-blind Study of Probable Benefit of the Neuro-Spinal
Scaffold™ for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A Spinal Cord Injury as
Compared to Standard of Care.” The purpose of the INSPIRE 2.0 Study is to assess the overall safety and probable
benefit of the Neuro-Spinal Scaffold for the treatment of neurologically complete thoracic traumatic acute SCI. The
INSPIRE 2.0 Study is designed enroll 10 subjects into each of the 2 study arms, which we refer to as the Scaffold Arm
and the Comparator Arm. Patients in the Comparator Arm will receive the standard of care, which is spinal stabilization
without dural opening or myelotomy. The INSPIRE 2.0 Study is a single blind study, meaning that the patients and
assessors are blinded to treatment assignments. The FDA approved the enrollment of up to 35 patients in this study so
that there would be at least 20 evaluable patients (10 in each study arm) at the primary endpoint analysis, accounting for
events such as screen failures or deaths that would prevent a patient from reaching the primary endpoint visit. We
expect to conduct the INSPIRE 2.0 Study at up to 25 sites in the United States. Enrolling patients in the INSPIRE 2.0
Study will also require the approvals of the institutional review boards, or IRBs, at each clinical site. We estimate that
from study initiation, enrollment will take approximately 18 months, and the total time to completion of the INSPIRE
2.0 Study is estimated to be 2 years from study initiation. We anticipate that the first patient in the INSPIRE 2.0 Study
will be enrolled in the second quarter of 2019.
The primary endpoint is defined as the proportion of patients achieving an improvement of at least 1 AIS grade
at 6 months post-implantation. Assessments of AIS grade are at hospital discharge, 3 months, 6 months, 12 months and
24 months. The definition of study success for INSPIRE 2.0 is that the difference in the proportion of subjects who
demonstrate an improvement of at least 1 grade on AIS assessment at the 6-month primary endpoint follow-up visit
between the Scaffold Arm and the Comparator Arm must be equal to or greater than 20%. In 1 example, if 50% of
subjects in the Scaffold Arm have an improvement of AIS grade at the 6-month primary endpoint and 30% of subjects in
the Comparator Arm have an improvement, then the difference in the proportion of subjects who demonstrated an
improvement is equal to 20% (50% minus 30% equals 20%) and the definition of study success would be met. In another
example, if 40% of subjects in the Scaffold Arm have an improvement of AIS grade at the 6-month primary endpoint
and 30% of subjects in the Comparator Arm have an improvement, then the difference in the proportion of subjects who
demonstrated an improvement is equal to 10% (40% minus 30% equals 10%) and the definition of study success would
not be met. Additional endpoints include measurements of changes in NLI, sensory levels and motor scores, bladder,
bowel and sexual function, pain, Spinal Cord Independence Measure, and quality of life.
Although The INSPIRE Study is structured with the OPC as the primary component for demonstrating probable
benefit, the OPC is not the only variable that the FDA would evaluate when reviewing a future HDE application.
Similarly, while our INSPIRE 2.0 Study is structured with a definition of study success requiring a minimum difference
between study arms in the proportion of subjects achieving improvement, that success definition is not the only factor
that the FDA would evaluate in the future HDE application. Approval is not guaranteed if the OPC is met for The
INSPIRE Study or the definition of study success is met for the INSPIRE 2.0 Study, and even if the OPC or definition of
study success are not met, the FDA may approve a medical device if probable benefit is supported by a comprehensive
review of all clinical endpoints and preclinical results, as demonstrated by the sponsor’s body of evidence.
In 2016, the FDA accepted our proposed HDE modular shell submission and review process for the Neuro-
Spinal Scaffold implant. The HDE modular shell is comprised of 3 modules: a preclinical studies module, a
manufacturing module, and a clinical data module. As part of its review process, the FDA reviews each module, which
are individual sections of the HDE submission, on a rolling basis. Following the submission of each module, the FDA
reviews and provides feedback, typically within 90 days, allowing the applicant to receive feedback and potentially
resolve any deficiencies during the review process. Upon receipt of all 3 modules, which constitutes the complete HDE
submission, the FDA makes a filing decision that may trigger the review clock for an approval decision. We submitted
the first module in March 2017 and received feedback in June 2017. We plan to submit an updated first module in the
fourth quarter of 2019. The HDE submission will not be complete until the manufacturing and clinical modules are also
submitted.
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 Boston Children’s Hospital or
BCH and Massachusetts Institute of Technology or MIT covering the use of a wide range of polymers to treat SCI, and
to promote the survival and proliferation of human stem cells in the spinal cord, or the BCH License. Issued patents and
pending patent applications licensed under the BCH License cover the technology underlying our Neuro- Spinal Scaffold
implant and the use of a wide range of biomaterial scaffolding for treating SCI by itself or in combination with drugs,
growth factors, or human stem cells. The BCH License covers 6 issued United States patents and 18 issued international
patents expiring between 2019 and 2027, and 1 pending United States patent application and 1 pending international
patent application.
The BCH License has a term of 15 years from the effective date of July 2, 2007, or as long as the life of the last
expiring patent right under the license, whichever is longer, unless terminated earlier by BCH. In connection with our
acquisition of the BCH License, we submitted to a 5-year development plan to BCH and MIT that includes certain
targets and projections related to the timing of product development and regulatory approvals. We are required to either
meet the stated targets and projections in the plan or notify BCH and revise the plan. BCH has the right to terminate the
BCH License for failure by us to either meet the targets and projections in the plan or our failure to submit an acceptable
revision to the plan within a 60-day cure period after notification by BCH that we are not in compliance with the plan.
We are currently in compliance with the development plan.
We have the right to sublicense the patents covered by the BCH License and have full control and authority
over the development and commercialization of any products that use the licensed technology, including clinical trial
design, manufacturing, marketing, and regulatory filings. We also own the rights to the data generated pursuant to the
BCH License, whether generated by us or a sublicensee. We have the first right of negotiation with BCH and MIT for a
30 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
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(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 implant. Together with MIT, we co-own U.S. patent No. 1,013,785 (“Poly((lactic-co-glycolic acid)-b-
lysine) and process for synthesizing a block copolymer of PLGA and PLL- (poly-e-cbz-l-lysine)”), which expires in
2033.
Government Regulation
The testing, manufacturing, and potential labeling, advertising, promotion, distribution, import, and marketing
of our products are and would be subject to extensive regulation by governmental authorities in the United States and in
other countries. In the United States, the FDA, under the Public Health Service Act, the Federal Food, Drug and
Cosmetic Act, or FDCA, and their implementing regulations, regulates biologics and medical device products. In
addition, our products under development are subject to extensive regulation by other U.S. federal and state regulatory
bodies and comparable authorities in other countries. To ensure that medical products distributed domestically are safe
and effective for their intended use, the FDA and comparable authorities in other countries have imposed regulations that
govern, among other things, the following activities that we or our partners perform or will perform:
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product design and development;
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, or FTC, also
regulates the advertising of many medical devices. The FDA and the FTC have very broad enforcement authority, and
failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing us to
correct deviations from regulatory standards and enforcement actions that can include seizures, injunctions, and criminal
prosecution. In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate
litigation relating to advertising claims.
The FDA has broad premarket, post-market, and regulatory enforcement powers. As with medical devices,
manufacturers of biologics and combination products are subject to unannounced inspections by the FDA to determine
compliance with applicable regulations, and these inspections may include the manufacturing facilities of some of our
subcontractors. Failure by manufacturers or their suppliers to comply with applicable regulatory requirements can result
in enforcement action by the FDA or other regulatory authorities. Potential FDA enforcement actions include:
• 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, 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.
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
1 of 3 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 1 and 3 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
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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 (HDE)
Alternatively, a Class III device may qualify for FDA approval to be distributed under an HDE rather than a
PMA. For a device to be eligible for an HDE, it must be first designated by the FDA as a 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, a
HUD may only be used in facilities that have established a local institutional review board, or IRB, to supervise clinical
testing of devices, and after an IRB has approved the use of the device to treat or diagnose the specific disease.
In addition, except in certain circumstances, products approved under an HDE cannot be sold for an amount
that exceeds the costs of research and development, fabrication, and distribution of the device (i.e., for profit). Currently,
a product is only eligible to be sold for profit after receiving HDE approval if the device (1) is intended for the treatment
or diagnosis of a disease or condition that occurs in pediatric patients or in a pediatric subpopulation, and such device is
labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs; or (2) is
intended for the treatment or diagnosis of a disease or condition that does not occur in pediatric patients or that occurs in
pediatric patients in such numbers that the development of the device for such patients is impossible, highly
impracticable, or unsafe. If an HDE-approved device does not meet either of the eligibility criteria, the device cannot be
sold for profit. We expect our Neuro-Spinal Scaffold implant may meet the eligibility criteria to be sold for a profit.
Clinical Trials
Clinical trials are almost always required to support a PMA or HDE application. If the device presents a
“significant risk” to human health as defined by the FDA, the FDA requires the device sponsor to submit an IDE to the
FDA and obtain IDE approval prior to commencing the human clinical trials. The IDE must be supported by appropriate
data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing
protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specified number of patients,
unless the product is deemed a “non-significant risk” device, in which case an IDE approval from the FDA would not be
required, although the clinical trial would need to meet other requirements including IRB approval. Clinical trials for a
significant risk device may begin once an IDE is approved by the FDA and the appropriate IRB at each clinical trial site.
Future clinical trials may require that we obtain an IDE from the FDA prior to commencing any such clinical trial and
that the trial be conducted with the oversight of an IRB at the clinical trial site.
Our clinical trials must be conducted in accordance with FDA regulations and federal and state regulations
concerning human subject protection, including informed consent and healthcare privacy. A clinical trial may be
suspended by the FDA or at a specific site by the relevant IRB at any time for various reasons, including a belief that the
risks to the trial participants outweigh the benefits of participation in the clinical trial. Even if a clinical trial is
completed, the results of our clinical testing may not demonstrate the safety and efficacy of the device, or may be
equivocal or otherwise not be sufficient for us to obtain approval of our product.
Pervasive and Continuing FDA Regulation
After a device is placed on the market, numerous regulatory requirements continue to apply. These include:
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product listing and establishment registration, which helps facilitate FDA inspections and other regulatory
action;
• Quality System Regulation or 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 1 of our cleared devices;
approval of product modifications that affect the safety or effectiveness of 1 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.
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.
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Regulatory Pathway for the Neuro-Spinal Scaffold Implant
We expect the Neuro-Spinal Scaffold implant will be regulated by the FDA as a Class III medical device. The
FDA granted HUD designation for our Neuro-Spinal Scaffold implant in 2013 for use in complete SCI (defined as less
than 4,000 patients per year at the time), thus allowing us to potentially qualify for FDA approval under an HDE. In
2015, we received conditional approval from the FDA to convert our ongoing pilot study into a pivotal probable benefit
study (The INSPIRE Study). Full approval of such conversion was subsequently granted in January 2016. In early March
2018, we received FDA approval for a randomized controlled trial (the INSPIRE 2.0 Study) to supplement the existing
clinical evidence for the Neuro-Spinal Scaffold implant that we obtained from The INSPIRE Study.
In the future, if our Neuro-Spinal Scaffold implant is approved via either the PMA or HDE pathway,
modifications or enhancements that could significantly affect the safety or effectiveness of the device or that constitute a
major change to the intended use of the device will require new PMA or HDE application and approval.
Other changes may require a supplement or other change notification that must be reviewed and approved by
the FDA. Modified devices for which a new PMA or HDE application, supplement, or notification is required cannot be
distributed until the application is approved by the FDA. An adverse determination or a request for additional
information could delay the market introduction of new products, which could have a material adverse effect on our
business, financial condition, and results of operations. We may not be able to obtain PMA or HDE approval in a timely
manner, if at all, for the Neuro-Spinal Scaffold implant or any future devices or modifications to Neuro-Spinal Scaffold
implant or such devices for which we may submit a PMA or HDE application.
European Economic Area or the EEA
Sales of medical devices are subject to foreign government regulations, which vary substantially from country
to country. In order to market our products outside the United States, we must obtain regulatory approvals or CE
Certificates of Conformity and comply with extensive safety and quality regulations. The time required to obtain
approval by a foreign country or to obtain a CE Certificate of Conformity may be longer or shorter than that required for
FDA clearance or approval, and the requirements may differ. In the EEA, we are required to obtain Certificates of
Conformity before drawing up a European Commission, or EC, Declaration of Conformity and affixing the CE mark to
our medical devices. Many other countries, such as Australia, India, New Zealand, Pakistan and Sri Lanka, accept CE
Certificates of Conformity or FDA clearance or approval although others, such as Brazil, Canada and Japan, require
separate regulatory filings. We have not yet applied for a CE Mark for the Neuro-Spinal Scaffold implant.
Further, the advertising and promotion of our products in the EEA is subject to regulatory directives concerning
misleading and comparative advertising, and unfair commercial practices, as well as other national legislation in the
individual EEA countries governing the advertising and promotion of medical devices. These laws may limit or restrict
the advertising and promotion of our products to the general public and may impose limitations on our promotional
activities with healthcare professionals.
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, 2018 and $26.7 million for the year ended December 31, 2017. 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 $4.9 million and $11.1 million in 2018 and 2017, 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 1 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.
If any of our products has been CE marked and placed on the market in the EEA, we would need to comply
Manufacturing
with a number of regulatory requirements relating to:
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registration/notification of medical devices in individual EEA countries;
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 measures can include fines, administrative penalties,
compulsory product withdraws, injunctions, and criminal prosecution. Such enforcement measures would have an
adverse effect on our capacity to market our products in the EEA and, consequently, on our business and financial
position. Such failures could also lead to cancelation, suspension, or variation of our CE Certificates of Conformity by
the relevant Notified Body, which is an organization designated by the competent authorities of an EEA country to
conduct conformity assessments.
We have developed a proprietary manufacturing process to build our Neuro-Spinal Scaffold implant. We
manufacture our implants following FDA regulations for design controls using 2 fully operational manufacturing
cleanrooms located at our facility in Cambridge, Massachusetts. These 2 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 2 vendors for our critical raw materials; however, these materials are also available from other vendors. We are
currently manufacturing our Neuro-Spinal Scaffold implant to support the INSPIRE 2.0 Study. If we are able to move
toward preparing for commercialization, we intend to be compliant with all applicable regulations on a country specific
basis.
Sales and Marketing
If we obtain approval from the FDA, or another foreign regulatory body, to commercialize our products, we
plan to establish a direct sales force to sell our products to major markets in the United States, and we may sell direct or
through distributors in major foreign markets. We anticipate the direct sales force, once and if established, would focus
its efforts on maximizing revenue through product training, placement, and support. We would also seek to establish
strong relationships with neurosurgeons, orthopedic spine surgeons, and trauma surgeons, and would expect to provide a
high level of service for any of our approved products including providing on-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.
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Compliance with Environmental, Health and Safety Laws
Item 1A. RISK FACTORS
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.
Employees
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.
As of December 31, 2018, we had 6 employees. None of our employees are represented by a labor union and
we consider our employee relations to be good. We also utilize a number of consultants to assist with financial, research
and development, human resources, clinical and regulatory activities. We believe that our future success will depend in
part on our continued ability to attract, hire, and retain qualified personnel.
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.
Corporate Information
We were incorporated on April 2, 2003, under the name of Design Source, Inc as a Nevada corporation. On
October 26, 2010, we acquired the business of InVivo Therapeutics Corporation, which was founded in 2005 as a
Delaware corporation, and we are continuing the existing business operations of InVivo Therapeutics Corporation as our
wholly-owned subsidiary.
Our principal executive offices are located in leased premises at One Kendall Square, Suite B14402,
Cambridge, Massachusetts 02139. Our telephone number is (617) 863-5500. We maintain a website at
www.invivotherapeutics.com. Information contained on, or accessible through, our website is not a part of, and is not
incorporated by reference into this Annual Report on Form 10-K.
Available Information
We make available free of charge on or through the Investor Relations link on our website,
www.invivotherapeutics.com, all materials that we file electronically with the Securities and Exchange Commission
(“SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports.
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.
We have incurred net losses each year since our inception, including net losses of $23.4 million for the year
ended December 31, 2018 and $26.7 million for the year ended year ended December 31, 2017. As of
December 31, 2018, we had an accumulated deficit of $207.3 million. We have a limited operating history on which to
base an evaluation of our business and investors should consider the risks and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets, particularly companies engaged in the development of
medical devices. To date, we have not commercialized any products or generated any revenues from the sale of products,
and we do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we
will generate revenue or become profitable. Moreover, we may allocate significant amounts of capital towards products
and technologies for which market demand is lower than anticipated and, as a result, may not achieve expectations or
may elect to abandon such efforts.
We have devoted most of our financial resources to research and development, including our clinical and
preclinical development activities related to our Neuro-Spinal Scaffold implant. Overall, we expect our research and
development expenses to be substantial and to increase for the foreseeable future as we continue the development and
clinical investigation of our current and future products. We expect that it could be several years, if ever, before we have
a product candidate ready for commercialization. Even if we obtain regulatory approval to market our Neuro-Spinal
Scaffold implant or other products, our future revenues will depend upon the size of any markets in which our products
have received approval, our ability to achieve sufficient market acceptance, reimbursement from third-party payers, and
other factors.
There is substantial doubt about our ability to continue as a going concern, which will affect our ability to obtain
future financing and may require us to curtail our operations.
Our financial statements as of December 31, 2018 were prepared under the assumption that we will continue as
a going concern. At December 31, 2018, we had cash and cash equivalents of $16.7 million. We estimate that our
existing cash resources will be sufficient to fund our operations into the first quarter of 2020. This estimate is based on
assumptions that may prove to be wrong; expenses could prove to be significantly higher, leading to a more rapid
consumption of our existing resources.
Our current cash resources may not be sufficient to complete clinical development of our Neuro-Spinal Scaffold
implant, including the resources needed to reach submission of the HDE application to the FDA. If we are unable to
raise additional capital, we may be forced to cease our operation entirely. Our ability to continue as a going concern will
depend on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce or contain
expenditures, and, ultimately, to generate revenue.
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 expressed substantial doubt as to our ability to continue as a going concern in its report
dated April 1, 2019 included elsewhere in this Form 10-K.
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We have experienced delays and may experience further delays in our clinical development of our Neuro-Spinal
Scaffold implant. Clinical trials for future product candidates may also experience delays or may not be able to
commence.
Before we can obtain regulatory approval for the sale of our Neuro-Spinal Scaffold implant, we must complete
the clinical studies that are required. In July 2017, The INSPIRE Study of our Neuro-Spinal Scaffold implant was placed
on hold following the third patient death in the trial. We subsequently closed enrollment in The INSPIRE Study and will
follow the active patients until completion. The FDA has approved the INSPIRE 2.0 Study. However, we may not be
able to pursue the currently defined clinical path forward successfully, or in a timely manner or that is aligned with our
cash resources. The INSPIRE 2.0 Study may not be successfully completed or may take longer than anticipated because
of any number of factors, including potential delays in the enrollment of subjects in the study, the availability of scaffold
implants to supply to our clinical sites, failure to demonstrate safety and probable benefit of our Neuro-Spinal Scaffold
implant, lack of adequate funding to continue the clinical trial, or unforeseen safety issues. Enrolling patients the
INSPIRE 2.0 Study and any other clinical trial of our Neuro-Spinal Scaffold implant will continue to require the
approval of the institutional review boards, or IRBs at each clinical site.
In addition, our results may subsequently fail to meet the safety and probable benefit standards required to
obtain regulatory approvals. For example, in The INSPIRE Study, 2 of the 16 evaluable patients were initially assessed
to have improved from complete AIS A SCI to incomplete AIS B SCI, but each was later assessed to have reverted to
complete AIS A SCI prior to the patient’s 6-month examination. Of these 2 patients, 1 patient had converted back to AIS
B and the other remained at AIS A at the 6-month examination. There is known and published variability in some of the
measures used to assess AIS improvement and these measures can vary over time or depending upon the examiner.
While we implemented procedures in The INSPIRE Study and the INSPIRE 2.0 Study, and will also implement
procedures in any future clinical study to limit such variations, we cannot be certain that regulatory authorities will
accept the results of our clinical trials or interpret them the way that we do.
In addition, clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:
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obtain regulatory approval to commence future clinical trials;
reach agreement on acceptable terms with prospective contract research organizations, or CROs, and
clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly
among different CROs and trial sites;
obtain IRB approval at each site;
recruit, enroll, and retain patients through the completion of clinical trials;
• maintain clinical sites in compliance with trial protocols through the completion of clinical trials;
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address patient safety concerns that arise during the course of the trial;
initiate or add a sufficient number of clinical trial sites; or
• manufacture sufficient quantities of our product candidate for use in clinical trials.
We could encounter delays if a clinical trial is suspended or terminated by us, by the relevant IRB at the sites at
which such trials are being conducted, by the Data Safety Monitoring Board for such trial, or by the FDA or other
regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, a problematic
inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the
imposition of a clinical hold, unforeseen safety issues or adverse events, or changes in laws or regulations. In addition,
regulatory agencies may require an audit with respect to the conduct of a clinical trial, which could cause further delays
or increase costs. For example, in December 2017, we and several of our clinical sites and our CRO were subject to an
FDA inspection in association with The INSPIRE Study. At the close of the inspection at InVivo, the FDA issued a
Form 483 with 2 observations relating to our oversight of clinical trial sites in The INSPIRE Study. We sought, and will
continue to seek, input from the FDA regarding the scope and timing of our proposed remediation efforts and the FDA
has indicated that our corrective actions appear adequate. We cannot be certain that we will not be subject to additional
regulatory action by the FDA. We anticipate that our remediation efforts will add costs to our clinical development
plans. Any delays in completing our clinical trials will increase our costs, slow down our product candidate
development and regulatory review process, and jeopardize our ability to obtain approval and commence product sales
and generate revenues. Any of these occurrences may harm our business, financial condition, and prospects significantly.
We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our
product candidates.
Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our
success. The timing of our clinical studies depends on the speed at which we can enroll patients to participate in testing
our product candidates. If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as
planned, we may need to delay, limit, or terminate ongoing or planned clinical studies, any of which would have an
adverse effect on our business.
Patient enrollment is affected by a number of factors including:
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severity of the disease, injury, or condition under investigation;
design of the study protocol;
size and nature of the patient population;
eligibility criteria for and design of the study in question;
perceived risks and benefits of the product candidate under study;
proximity and availability of clinical study sites for prospective patients;
availability of competing therapies and clinical studies;
efforts to facilitate timely enrollment in clinical studies;
patient referral practices of physicians; and
ability to monitor patients adequately during and after treatment.
For a period in 2016, as a result of an FDA pre-specified enrollment hold, we were unable to enroll patients in
The INSPIRE Study pending FDA authorization to proceed with additional enrollment, which delayed our ability to
open new sites and enroll patients at the pace we had anticipated. In addition, in July 2017 we halted enrollment in the
study, and subsequently closed enrollment in the study. We have experienced and may continue to experience delays
with our INSPIRE 2.0 Study. We may not be able to initiate or continue clinical studies if we cannot enroll a sufficient
number of eligible patients to participate in the clinical studies required by regulatory agencies. If we have difficulty
enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit, or
terminate ongoing or planned clinical studies, any of which would have an adverse effect on our business.
We anticipate that we will continue to incur substantial losses for the foreseeable future and may never achieve or
maintain profitability.
We expect to continue to incur significant expenses and increasing net losses for at least the next several years.
We expect our expenses will increase substantially in connection with our ongoing activities, as we:
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continue clinical development of our Neuro-Spinal Scaffold implant;
initiate or restart the research and development of other product candidates;
have our product candidates manufactured for clinical trials and for commercial sale;
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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
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continue our research and development efforts for new product opportunities.
To become and remain profitable, we must succeed in developing and commercializing our product candidates
with significant market potential. This will require us to be successful in a range of challenging activities, including
completing preclinical testing and clinical trials of our current and future product candidates, developing additional
product candidates, obtaining regulatory approval for these product candidates, and manufacturing, marketing, and
selling any products for which we may obtain regulatory approval. We are only in the initial stages of most of these
activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant
enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or
annual basis. Our failure to become and remain profitable could depress the value of our company and could impair our
ability to raise capital, expand our business, maintain our research and development efforts, diversify our product
offerings, or even continue our operations. A decline in the value of our company could cause you to lose all or part of
your investment.
We will need additional funding in the future. In the future, if we are unable to raise capital when needed, we could
be forced to delay, reduce, or eliminate our product development programs or commercialization efforts.
We expect our expenses will increase in connection with our ongoing activities, particularly as we conduct our
INSPIRE 2.0 Study, and as we seek regulatory approval for our Neuro-Spinal Scaffold implant. In addition, if we obtain
regulatory approval for any of our current or future product candidates, we expect to incur significant commercialization
expenses related to manufacturing, marketing, sales, and distribution. Accordingly, we will need to obtain substantial
additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on
attractive terms, we could be forced to delay, reduce, or eliminate our research and development programs or any future
commercialization efforts.
Our future funding requirements, both near- and long-term, will depend on many factors, including, but not
limited to:
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the scope, progress, results, and costs of preclinical development, laboratory testing, and clinical trials for
our Neuro-Spinal Scaffold implant and any other product candidates that we may develop or acquire ,
including our INSPIRE 2.0 Study;
future clinical trial results of our Neuro-Spinal Scaffold implant;
the timing of, and the costs involved in, obtaining regulatory approvals for the Neuro-Spinal
Scaffold implant, and the outcome of regulatory review of the Neuro-Spinal Scaffold implant;
the cost and timing of future commercialization activities for our products if any of our product candidates
are approved for marketing, including product manufacturing, marketing, sales, and distribution costs;
the revenue, if any, received from commercial sales of our product candidates for which we receive
marketing approval;
the cost of having our product candidates manufactured for clinical trials in preparation for regulatory
approval and in preparation for commercialization;
the cost and delays in product development as a result of any changes in regulatory oversight applicable to
our product candidates;
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our ability to establish and maintain strategic collaborations, licensing, or other arrangements and the
financial terms of such agreements;
the cost and timing of establishing sales, marketing, and distribution capabilities;
the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual
property portfolio;
the efforts and activities of competitors and potential competitors;
the effect of competing technological and market developments; and
the extent to which we acquire or invest in businesses, products, and technologies.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-
consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data
or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if
approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products
that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to
rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us
on acceptable terms, or at all and if we are not successful in raising additional capital, we may not be able to continue as
a going concern.
Our independent registered public accounting firm expressed substantial doubt as to our ability to continue as a
going concern in its report filed herewith. Although we completed a public offering of shares of our common stock and
warrants to purchase shares of our common stock in June 2018 which resulted in net proceeds to us, after deducting the
underwriting discounts and commissions and other offering expenses, of $13.5 million, 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.
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law new legislation that significantly revised the Internal
Revenue Code of 1986, as amended, which we refer to as the Code. The federal income tax law, among other things,
contained significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate
of 35% to a flat rate of 21%, limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except
for certain small businesses), limitation of the deduction for net operating losses, or NOLs to 80% of current year taxable
income and elimination of NOL carrybacks, in each case, for losses arising in taxable years beginning after December
31, 2017 (though any such NOLs may be carried forward indefinitely), one time taxation of offshore earnings at reduced
rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important
exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time,
and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate
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income tax rate, the long-term impact of this federal tax law is uncertain and our business and financial condition could
be adversely affected. In addition, it is uncertain how various states will continue to respond to the federal tax law. The
impact of this tax reform on holders of our common stock also remains uncertain and could be adverse. We urge our
stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax
consequences of investing in or holding our common stock.
Our ability to use our net operating loss carryforwards and tax credit carryforwards may be limited.
We have generated significant net operating loss carryforwards, or NOLs, and research and development tax
credits, or R&D credits, as a result of our incurrence of losses and our conduct of research activities since inception. We
generally are able to carry NOLs and R&D credits forward to reduce our tax liability in future years. Federal NOLs
generated on or before December 31, 2018 can generally be carried back 2 years and carried forward for up to 20 years
and can be applied to offset 100% of taxable income in such years. Under federal income tax law, however, federal
NOLs incurred in 2018 and in future years may be carried forward indefinitely, but may not be carried back and the
deductibility of such federal NOLs is limited to 80% of taxable income in such years. It is uncertain how various states
will continue to respond to the recently enacted federal tax law.
In addition, our ability to utilize the NOLs and R&D credits is subject to the rules of Sections 382 and 383,
respectively, of the Code. Those sections generally restrict the use of NOLs and R&D credits after an “ownership
change.” An ownership change occurs if, among other things, the stockholders (or specified groups of stockholders) who
own or have owned, directly or indirectly, 5% or more of a corporation’s common stock or are otherwise treated as 5%
stockholders under Section 382 of the Code and the United States Treasury Department regulations promulgated
thereunder increase their aggregate percentage ownership of that corporation’s stock by more than 50 percentage points
over the lowest percentage of the stock owned by these stockholders over the applicable testing period. In the event of an
ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset
with NOL carryforwards and Section 383 imposes an annual limitation on the amount of tax a corporation may offset
with business credit (including the R&D credit) carryforwards. Any unused annual limitation may be carried over to
later years until the applicable expiration date for the respective NOL or R&D credit carryforwards. We have completed
several financings since our inception, which may have resulted in 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.
Acquisitions of companies, businesses, or technologies may substantially dilute our stockholders and increase our
operating losses.
We continue to actively evaluate business partnerships and acquisitions of businesses, technologies, or
intellectual property rights that we believe would be necessary, useful, or complementary to our current business. Any
such acquisition may require assimilation of the operations, products or product candidates, and personnel of the
acquired business and the training and integration of its employees, and could substantially increase our operating costs,
without any offsetting increase in revenue. We may also acquire the right to use certain intellectual property through
licensing agreements, which could substantially increase our operating costs. Acquisitions and licensing agreements may
not provide the intended technological, scientific or business benefits and could disrupt our operations and divert our
limited resources and management’s attention from our current operations, which could harm our existing product
development efforts. While we may use cash or equity to finance a future acquisition or licensing agreement, it is likely
we would issue equity securities as a significant portion or all of the consideration in any acquisition. The issuance of
equity securities for an acquisition could be substantially dilutive to our stockholders. Any investment made in, or funds
advanced to, a potential acquisition target could also significantly, adversely affect our results of operations and could
further reduce our limited capital resources. Any acquisition or action taken in anticipation of a potential acquisition or
other change in business activities could substantially depress the price of our stock. In addition, our results of operations
may suffer because of acquisition related costs, or the post-acquisition costs of funding the development of an acquired
technology or product candidates or operations of the acquired business, or due to amortization or impairment costs for
acquired goodwill and other intangible assets.
Risks Related to the Development, Regulatory Approval, and Commercialization of Our Product Candidates
We are wholly dependent on the success of one product candidate, the Neuro-Spinal Scaffold implant. Even if we are
able to complete clinical development and obtain favorable clinical results, we may not be able to obtain regulatory
approval for, or successfully commercialize, our Neuro-Spinal Scaffold implant.
We currently have only 1 product candidate, the Neuro-Spinal Scaffold implant, in clinical development, and
our business depends almost entirely on the successful clinical development, regulatory approval, and commercialization
of that product candidate, which may never occur. We currently have no products available for sale, generate no
revenues from sales of any products, and we may never be able to develop marketable products. Our Neuro-Spinal
Scaffold implant will require substantial additional clinical development, testing, manufacturing process development,
and regulatory approval before we are permitted to commence its commercialization. Before obtaining regulatory
approval via the HDE pathway for the commercial sale of any product candidate, we must demonstrate through
extensive preclinical testing and clinical trials that the product candidate does not pose an unreasonable or significant
risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use, taking
into account the probable risks and benefits of currently available devices or alternative forms of treatment.
Alternatively, if we were to seek pre-market approval, or PMA, for our product candidate, that would require
demonstration that the product is safe and effective for use in each target indication. This process can take many years.
Of the large number of medical devices in development in the United States, only a small percentage successfully
complete the regulatory approval process required by the FDA and are commercialized. Accordingly, even if we are able
to obtain the requisite capital to continue to fund our development and clinical programs, we may be unable to
successfully develop or commercialize our Neuro-Spinal Scaffold implant or any other product candidate.
The clinical trials of any of our current or future product candidates are, and the manufacturing and marketing
of any such product candidates will be, subject to extensive and rigorous review and regulation by the FDA and other
government authorities in the United States and in other countries where we intend to test and, if approved, market such
product candidates.
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier nonclinical
studies and clinical trials may not be predictive of future trial results.
The results of preclinical studies and early clinical trials of new medical devices do not necessarily predict the
results of later-stage clinical trials. The design of our clinical trials is based on many assumptions about the expected
effects of our product candidates, and if those assumptions are incorrect, the trials may not produce results to support
regulatory approval. We are currently pursuing marketing approval via the HDE regulatory pathway which requires us to
show the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit of
health outweighs the risk of injury or illness from its use. Preliminary results may not be confirmed upon full analysis of
the detailed results of an early clinical trial. Product candidates in later stages of clinical development may fail to show
safety and probable benefit sufficient to support intended use claims despite having progressed through initial clinical
testing. The data collected from clinical trials of our product candidates may not be sufficient to obtain regulatory
approval in the United States or elsewhere. It is also possible that patients enrolled in clinical trials will experience
adverse events or unpleasant side effects that are not currently part of the product candidate’s profile. Because of the
uncertainties associated with clinical development and regulatory approval, we cannot determine if or when we will have
an approved product ready for commercialization or achieve sales or profits.
We must obtain FDA approval before we can sell any of our products in the United States and approval of similar
regulatory authorities in countries outside the United States before we can sell our products in such countries. We
may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development
and commercialization of our products if such approval is denied or delayed.
The development, manufacture, and marketing of our products are subject to government regulation in the
United States and other countries. In the United States and most foreign countries, we must complete rigorous preclinical
testing and extensive human clinical trials that demonstrate the safety and efficacy of a product in order to apply for
regulatory approval to market the product. If the FDA grants regulatory approval of a product, the approval may be
limited to specific indications or limited with respect to its distribution. Expanded or additional indications for approved
devices may not be approved, which could limit our potential revenues. Foreign regulatory authorities may apply similar
or additional limitations or may refuse to grant any approval. Consequently, even if we believe that preclinical and
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clinical data are sufficient to support regulatory approval for our products, the FDA and foreign regulatory authorities
may not ultimately grant approval for commercial sale in any jurisdiction. If our product candidates are not approved,
our ability to generate revenues will be limited and our business will be adversely affected.
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.
We are currently pursuing an HDE regulatory pathway in the United States for our Neuro-Spinal Scaffold
implant. The HDE requires that there is no other comparable device available to provide therapy for a condition and
requires sufficient information for the FDA to determine that the device does not pose an unreasonable or significant risk
of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. The
amended protocol for The INSPIRE Study, which was approved in February 2016, established an OPC, which is a
measure of study success used in clinical studies designed to demonstrate safety and probable benefit in support of an
HDE approval. The OPC for The INSPIRE Study is currently defined as 25% or more of the patients in the study
demonstrating an improvement of at least 1 AIS grade by 6 months post-implantation. While we expect The INSPIRE
Study to serve as 1 source of data used to support HDE approval in the future, we will not complete full enrollment of
that study. In addition, although The INSPIRE Study is structured with the OPC as the primary component for
demonstrating probable benefit, the OPC is not the only variable that the FDA would evaluate when reviewing a future
HDE application.
The FDA had previously recommended that we include a randomized, concurrent control arm in the study and
we have proposed and received approval for the INSPIRE 2.0 Study. The primary endpoint is defined as the proportion
of patients achieving an improvement of at least 1 AIS grade at 6 months post-implantation. The definition of study
success is that the difference in the proportion of subjects who demonstrate an improvement of at least 1 grade on AIS
assessment at the 6-month primary endpoint follow-up visit between the Scaffold Arm and the Comparator Arm must be
equal to or greater than 20%. While our INSPIRE 2.0 Study is structured with a definition of study success requiring a
minimum difference between groups in the percentage of subjects achieving improvement, that success definition is not
the only factor that the FDA would evaluate in the future HDE application.
Approval is not guaranteed if the OPC is met for The INSPIRE Study or the definition of study success is met
for the INSPIRE 2.0 Study, and even if the OPC or definition of study success are not met, the FDA may approve a
medical device if probable benefit is supported by a comprehensive review of all clinical endpoints and preclinical
results, as demonstrated by the sponsor’s body of evidence.
In addition, as 1 source of comparator data, we initiated the CONTEMPO Registry Study, utilizing existing
databases and registries to develop a historical comparator that, to the extent possible, matches patients to those patients
enrolled in The INSPIRE Study. There can be no assurance that either our INSPIRE 2.0 Study or the CONTEMPO
Registry Study will be successfully completed. Even if we successfully complete the INSPIRE 2.0 Study and the
CONTEMPO Registry Study, we cannot be certain that the FDA will agree that these additional studies 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. Moreover,
analysis of data from the CONTEMPO Registry Study may suggest a higher threshold for evidencing probable benefit.
For example, AIS conversion rates at approximately 6 months post-injury across the 3 registries used in CONTEMPO
varied from 16.7% – 23.4%, which are higher than the approximately 15.5% conversion rate from the historical
registries that were the basis for the selection of the current OPC for The INSPIRE Study. In the event our clinical data is
not acceptable to the FDA, our ability to obtain approval under the HDE pathway may be delayed or may not be feasible.
If the FDA does not approve our product candidates in a timely fashion, or at all, our business and financial condition
will be adversely affected.
The 21st Century Cures Act recently increased the upper population limit for an HDE from 4,000 to 8,000,
which allows us to potentially request an expansion of our current HUD to include additional patient populations beyond
our current HUD for complete SCI. If we choose to pursue such an expansion, this may cause our application to be
delayed or cause the FDA to request additional information. In addition, our current study is not designed to support
approval beyond complete SCI. Thus, expansion would require additional studies. We cannot be certain that we will be
able to increase the potential population that we might be able to treat based on the HDE pathway. If any of these events
occur, our business and financial condition will be adversely affected.
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 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, a
HUD is only eligible to be sold for profit after receiving HDE approval if the device (1) is intended for the treatment or
diagnosis of a disease or condition that occurs in pediatric patients or in a pediatric subpopulation, and such device is
labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs; or (2) is
intended for the treatment or diagnosis of a disease or condition that does not occur in pediatric patients or that occurs in
pediatric patients in such numbers that the development of the device for such patients is impossible, highly
impracticable, or unsafe. If an HDE-approved device does not meet either of the eligibility criteria, the device cannot be
sold for profit. With enactment of the FDA Reauthorization Act of 2017, Congress provided that the exemption for HUD
/ HDE profitability is available as long as the request for an exemption is submitted before October 1, 2022.
Some of our future products may be viewed by the FDA as combination products and the review of combination
products is often more complex and more time consuming than the review of other types of products.
Our future products may be regulated by the FDA as combination products. For a combination product, the
FDA must determine which center or centers within the FDA will review the product candidate and under what legal
authority the product candidate will be reviewed. The process of obtaining FDA marketing clearance or approval is
lengthy, expensive, and uncertain, and we cannot be sure that any of our combination products, or any other products,
will be cleared or approved in a timely fashion, or at all. In addition, the review of combination products is often more
complex and more time consuming than the review of a product candidate under the jurisdiction of only 1 center within
the FDA. We cannot be sure that the FDA will not select to have our combination products reviewed and regulated by
only 1 FDA center and/or different legal authority, in which case the path to regulatory approval would be different and
could be lengthier and more 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.
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In order to effectively compete, we will have to make substantial investments in development, clinical testing,
manufacturing, and sales and marketing, or partner with 1 or more established companies. There is no assurance that we
will be successful in having our products approved or gaining significant market share for any of our products. Our
technologies and products also may be rendered obsolete or noncompetitive as a result of products introduced by our
competitors.
The results of our clinical trials may not support our product candidate claims or may result in the discovery of
adverse side effects.
Our ongoing research and development, preclinical testing, and clinical trial activities are subject to extensive
regulation and review by numerous governmental authorities both in the United States and abroad. Clinical studies must
be conducted in compliance with FDA regulations or the FDA may take enforcement action. The data collected from
these clinical studies may ultimately be used to support market clearance for these products. Even if our clinical trials are
completed as planned, we cannot be certain that their results will support our product candidate claims or that the FDA
will agree with our conclusions regarding them. Success in preclinical studies and early clinical trials does not ensure
that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior
trials and preclinical studies. The clinical trial process may fail to demonstrate that our product candidates are safe and
effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay
development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions
and, ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that
patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product
candidate’s profile.
If approved, our products will require market acceptance to be successful. Failure to gain market acceptance would
impact our revenues and may materially impair our ability to continue our business.
Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial
success of our products will depend on, among other things, their acceptance by physicians, patients, third-party payers
such as health insurance companies, and other members of the medical community as a therapeutic and cost-effective
alternative to competing products and treatments. Physicians and hospitals will need to establish training and procedures
to utilize and implement our Neuro-Spinal Scaffold implant, and there can be no assurance that these parties will adopt
the use of our device or develop sufficient training and procedures to properly utilize it. Market acceptance of, and
demand for, any product that we may develop and commercialize will depend on many factors, both within and outside
of our control. Payers may view new products or products that have only recently been launched or with limited clinical
data available, as investigational, unproven, or experimental, and on that basis may deny coverage of procedures
involving use of our products. If our product candidates fail to gain market acceptance, we may be unable to earn
sufficient revenue to continue our business.
If we or our suppliers fail to comply with FDA regulatory requirements, or if we experience unanticipated problems
with any approved products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain regulatory approval, and the manufacturing processes, reporting requirements,
post-approval clinical data, and promotional activities for such product, will be subject to continued regulatory review
and oversight by the FDA. In particular, we and our third-party suppliers will be required to comply with the FDA’s
Quality System Regulations, or QSRs. These FDA regulations cover the methods and documentation of the design,
testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of products.
Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through
periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to QSR requirements, this could delay
production of our product candidates and lead to fines, difficulties in obtaining regulatory clearances, recalls,
enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a
material adverse effect on our financial condition and results of operations.
In addition, we and our suppliers are required to comply with Good Manufacturing Practices and Good Tissue
Practices with respect to any human cells and biologic products we may develop, and International Standards
Organization regulations for the manufacture of our products, and other regulations which cover the methods and
documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage, and shipping
of any product for which we obtain clearance or approval. Manufacturing may also be subject to controls by the FDA for
parts of the combination products that the FDA may find are controlled by the biologics regulations.
The FDA audits compliance with the QSR and other similar regulatory requirements through periodic
announced and unannounced inspections of manufacturing and other facilities. The failure by us or 1 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 that have already been granted;
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refusal to grant export approval for our products; or
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. 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;
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product complaints, complaint reporting, recalls, and field safety corrective actions;
Failure to comply with applicable laws and regulations could jeopardize our ability to sell our products and
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;
result in enforcement actions such as:
• warning letters;
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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 impede our ability to carry on or expand our operations and could result in higher than
anticipated costs or lower than anticipated sales.
Before we can market or sell a new regulated medical device product in the United States, we must obtain
clearance under Section 510(k) of the FDCA, approval of a PMA, or approval of an HDE, unless the device is
specifically exempt from premarket review. Our Neuro-Spinal Scaffold implant is expected to be regulated by the FDA
as a Class III medical device, requiring either PMA or HDE approval. A HUD designation was granted for the Neuro-
Spinal Scaffold implant in 2013, opening the HDE pathway.
In the PMA 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 1 to 3 years, or even longer, from the time the application is
submitted to the FDA until an approval is obtained.
An HDE application is similar in form and content to a PMA and, although exempt from the effectiveness
requirements of a PMA, an HDE does require sufficient information for the FDA to determine that the device does not
pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of
injury or illness from its use. Like a PMA, changes to HDE devices generally need FDA approval.
Biological products must satisfy the requirements of the Public Health Services Act and its implementing
regulations. In order for a biologic product to be legally marketed in the U.S., the product must have a 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;
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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.
Further, even after we have obtained the proper regulatory clearance or approval to market a product, the FDA
may require us to conduct post-marketing studies. Failure to conduct required studies in a timely manner could result in
the revocation of approval for the product that is subject to such a requirement and could also result in the recall or
withdrawal of the product, which would prevent us from generating sales from that product in the United States.
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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
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in the most serious cases, criminal penalties.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a
material adverse effect on our reputation, business, results of operations, and financial condition.
If our products, or the malfunction of our products, cause or contribute to a death or a serious injury before or after
approval, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions
or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers with approved products are
required to report to the FDA information that a device has or may have caused or contributed to a death or serious
injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of
the device or 1 of our similar devices were to recur. Any such serious adverse event involving our products could result
in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or
enforcement action. In the context of our ongoing clinical trial, we report adverse events to the FDA in accordance with
IDE regulations and to other relevant regulatory authorities in accordance with applicable national and local regulations.
Any corrective action, whether voluntary or involuntary, and either pre- or post-market, needed to address any serious
adverse events will require the dedication of our time and capital, distract management from operating our business, and
may harm our reputation and financial results.
Our products, once approved, may in the future be subject to product recalls. A recall of our products, either
voluntarily or at the direction of the FDA, or the discovery of serious safety issues with our products, could have a
significant adverse impact on us.
If our products are approved for commercialization, the FDA and similar foreign governmental authorities have
the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or
manufacture. In the case of the FDA, the decision to require a recall must be based on an FDA finding that there is
reasonable probability that the device would cause serious injury or death. A government-mandated or voluntary recall
by us or 1 of our partners could occur as a result of an unacceptable risk to health, component failures, malfunctions,
manufacturing errors, design or labeling defects, or other deficiencies and issues. Recalls of any of our commercialized
products would divert managerial and financial resources and have an adverse effect on our reputation, results of
operations, and financial condition, which could impair our ability to manufacture our products in a cost-effective and
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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.
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.
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 have limited experience manufacturing our Neuro-Spinal Scaffold implant for clinical-study scale and no
experience for commercial scale.
We are not permitted to promote or market our investigational products. After approval, our promotional
materials and training methods must comply with FDA and other applicable laws and regulations, including the
prohibition of the promotion of unapproved, or off-label, use. Surgeons may use our products off-label, as the FDA does
not restrict or regulate a surgeon’s choice of treatment within the practice of medicine. However, if the FDA determines
that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our
training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled
letter, a warning letter, injunction, seizure, civil fine, or criminal penalties. It is also possible that other federal, state, or
foreign enforcement authorities might take action if they consider our promotional or training materials to constitute
promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such
as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the
products could be impaired. In addition, the off-label use of our products may increase the risk of product liability
claims. Product liability claims are expensive to defend and could divert our management’s attention, result in
substantial damage awards against us, and harm our reputation.
If we obtain approval for our products, their commercial success will depend in part upon the level of reimbursement
we receive from third parties for the cost of our products to users.
The commercial success of any product will depend, in part, on the extent to which reimbursement for the costs
of our products and related treatments will be available from third-party payers such as government health
administration authorities, private health insurers, managed care programs, and other organizations. Adequate third-party
insurance coverage may not be available for us to establish and maintain price levels that are sufficient for us to continue
our business or for realization of an appropriate return on investment in product development.
Legislative or regulatory reform of the healthcare systems in which we operate may affect our ability to
commercialize our product candidates and could adversely affect our business.
The government and regulatory authorities in the United States, the European Union, and other markets in
which we plan to commercialize our product candidates may propose and adopt new legislation and regulatory
requirements relating to the approval, CE 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, in the United States, legislative changes have been enacted in the past and further changes are
proposed that would impact the Patient Protection and Affordable Care Act, or the Affordable Care Act. These new laws
may result in additional reductions in Medicare and other healthcare funding. Beginning April 1, 2013, Medicare
payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration
(i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer
Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2025. It is likely that federal and
state legislatures within the United States and foreign governments will continue to consider changes to existing
healthcare legislation. The Affordable Care Act has faced ongoing legal challenges, including litigation seeking to
invalidate some of or all of the law or the manner in which it has been implemented. With the new Presidential
administration and Congress, there have been, and may be additional, legislative changes affecting the Affordable Care
Act, including repeal of certain provisions of the Affordable Care Act. It remains to be seen, however, precisely what
impact legislation to date and any future legislation will have on the availability of healthcare and containing or reducing
healthcare costs. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that
have been adopted will be repealed or modified. We cannot quantify or predict with any certainty the likely impact of the
Affordable Care Act, its amendment or repeal, or any alternative or related legislation, or any implementation of any
such legislation, on our business model, prospects, financial condition, and results of operations.
To date, we have manufactured our Neuro-Spinal Scaffold implant on a small scale, including sufficient supply
that is needed for our clinical studies. We may encounter unanticipated problems in the scale-up process that will result
in delays in the manufacturing of the Neuro-Spinal Scaffold implant and therefore delay our clinical studies. During our
clinical trials, we are subject to FDA regulations requiring manufacturing of our scaffolds with the FDA requirements
for design controls and subject to inspections by regulatory agencies. Our failure to comply with applicable regulations
may result in delays and interruptions to our product supply while we seek to secure another supplier that meets all
regulatory requirements. If we are unable to scale up our manufacturing to meet requirements for our clinical studies, we
may be required to rely on contract manufacturers. Reliance on third-party manufacturers entails risks to which we
would not be subject if we manufactured the product ourselves, including the possible breach of the manufacturing
agreements by the third parties because of factors beyond our control, and the possibility of termination or nonrenewal of
the agreements by the third parties because of our breach of the manufacturing agreement or based on their own business
priorities.
Risks Related to Our Intellectual Property
We license certain technology underlying the development of our Neuro-Spinal Scaffold implant from BCH and
MIT, and the loss of the license would result in a material adverse effect on our business, financial position, and
operating results and cause the market value of our common stock to decline.
We license technology from 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.
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 1 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
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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 1 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,
delayed, suspended, or terminated, and we may not be able to obtain regulatory approval or successfully commercialize
our products on a timely basis, if at all, and our business, operating results, and prospects may be adversely affected.
Risks Related to Employee Matters and Managing Growth
Our success depends on our ability to retain our management and other key personnel.
We depend on our senior management as well as key scientific personnel. We have implemented restructurings
that have significantly reduced our workforce over the last few months, leaving only key positions filled. On February 2,
2018, we appointed Richard Toselli M.D. as President, Chief Executive Officer, and a director and on January 14, 2019,
we appointed Richard Christopher as Chief Financial Officer and Treasurer. The loss of any members of senior
management or key scientific personnel could harm our business and significantly delay or prevent the achievement of
research, development, or business objectives. Competition for qualified employees is intense among biotechnology
companies, and the loss of qualified employees, or an inability to attract, retain, and motivate additional highly skilled
employees could hinder our ability to successfully develop marketable products.
Our future success also depends on our ability to identify, attract, hire, train, retain, and motivate other highly
skilled scientific, technical, marketing, managerial, and financial personnel. Although we will seek to hire and retain
qualified personnel with experience and abilities commensurate with our needs, there is no assurance that we will
succeed despite our collective efforts. The loss of the services of any of our senior management or other key personnel
could hinder our ability to fulfill our business plan and further develop and commercialize our products and services.
Competition for personnel is intense, and any failure to attract and retain the necessary technical, marketing, managerial,
and financial personnel would have a material adverse effect on our business, prospects, financial condition, and results
of operations.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or
disclosed confidential information of third parties.
We have received confidential and proprietary information from collaborators, prospective licensees, and other
third parties. In addition, we employ individuals who were previously employed at other biotechnology or
pharmaceutical companies. We may be subject to claims that we or our employees, consultants, or independent
contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our
employees’ former employers. We may also be subject to claims that former employees, collaborators, or other third
parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes
in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing
our product candidates. Litigation may be necessary to defend against these claims. If we fail in defending any such
claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive
ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our
business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a
distraction to our management and employees.
Risks Related to Litigation and Legal Compliance
We may face, and in the past have faced, lawsuits, which could divert management’s attention and harm our
business.
We may face lawsuits, including class action or securities derivative lawsuits. For example, we were previously
the subject of a securities derivative lawsuit and securities class action lawsuit, both of which were dismissed in January
2017. The amount of time that is required to resolve these lawsuits is unpredictable and any lawsuits may divert
management’s attention from the day-to-day operations of our business, which could adversely affect our business,
results of operations, and cash flows. Any litigation or claim against us, even those without merit, may cause us to incur
substantial costs, and could place a significant strain on our financial resources, divert the attention of management from
our core business and harm our reputation.
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.
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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;
• 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.
Our operations and reputation may be impaired if our information technology systems fail to perform
adequately or if we are the subject of a data breach or cyber-attack.
Our information technology systems are important to operating our business. We rely on our information
technology systems, some of which are or may be managed or hosted by or out-sourced to third party service providers,
to manage our business data and other business processes. If we do not allocate and effectively manage the resources
necessary to build, sustain, and protect appropriate information technology systems and infrastructure, or we do not
effectively implement system upgrades or oversee third party service providers, our business or financial results could be
negatively impacted. The failure of our information technology systems to perform as we anticipate could disrupt our
business and could result in transaction or reporting errors and processing inefficiencies causing our business and results
of operations to suffer.
Furthermore, our information technology systems may be vulnerable to cyber-attacks or other security
incidents, service disruptions, or other system or process failures. Such incidents could result in unauthorized access to
information including vendor, consumer or other company confidential data as well as disruptions to operations. We
have experienced in the past, and expect to continue to experience, cybersecurity threats and incidents, although to date
none has been material. To address the risks to our information technology systems and data, we maintain an
information security program that includes updating technology, developing security policies and procedures,
implementing and assessing the effectiveness of controls, conducting risk assessments of third-party service providers
and designing business processes to mitigate the risk of such breaches. There can be no assurance that these measures
will prevent or limit the impact of a future incident. Moreover, the development and maintenance of these measures
requires continuous monitoring as technologies change and efforts to overcome security measures evolve. If we are
unable to prevent or adequately respond to and resolve an incident, it may have a material, negative impact on our
operations or business reputation, and we may experience other adverse consequences such as loss of assets, remediation
costs, litigation, regulatory investigations, and the failure by us to retain or attract customers following such an event.
Additionally, we rely on services provided by third-party vendors for certain information technology processes and
functions, which makes our operations vulnerable to a failure by any one of these vendors to perform adequately or
maintain effective internal controls
Risks Related to Investment in Our Securities
The price of our common stock has been and may continue to be volatile, which could lead to losses by investors and
costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors
such as:
•
the status, completion, and/or results of our clinical trials;
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•
•
•
•
•
•
•
•
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;
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.
In the foreseeable future, we do not intend to pay cash dividends on shares of our common stock so any investor
gains will be limited to the value of our shares
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our
business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any gains to
stockholders will therefore be limited to the increase, if any, in our share price
In the event that we fail to satisfy any of the listing requirements of the Nasdaq Capital Market, our common stock
may be delisted, which could affect our market price and liquidity.
Our common stock is listed on the Nasdaq Capital Market. For continued listing on the Nasdaq Capital Market,
we will be required to comply with the continued listing requirements, including the minimum market capitalization
standard, the corporate governance requirements and the minimum closing bid price requirement, among other
requirements. For example, we were previously listed on the Nasdaq Capital Market and on January 23, 2018 we
received a deficiency letter from the Listings Qualifications Department of the Nasdaq Stock Market notifying us that,
for the prior 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per
share requirement for continued inclusion on the Nasdaq Capital Market. Although we regained compliance with the Bid
Price Rule as a result of the reverse stock split we effected on April 16, 2018, we received a notification from the Listing
Qualifications Department of the Nasdaq Stock Market on May 11, 2018, notifying us that, based on our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2018, our stockholders’ equity was $8,323,000, and therefore, the
we were not in compliance with the minimum stockholders’ equity standard which required a minimum of $10,000,000
in stockholders’ equity. We elected to transfer to the Nasdaq Capital Market, and the transfer was effective June 19,
2018.
On August 15, 2018, we received a written notification from the Listing Qualifications Department of the
Nasdaq Stock Market notifying us that, based on our Quarterly Report on Form 10-Q for the quarter ended June 30,
2018, our stockholders’ equity was $(1,909,000), and therefore, we were not in compliance with Nasdaq Listing Rule
5550(b)(1), which requires a $2,500,000 minimum stockholders’ equity standard. Total stockholders’ deficit at June 30,
2018 was primarily driven by derivative accounting on the warrants issued as part of our June 2018 public offering. In
accordance with such notice, we were requested to provide to Nasdaq, on or before October 1, 2018, our specific plan to
regain compliance with all Nasdaq Capital Market listing requirements and our time frame to complete our plan. On
October 1, 2018, we submitted a plan to regain compliance with the continued listing requirements of the Nasdaq Capital
Market, and Nasdaq had granted us an extension until November 14, 2018 to evidence compliance with all Nasdaq
Capital Market listing requirements. On November 9, 2018, we received a written notification from the Listing
Qualifications Department notifying us that, based on our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2018, our stockholders’ equity was $18,482,000, and therefore, Nasdaq had determined that the we had
regained compliance with Listing Rule 5550(b)(1), which requires a $2,500,000 minimum stockholders’ equity standard.
In the event that we fail to satisfy any of the listing requirements of the Nasdaq Capital Market our common
stock may be delisted. If our securities are delisted from trading on the Nasdaq Capital Market, and we are not able to
list our securities on another exchange our securities could be quoted on the OTC Bulletin Board or on the “pink sheets.”
As a result, we could face significant adverse consequences including:
•
•
•
•
a limited availability of market quotations for our securities;
a determination that our common stock is a “penny stock,” which would require brokers trading in our
common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in
the secondary trading market for our securities;
a limited amount of news and analyst coverage; and;
a decreased ability to issue additional securities (including pursuant to short-form registration statements on
Form S-3 or obtain additional financing in the future).
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 3 classes, with 3-year staggered terms. The
classified board provision could increase the likelihood that, in the event an outside party acquired a controlling block of
our stock, incumbent directors nevertheless would retain their positions for a substantial period, which may have the
effect of discouraging, delaying, or preventing a change in control. In addition, Nevada has a business combination law,
which prohibits certain business combinations between Nevada publicly traded corporations, or Nevada corporations
that elect to be subject to the law, and “interested stockholders” for 2 years after the interested stockholder first becomes
an interested stockholder, unless the corporation’s board of directors approves the transaction by which the stockholder
becomes an interested stockholder in advance, or the proposed combination in advance of the stockholder becoming an
interested stockholder.
The proposed combination may be approved after the stockholder becomes an interested stockholder with
preapproval by the board of directors and a vote at a special or annual meeting of stockholders holding at least 60% of
the voting power not owned by the interested stockholder or his/her/ its affiliates or associates. After the 2 year
moratorium period, additional stockholder approvals or fair value requirements must be met by the interested
shareholder up to 4 years after the stockholder became an interested stockholder. In addition, we may become subject to
Nevada’s control share laws. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders,
at least 100 of whom are stockholders of record and residents of Nevada, and if the corporation does business in Nevada,
including through an affiliated corporation. This control share law may have the effect of discouraging corporate
takeovers. Currently, we believe that we have less than 100 stockholders of record who are residents of Nevada, and are
therefore not subject to the control share laws.
The provisions of our articles of incorporation and Nevada’s business combination and control share laws make
it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction
were in our stockholders’ interest or might result in a premium over the market price for our common stock.
We have identified a material weakness in our internal control over financial reporting. If we fail to develop and
maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our
financial results in a timely manner, which may adversely affect investor confidence in our company.
In connection with the audit of our consolidated financial statements as of and for the year ended
December 31, 2018, our management identified a material weakness in our internal controls over financial reporting, as
defined in the standards established by the Public Company Accounting Oversight Board of the United States. A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis. The material weakness related to a lack of timely and ongoing entity-level risk
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assessment to identify and assess changes that could significantly impact the system of internal control over financial
reporting and significant deficiencies in our Information Technology General Controls related to areas of user access,
change management, and computer operations over certain systems that support the financial reporting process. Please
see “Item 9A. Controls and Procedures—Internal Control Over Financial Reporting” for information regarding the
material weakness and our remediation efforts.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
We are currently taking actions to remediate the material weakness and are implementing additional processes
and controls designed to address the underlying causes that led to the deficiencies. There can be no assurance that we
will be able to successfully remediate the identified deficiencies, or that we will not identify additional control
deficiencies or material weakness in the future. If we are unable to successfully remediate our existing or any future
material weakness in our internal control over financial reporting, the accuracy and timing of our financial reporting may
be adversely affected, we may be unable to maintain compliance with securities laws and Nasdaq listing requirements
regarding the timely filing of periodic reports, investors may lose confidence in our financial reporting and the price of
our shares may decline.
We are a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting
companies may make our common stock less attractive to investors.
We are considered a “smaller reporting company” under Rule 12b-2 of the Exchange Act. We are therefore
entitled to rely on certain reduced disclosure requirements, such as an exemption from providing selected financial data
and executive compensation information. These exemptions and reduced disclosures in our SEC filings due to our status
as a smaller reporting company also mean our auditors are not required to review our internal control over financial
reporting and may make it harder for investors to analyze our results of operations and financial prospects. We cannot
predict if investors will find our common stock less attractive because we may rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our common stock prices may be more volatile. We will remain a smaller reporting company until our public
float exceeds $250 million or our annual revenues exceed $100 million with a public float greater than $700 million.
We sublease 5,104 square feet of space in Cambridge, Massachusetts, which is used primarily for corporate,
manufacturing, and research and development functions. The sublease commenced in May 2018 and is for a term of
5 years and 6 months.
Item 3. LEGAL PROCEEDINGS
In the ordinary course of business, we may be subject to litigation from time to time. There is no current,
pending or, to our knowledge, threatened litigation or administrative action to which we are a party or of which our
property is the subject (including litigation or actions involving our officers, directors, affiliates, or other key personnel,
or holders of record or beneficially of more than 5% of any class of our voting securities, or any associate of any such
party) which in our opinion has, or is expected to have, a material adverse effect upon our business, prospects financial
condition or operations.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to
ISSUER PURCHASES OF EQUITY SECURITIES.
provide the information under this item.
PART II
Item 6. SELECTED FINANCIAL DATA
Market Information
Our common stock is currently listed for trading on the Nasdaq Capital 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.
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 22, 2019, we had approximately 282 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
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to
provide the information under this item.
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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.
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.
All share amounts presented in this Item 7 give effect to the 1-for-25 reverse stock split of our outstanding
Critical Accounting Policies and Estimates
shares of common stock that occurred on April 16, 2018.
Introduction
This Management’s Discussion and Analysis of our financial condition and results of operations is based on our
financial statements, which management has prepared in accordance with U.S. generally accepted accounting principles.
The preparation of these financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate
such estimates and judgments, including those described in greater detail below. We base our estimates on historical
experience and on various other factors that management believes are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Business Overview
We are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of
spinal cord injuries, or SCIs. Our approach to treating acute SCIs is based on our investigational Neuro-Spinal
Scaffold™ implant, a bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal
cord and is intended to treat acute SCI. The Neuro-Spinal Scaffold implant incorporates intellectual property licensed
under an exclusive, worldwide license from Boston Children’s Hospital and the Massachusetts Institute of Technology.
We also plan to evaluate other technologies and therapeutics that may be complementary to our development of the
Neuro-Spinal Scaffold implant or offer the potential to bring us closer to our goal of redefining the life of the SCI
patient.
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.
Our consolidated financial statements, which appear in Item 8 of this Annual Report on Form 10-K, have been
prepared in accordance with accounting principles generally accepted in the United States, which require that our
management make certain assumptions and estimates and, in connection therewith, adopt certain accounting policies.
Our significant accounting policies are set forth in Note 2, “Significant Accounting Policies”, in the Notes to
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Of those policies, we believe that the
policies discussed below may involve the highest degree of judgment and may be the most critical to an accurate
reflection of our financial condition and results of operations.
Stock-Based Compensation
Our stock options are granted with an exercise price set at the fair market value of our common stock on the
date of grant. Our stock options generally expire 10 years from the date of grant and vest upon terms determined by our
Board of Directors.
We recognize compensation costs resulting from the issuance of stock-based awards to employees,
non-employees and directors as an expense in our 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. 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 11, “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 previously contained anti-dilution
provisions. These warrants did not meet the requirements for classification as equity and were thus recorded as
derivative warrant liabilities. We used valuation methods and assumptions that considered, 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 10, “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 were
initially recorded at fair value, with subsequent changes in fair value charged (credited) to operations during each
reporting period. The fair value of such derivative warrant liabilities was most sensitive to changes in the fair value of
the underlying common stock and the estimated volatility of our common stock. As of December 31, 2018, we did not
have any liability classified warrants. See Note 10, “Derivative Instruments,” in the Notes to Consolidated Financial
Statements in Item 8 of this Annual Report on Form 10-K for more information about the derivative activity during the
year.
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Research and Development Expense
Our research and development expenses consist primarily of costs incurred for the development of our product
candidates, which include:
•
•
•
•
•
•
employee related expenses, including salaries, benefits, travel, and stock based compensation expense;
expenses incurred under agreements with contract research organization (“CROs”), and clinical sites that
conduct our clinical studies;
facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and
maintenance of facilities, insurance, and other supplies;
costs associated with our research platform and preclinical activities;
costs associated with our regulatory, quality assurance, and quality control operations; and
amortization of intangible assets.
Our research and development costs are expensed as incurred. We are required to estimate our accrued research
and development expenses. This process involves reviewing open contracts and purchase orders, communicating with
our personnel to identify services that have been performed on our behalf and estimating the level of service performed
and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual
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.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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 we expect to be entitled in exchange for those
goods or services. 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.
Collectively, these standards are effective for annual reporting periods beginning after December 15, 2017, including
interim reporting periods within each annual reporting period. We adopted ASU 2014-09 on January 1, 2018, and it did
not have any impact on the financial position, results of operations or disclosures, as we currently do not generate any
revenue.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) -
Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 is intended
to improve the recognition and measurement of financial instruments by: requiring equity investments to be measured at
fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price
notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of
financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the
accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in
accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim
periods within those annual periods, beginning after December 15, 2017. The amendments should be applied by means
of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The
amendments related to equity securities without readily determinable fair values (including disclosure requirements)
should be applied prospectively to equity investments that exist as of the date of adoption. In February 2018, the FASB
issued ASU No. 2018-03 which includes technical corrections and improvements to clarify the guidance in ASU No.
2016-01. We adopted ASU 2016-01 on January 1, 2018, and it did not have any impact on the accounting for equity
investments, fair value disclosures or other disclosure requirements.
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 FASB has subsequently issued amendments to the guidance, including the addition of an
optional transition method and provided clarifications to address potential narrow-scope implementation issues. The
adoption of ASU 2016-02 will result in an increase to our consolidated balance sheets for right-of-use assets and lease
liabilities. We adopted ASU 2016- 02 effective January 1, 2019 and elected the optional transition method for adoption.
We also took advantage of the transition package of practical expedients permitted within ASU 2016-02, which among
other things, allowed us to carryforward historical lease classifications. We also elected to keep leases with an initial
term of 12 months or less off of the balance sheet as a policy election and will recognize those lease payments in the
consolidated statements of operations on a straight-line basis over the lease term. Based on our current lease portfolio,
we estimate that the adoption of this standard will result in approximately $1.5 million of additional assets and liabilities
being reflected on our consolidated balance sheets on January 1, 2019; however, there will not be a material impact to
our consolidated statement of operations or cash flows.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”), which clarifies the classification of certain cash
receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs,
settlement of contingent consideration arising from a business combination and insurance settlement proceeds. We
adopted ASU 2016-15 on January 1, 2018, and it did not result in any changes to the presentation of amounts shown on
the consolidated statements of cash flows for all periods presented.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
(A Consensus of the FASB Emerging Issues Task Force) (“ASU No 2016-18”). The amendments in this Update require
that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-
of-period and end-of-period total amounts shown on the statement of cash flows. We adopted ASU No. 2016-18 in the
first quarter of 2018 and applied the guidance retrospectively to the prior period consolidated statement of cash flows.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the statement of
financial position that sum to the total of the same such amounts shown in the statement of cash flows.
(In thousands)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash included in current assets . . . . . . . . . . . . . . . . . . . . . .
Restricted cash included in other non-current assets . . . . . . . . . . . . .
Total cash, cash equivalents and restricted cash shown in the
2018
16,660 $
4
110
2017
12,910
361
—
statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,774 $
13,271
December 31, December 31,
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of
Modification Accounting (“ASU 2017-09”), to clarify when to account for a change to the terms or conditions of a share-
based payment award as a modification. Under this new guidance, modification accounting is required if the fair value,
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vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09
is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within
each annual reporting period. We adopted ASU 2017-09 on January 1, 2018 and it did not have a material effect on the
financial position, results of operations or disclosures.
In July 2017, the FASB issued ASU No. 2017-11, Part I. Accounting for Certain Financial Instruments with
Down Round Features and Part II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception (“ASU 2017-11”). Part I of this guidance applies to entities that issue financial instruments such as warrants,
convertible debt or convertible preferred stock that contain down round features. Part II of this guidance replaces the
indefinite deferrals for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial
instruments of nonpublic entities. ASU 2017-11 is effective for annual reporting periods beginning after December 15,
2018, including interim reporting periods within each annual reporting period. We have concluded that the adoption of
ASU 2017-11 will not have a material impact on our financial statements.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement – Reporting
Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. This Update relates to the impacts of the tax legislation commonly referred to as the Tax Reform Act. The
guidance permits the reclassification of certain income tax effects of the Tax Reform Act from other comprehensive
income to retained earnings (stranded tax effects). The guidance also requires certain new disclosures. The guidance is
effective for annual periods beginning after December 15, 2018, and interim periods within those reporting periods.
Early adoption is permitted. Entities may adopt the guidance using 1 of 2 transition methods; retrospective to each period
(or periods) in which the income tax effects of the Tax Reform Act related to the items remaining in other
comprehensive income are recognized or at the beginning of the period of adoption. We are currently evaluating the
impact that the guidance may have on our consolidated financial statements.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, Compensation - Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting which is intended to
reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The amendment
is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early
adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We do not expect the adoption of this
Accounting Standard to have a material effect on our consolidated financial statements.
December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon
their effective date. Early adoption is permitted upon issuance of this Update. We do not expect the adoption of this ASU
to have a material effect on our consolidated financial statements.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and
Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or
superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity
for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity
presented in the balance sheet must be provided in a note or separate statement. The analysis should present a
reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive
income is required to be filed. This final rule is effective on November 5, 2018. We adopted this release in the third
quarter of 2018.
Results of Operations
Comparison of the Years Ended December 31, 2018 and 2017
Research and Development Expenses
Research and development expenses decreased by $6.2 million to $4.9 million for the year ended
December 31, 2018 from $11.1 million for the year ended December 31, 2017. The decrease in research and
development expenses for the year ended December 31, 2018 is attributable to a decrease in compensation related
expenses and stock compensation expenses of $2.2 million and $0.8 million respectively, driven by the restructuring
activities from 2017, a decrease in consulting and clinical trial costs of $0.9 million and $0.5 million respectively, due to
The INSPIRE Study being placed on hold, a decrease in facilities and rent expense of $0.6 million as a result of the
Cambridge Lease Assignment (as defined below), a decrease in administrative and operating costs of $0.4 million as a
result of the cost cutting measures we initiated in 2018, a decrease in legal fees of $0.3 million, a decrease in
depreciation expense of $0.2 million, a decrease in recruiting costs of $0.2 million, and a decrease in travel related
expenses of $0.1 million.
In July 2018, the FASB issued Accounting Standards Update No. 2018-09, Codification Improvements which
General and Administrative Expenses
clarifies, corrects errors in, and makes improvements to several Codification Topics, including to:
• Clarify when excess tax benefits should be recognized for share-based compensation awards
• Remove inconsistent guidance in income tax accounting for business combinations
• Clarify the circumstances when derivatives may be offset
• Clarify the measurement of liability or equity-classified financial instruments when an identical asset is
held as an asset
• Allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives to use
the portfolio exception to valuation
The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of
the amendments in this Update do not require transition guidance and will be effective upon issuance of this Update.
However, many of the amendments in this Update do have transition guidance with effective dates for annual periods
beginning after December 15, 2018. We are currently evaluating the impact that the guidance may have on our
consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 - Fair Value Measurement (Topic
820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement which improves
the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this
Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
General and administrative expenses decreased by $5.7 million to $7.8 million for the year ended
December 31, 2018 from $13.5 million for year ended December 31, 2017. This decrease in general and administrative
expenses is attributable to a decrease in stock compensation and compensation related expenses of $2.6 million and $1.5
million respectively, driven by the restructuring activities from 2017, a decrease in facilities and rent expenses of $0.8
million as a result of the Cambridge Lease Assignment, a decrease in legal fees of $0.7 million, a decrease in
administrative and operating costs of $0.3 million, a decrease in travel related expenses of $0.1 million and a decrease in
depreciation expense of $0.1 million. These decreases were partially offset by increases in consulting and recruiting
expenses of $0.2 million each.
Interest Income / (Expense)
Interest income increased by $91 thousand to $206 thousand for the year ended December 31, 2018 from $115
thousand for the year ended December 31, 2017. This increase is due to a higher average balance of funds in our cash
and cash equivalents balances in 2018 and a decrease in interest expense due to lower average borrowings in 2018.
Derivatives Gain / (Loss)
Derivatives loss for the year ended December 31, 2018 was $12.2 million compared to a loss of $2.3 million for
the year ended December 31, 2017. The loss of $12.2 million for the year ended December 31, 2018 can be attributed to
the issuance of the liability classified warrants in 2018 and the subsequent change in fair value through the date of
warrant exercises or reclassification to equity.
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Other Income
Other income for the year ended December 31, 2018 was $1.3 million primarily due to a settlement agreement
with a former vendor. We did not generate any other income for the year ended December 2017.
Liquidity and Capital Resources
Since inception, we have devoted substantially all of our efforts to business planning, research and
development, recruiting management and technical staff, acquiring operating assets, and raising capital. At
December 31, 2018, our accumulated deficit was $207.3 million.
At December 31, 2018, we had total assets of $18.4 million, total liabilities of $2.3 million, and total
stockholders’ equity of $16.1 million. We recorded a net loss of $23.4 million for the year ended December 31, 2018.
We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in
the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating
losses. The financing we closed in June 2018, described in more detail below, provided necessary funding to fund
operations into the first quarter of 2020. This estimate is based on assumptions that may prove to be wrong; expenses
could prove to be significantly higher, leading to a more rapid consumption of our existing resources. We have limited
liquidity and capital resources and must obtain significant additional capital resources in order to fund our operations and
sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical
and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment,
laboratory and office facilities, establishment of production capabilities, for selling, general and administrative expenses
and for other working capital requirements. We also expect that we will need to raise additional capital through a
combination of equity offerings, debt financings, other third party funding, marketing and distribution arrangements and
other collaborations, strategic alliances and licensing arrangements. Based on these factors, management determined that
there is substantial doubt regarding the Company’s ability to continue as a going concern.
Financings Transactions
In June 2018, we closed an underwritten public offering of an aggregate of 1,378,400 Common Units, at an
offering price of $2.00 each, each comprised of 1 share of our common stock, par value $0.00001 per share and 1 Series
A warrant to purchase 1 share of common stock. The public offering also included 6,242,811 pre-funded units at an
offering price of $1.99 each, each comprised of 1 pre-funded Series B Warrant and 1 Series A warrant to purchase 1
share of common stock. Each Series A warrant has an exercise price of $2.00 per share, exercisable immediately from
the date of issuance and expires 5 years from the date of issuance. Each Series B warrant has an exercise price of $0.01
per share, exercisable immediately from the date of issuance and expires 20 years from the date of issuance. The net
proceeds to us, after deducting the underwriting discounts and commissions and other offering expenses, were
$13.5 million. During the year ended December 31, 2018, we issued an aggregate of 6,242,811 shares of common stock
upon the exercise of Series B warrants for aggregate proceeds of $62 thousand. There are no outstanding Series B
warrants as of December 31, 2018. During the year ended December 31, 2018, we issued an aggregate of 34,500 shares
of common stock upon the exercise of Series A warrants for aggregate proceeds of $69 thousand.
In September 2018, we entered into an Amendment to Warrant Agency Agreement and Warrants, or the
Ladenburg Warrant Amendment, with Continental Stock Transfer & Trust Company, or Continental, that amends the
Warrant Agency Agreement, by and between us and Continental, as Warrant Agent, dated June 25, 2018, and the Series
A Common Stock Purchase Warrant, and the Series B Pre-Funded Common Stock Purchase Warrant both dated June 25,
2018, and we refer to the Series A and Series B Warrant collectively as the 2018 Warrants. See Notes 9, 10 and 12 to our
Consolidated Financial Statements for more information about the Ladenburg Warrant Amendment.
In January 2018, we entered into a purchase and a registration rights agreement with Lincoln Park Capital Fund,
LLC, which we refer to as Lincoln Park, under which we have the right to sell up to $15 million in shares of our
common stock to Lincoln Park over a 24-month period, subject to certain limitations and conditions set forth in the
purchase agreement and registration rights agreement. On May 30, 2018 at our Annual Meeting of Stockholders, our
stockholders approved an increase to the number of shares of common stock available for issuance and sale by us to
Lincoln Park, including our prior issuances and sales of shares of common stock to Lincoln Park since January 2018, up
to 1,200,000 shares of common stock. In accordance with the terms of the purchase agreement, at the time we signed the
purchase agreement and the registration rights agreement, we issued 17,192 shares to Lincoln Park as consideration for
its commitment to purchase shares of our common stock under the purchase agreement and recorded $627 thousand in
deferred offering costs of which the full amount was capitalized into additional paid-in capital as of December 31, 2018.
During the year ended December 31, 2018 we sold an aggregate of 256,804 shares to Lincoln Park, for aggregate
proceeds of $3.1 million net of issuance costs.
On August 10, 2017, we entered into exchange agreements with certain holders of warrants dated May 9, 2014,
which we refer to as the 2014 Warrants. Pursuant to the exchange agreements, certain of the 2014 Warrants were
exchanged for shares of common stock equivalent to 3.5 times the number of shares of common stock issuable to such
holders upon exercise, at the $96.75 exercise price under the warrants as of the date of the exchanges. We issued an
aggregate of 80,857 shares of common stock to the participating warrant holders in exchange for their 2014 Warrants for
the purchase of an aggregate of 23,102 shares of common stock. We subsequently cancelled and terminated those 2014
Warrants exchanged in this transaction. Following the warrant exchange, there were additional 2014 Warrants to
purchase shares of common stock that remained outstanding, which we refer to as the Outstanding 2014 Warrants. As a
result of our issuance of common stock in exchange for certain of the 2014 Warrants, the exercise price of the
Outstanding 2014 Warrants was adjusted downwards from $96.75 per share to $20.75 per share and additional warrants
were issued such that the Outstanding 2014 Warrants were exercisable for an aggregate of 1,941 shares of common
stock. The Outstanding 2014 Warrants were subject to further adjustment in the event of sales of our common stock at a
price per share less than the exercise price of the Outstanding 2014 Warrants then in effect (or securities convertible or
exercisable into common stock at a conversion or exercise price less than the exercise price then in effect). In the fourth
quarter of 2017, we entered into warrant cancellation agreements with certain remaining holders of the Outstanding 2014
Warrants to cancel and terminate such warrants for total cash consideration of $40 thousand. During the year ended
December 31, 2018, we entered into warrant cancellation agreements with certain remaining holders of the Outstanding
2014 Warrants to cancel and terminate such warrants for total cash consideration of $14 thousand. As of
December 31, 2018, the remaining Outstanding 2014 Warrants were exercisable for an aggregate of 307 shares of
common stock.
In May 2018, we entered into the Warrant Amendment, (as defined in Note 10 in the accompanying notes to
our Consolidated Financial Statements in Item 8 of this report), which removed provisions that had previously precluded
equity classification treatment of the 2014 Warrants on our balance sheet. The fair value of the amended 2014 Warrants
was re-measured immediately prior to the date of amendment with changes in fair value recorded as a loss of $1
thousand in the consolidated statement of operations and $1 thousand was reclassified to equity.
Facility Changes
In May 2018, we assigned our commercial lease for 26,342 square feet in Cambridge, Massachusetts to a third
party, who assumed from us all of our remaining rights and obligations under the lease (the “Cambridge Lease
Assignment”). Concurrently with the lease assignment, we entered into a sublease for 5,104 square feet of the originally
leased space. The sublease ends on October 31, 2023 and contains rent holidays and rent escalation clauses. In order to
obtain the consent of our lender for these facility changes and the sale of certain assets, we repaid $300 thousand of
principal on our loan and recorded an impairment charge of $48 thousand on abandoned fixed assets and leasehold
improvements. For more information, see Note 7 and Note 15 to the notes to our Consolidated Financial Statements in
Item 8 of this report.
In August 2017, we announced a reduction in our workforce of approximately 39%. All affected employees
received severance pay and outplacement assistance. As a result of the reduction in force and associated costs, we
estimated savings of approximately $7.3 million in annual operating expenses, with one-time severance and related costs
of $857 thousand. Of these one-time severance and related costs, approximately $509 thousand was paid through
December 31, 2017 and the remaining $348 thousand was paid as of December 31, 2018.
We may pursue various other dilutive and non-dilutive funding alternatives depending upon our clinical path
forward and the extent to which we require additional capital to proceed with development of some or all of our product
candidates on expected timelines. The source, timing and availability of any future financing will depend principally
upon market conditions and the status of our clinical development programs. 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.
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Net cash used in operating activities is comprised of our net losses, adjusted for non-cash expenses, and
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-25 reverse
stock split of the Company’s common stock effected on April 16, 2018.
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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53
54
55
56
57
working capital requirements. Net cash used in operating activities for the year ended December 31, 2018 was $12.3
million compared to $19.7 million for the year ended December 31, 2017. The change in net cash used in operating
activities for the year ended December 31, 2018 as compared to the same period in the prior year was primarily due to an
decrease in our net loss of $3.3 million, an increase in the change in derivative loss of $10 million, a decrease in share-
based compensation expense of $3.5 million, a decrease in the change in other assets of $1.3 million, a gain on lease
assignment of $0.6 million and a decrease in depreciation and amortization expense of $0.3 million.
Net cash used in investing activities for the year ended December 31, 2018 was $65 thousand attributable to
purchases of capital equipment. This compares to net cash from in investing activities for the year ended December 31,
2017 of $11.5 million attributable to sales of marketable securities of $19.8 million offset by purchases of marketable
securities and capital equipment of $8.3 million and $65 thousand respectively.
Net cash provided by financing activities for the year ended December 31, 2018 was $15.9 million consisting
primarily of $16.5 million in proceeds from the issuance of common stock associated with the June 2018 underwritten
public offering and the Lincoln Park financing agreement, $0.1 million in proceeds from exercise of warrants offset by
$0.8 million in loan repayments and $14 thousand for the repurchase of warrants. This compares to net cash of $0.4
million used in financing activities for the year ended December 31, 2017 consisting of proceeds from the exercises of
stock options, exercises of warrants, and Employee Stock Purchase Plan issuances of $80 thousand. These proceeds were
offset by the repayment of loan principal of $423 thousand and payment of $40 thousand due to repurchase of warrants.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future
material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources.
Inflation and Changing Prices
We do not believe that inflation has had, or will have, a material impact on our operating costs and earnings.
Commitments
See Note 15, “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
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to
provide the information under this item.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
InVivo Therapeutics Holdings Corp. and Subsidiary
Cambridge, Massachusetts
Opinions on the Financial Statements
We have audited the accompanying consolidated balance sheets of InVivo Therapeutics Holdings Corp. and Subsidiary
(the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive
loss, changes in stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated
financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its
operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the
United States of America.
Emphasis of Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations.
This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard
to these matters also are described in Note 1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Basis for Opinions
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2015.
Boston, Massachusetts
April 1, 2019
InVivo Therapeutics Holdings Corp.
Consolidated Balance Sheets
(In thousands, except share and per-share data)
December 31,
2018
2017
ASSETS:
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,660 $
4
461
17,125
100
110
1,042
18,377 $
12,910
361
535
13,806
157
—
82
14,045
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
815 $
100
—
—
1,290
2,205
—
—
61
2,266
988
452
4
30
1,638
3,112
400
367
56
3,935
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, $0.00001 par value, authorized 25,000,000 shares; 9,309,255
shares issued and outstanding at December 31, 2018; 1,370,992 shares issued
and outstanding at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1
223,440
(207,330)
16,111
18,377 $
1
194,016
(183,907)
10,110
14,045
See notes to the consolidated financial statements.
(Reflects the retrospective application of the 1-for-25 reverse stock split effective April 16, 2018)
52
53
InVivo Therapeutics Holdings Corp.
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share and per-share data)
(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 / (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income / (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of common shares outstanding, basic and diluted . . . . .
Other comprehensive loss:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Year Ended December 31,
2017
2018
$
$
$
4,931
7,836
12,767
(12,767)
206
1,303
(12,165)
(10,656)
(23,423)
(4.69)
4,990,089
$
$
$
11,083
13,510
24,593
(24,593)
115
—
(2,267)
(2,152)
(26,745)
(20.29)
1,318,003
$
(23,423)
$
(26,745)
Unrealized gain / (loss) on marketable securities . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
(23,423)
$
—
(26,745)
See notes to the consolidated financial statements.
(Reflects the retrospective application of the 1-for-25 reverse stock split effective April 16, 2018)
Common Stock
Additional
Paid-in
Amount Capital
Total
Accumulated Stockholders’
Deficit
Equity
Shares
Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . 1,281,763 $
Cumulative adjustment on adoption of ASU 2016-09 .
Share-based compensation expense . . . . . . . . . . . . . . . .
Issuance of common stock on warrant exchange . . . . .
Issuance of common stock for services . . . . . . . . . . . . .
Issuance of common stock upon exercise of warrants .
Issuance of common stock upon exercise of stock
—
—
80,857
14
139
options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under ESPP . . . . . . . . . . . . .
Issuance of common stock to 401(k) plan . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017 . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . .
Fair value of derivative warrant liability reclassified
3,576
710
3,933
—
1,370,992
—
1 $ 185,955 $ (157,007) $
—
—
—
—
—
155
4,106
3,537
—
3
(155)
—
—
—
—
—
—
—
—
1
26
51
183
—
194,016
618
—
—
—
(26,745)
(183,907)
28,949
—
4,106
3,537
—
3
26
51
183
(26,745)
10,110
618
to additional paid-in capital . . . . . . . . . . . . . . . . . . . . .
—
—
25,327
—
25,327
Issuance of common stock upon vesting of restricted
stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock upon exercise of warrants .
Issuance of common stock under ESPP . . . . . . . . . . . . .
Fractional shares issued due to reverse stock split . . . .
Issuance of common stock to 401(k) plan . . . . . . . . . . .
Issuance of common stock in public offering . . . . . . . .
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2018 . . . . . . . . . . . . . . . . .
4,250
6,277,311
1,133
2,733
440
1,652,396
—
9,309,255 $
—
—
—
—
—
—
—
1 $ 223,440 $ (207,330) $
—
—
—
—
—
—
(23,423)
—
131
4
—
6
3,338
—
—
131
4
—
6
3,338
(23,423)
16,111
See notes to the consolidated financial statements.
(Reflects the retrospective application of the 1-for-25 reverse stock split effective April 16, 2018)
54
55
InVivo Therapeutics Holdings Corp.
Consolidated Statements of Cash Flows
(In thousands)
InVivo Therapeutics Holdings Corp.
Notes to Consolidated Financial Statements
(In thousands, except share and per-share data)
Years Ended December 31,
2018
2017
1. NATURE OF OPERATIONS AND GOING CONCERN
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (23,423) $ (26,745)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on impairment of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued to 401(k) plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on lease assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investment (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
91
48
12,165
—
6
(603)
618
3
395
41
2,267
5
183
—
4,106
—
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
(985)
(173)
(136)
(12,312)
(89)
321
(23)
(144)
(19,683)
Cash flows from investing activities:
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by 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 loan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock and warrants, net of commissions and
—
—
(65)
(65)
—
4
131
(752)
(14)
(8,256)
19,833
(65)
11,512
26
51
3
(423)
(40)
—
issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(383)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,554)
Increase (decrease) in cash and cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . .
21,825
Cash, cash equivalents and restricted cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,774 $ 13,271
16,511
15,880
3,503
13,271
Supplemental disclosure of cash flow information and non-cash investing and
financing activities:
44 $
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
18 $
Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-cash issuance of common stock for warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
287 $
Reclassification of derivative warrant liability to additional paid-in capital . . . . . . . . . . . $ 25,327 $
71
—
3,537
—
See notes to the consolidated financial statements.
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, 2018, the
Company has consolidated cash and cash equivalents of $16.7 million. The Company has not achieved profitability and
may not be able to realize sufficient revenue to achieve or sustain profitability in the future. The Company does not
expect to be profitable in the next several years, but rather expects to incur additional operating losses. The Company has
limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain its
product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical
testing of its anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office
facilities, establishment of production capabilities, for selling, general and administrative expenses, and other working
capital requirements. The Company expects that it will need additional capital to fund its operations, which it may raise
through a combination of equity offerings, debt financings, other third party funding, marketing and distribution
arrangements, and other collaborations, strategic alliances, and licensing arrangements.
Going Concern
The Company’s financial statements as of December 31, 2018 were prepared under the assumption that the
Company will continue as a going concern. At December 31, 2018, the Company had cash and cash equivalents of $16.7
million. Given the Company’s development plans, the Company estimates cash resources will be sufficient to fund its
operations into the first quarter of 2020. This estimate is based on assumptions that may prove to be wrong; expenses
could prove to be significantly higher, leading to a more rapid consumption of the Company’s existing resources.
The Company’s ability to continue as a going concern depends on its ability to obtain additional equity or debt
financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. If the Company
is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which
those assets are carried on its audited 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:
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
56
57
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 3 months from date of purchase to be cash equivalents.
At December 31, 2018 and 2017, cash equivalents were comprised of money market funds and other short-term
investments.
Cash and cash equivalents consist of the following:
(In thousands)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018
(83) $
16,743
16,660 $
2017
23
12,887
12,910
December 31, December 31,
Restricted cash
Restricted cash as of December 31, 2018 was $114 thousand and included a $50 thousand security deposit
related to the Company’s credit card account, $4 thousand related to 401(k) reserve account and a $60 thousand standby
letter of credit in favor of a landlord (see Note 15).
Restricted cash as of December 31, 2017 was $361 thousand and included a $50 thousand security deposit
related to the Company’s credit card account and a $311 thousand standby letter of credit in favor of a landlord (see
Note 15).
Financial instruments
The carrying amounts reported in the Company’s consolidated balance sheets for cash, cash equivalents 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 . . . . . . . . . . . . . . . . . . . .
Estimated Useful Life
3 - 5 years
3 years
5 years
5 years
Remaining life of lease
Research and development expenses
Costs incurred for research and development are expensed as incurred. Certain agreements require the
Company to make pre-payments for CRO services. As of December 31, 2018, the Company had $1.3 million in
prepayments for CRO services of which $290 thousand is included in prepaid and other current asset balance on the
balance sheet and the remaining $996 thousand is included within the other long term assets balance on the balance
sheet.
Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally
of cash and cash equivalents. 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 1 operating segment, which is developing and commercializing biopolymer
scaffolding devices for the treatment of spinal cord injuries. As of December 31, 2018, and 2017, all of the Company’s
assets were located in 1 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
as of December 31, 2018 or 2017. Tax years subsequent to 2014 remain open to examination by U.S. federal and state
tax authorities.
The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The Act reduced the US federal
corporate tax rate from 35% to 21%, required companies to pay a 1-time transition tax on earnings of certain foreign
subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. On December
22, 2017, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income
Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of
the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed
(including computations) in reasonable detail to complete its accounting for the change in tax law.
At December 31, 2018, the Company had completed its accounting for the tax effects of enactment of the Act,
including the effects on its existing deferred tax balances, and the corresponding valuation allowance and the 1-time
transition tax. For the year ended December 31, 2018, the Company recognized no transition tax, remeasured deferred
taxes, and its reassessment of uncertain tax positions and valuation allowances.
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. On May 3, 2018, the Company assigned the Cambridge Lease (as defined in Note 15)
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59
to a third party who assumed all of the Company’s remaining rights and obligations under the Cambridge Lease and as a
result recorded an impairment charge of $48 thousand. On August 28, 2017, the Company implemented a strategic
restructuring and as a result recorded an impairment charge of $41 thousand (see Note 3).
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, unvested restricted stock units and convertible securities are anti-dilutive
and therefore excluded from diluted loss per share calculations.
For the year ended December 31, 2018 and 2017, the following potentially dilutive securities were not included
in the computation of net loss per share because the effect would be anti-dilutive:
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested restricted stock units . . . . . . . . . . . . . . . . . . .
Total potentially dilutive securities . . . . . . . . . . . . . . .
December 31,
2018
7,673,130
54,849
10,250
7,738,229
2017
86,646
134,770
20,000
241,416
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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 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. Collectively, these standards are effective for annual reporting periods beginning after
December 15, 2017, including interim reporting periods within each annual reporting period. The Company adopted
ASU 2014-09 on January 1, 2018, and it did not have any impact on the financial position, results of operations or
disclosures as the Company currently does not generate any revenue.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) -
Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 is intended
to improve the recognition and measurement of financial instruments by; requiring equity investments to be measured at
fair value with changes in fair value recognized in net income: requiring public business entities to use the exit price
notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of
financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the
accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in
accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim
periods within those annual periods, beginning after December 15, 2017. The amendments should be applied by means
of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The
amendments related to equity securities without readily determinable fair values (including disclosure requirements)
should be applied prospectively to equity investments that exist as of the date of adoption. In February 2018, the FASB
issued ASU No. 2018-03 which includes technical corrections and improvements to clarify the guidance in ASU No.
2016-01. The Company adopted ASU 2016-01 on January 1, 2018 and it did not have any impact on its accounting for
equity investments, fair value disclosures or other disclosure requirements.
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 FASB has subsequently issued amendments to the guidance, including the addition of an
optional transition method and provided clarifications to address potential narrow-scope implementation issues. The
adoption of ASU 2016-02 will result in an increase to the Company’s consolidated balance sheets for right-of-use assets
and lease liabilities. The Company adopted ASU 2016- 02 effective January 1, 2019 and elected the optional transition
method for adoption. The Company also took advantage of the transition package of practical expedients permitted
within ASU 2016-02, which among other things, allowed it to carryforward historical lease classifications. The
Company also elected to keep leases with an initial term of 12 months or less off of the balance sheet as a policy election
and will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the
lease term. Based on our current lease portfolio, the Company estimates that the adoption of this standard will result in
approximately $1.5 million of additional assets and liabilities being reflected on our consolidated balance sheets on
January 1, 2019; however, there will not be a material impact to its consolidated statement of operations or cash flows.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”), which clarifies the classification of certain cash
receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs,
settlement of contingent consideration arising from a business combination and insurance settlement proceeds. The
Company adopted ASU 2016-15 on January 1, 2018, and it did not result in any changes to the presentation of amounts
shown on the Company’s consolidated statements of cash flows for all periods presented.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
(A Consensus of the FASB Emerging Issues Task Force) (“ASU No 2016-18”). The amendments in this update require
that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-
of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted ASU No. 2016-
60
61
18 in the first quarter of 2018 and applied the guidance retrospectively to the prior period consolidated statement of cash
flows. The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the statement of
financial position that sum to the total of the same such amounts shown in the statement of cash flows.
(In thousands)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash included in current assets . . . . . . . . . . . . . . . . . . . . . .
Restricted cash included in other non-current assets . . . . . . . . . . . . .
Total cash, cash equivalents and restricted cash shown in the
2018
16,660 $
4
110
2017
12,910
361
—
statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,774 $
13,271
December 31, December 31,
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of
Modification Accounting (“ASU 2017-09”), to clarify when to account for a change to the terms or conditions of a share-
based payment award as a modification. Under this new guidance, modification accounting is required if the fair value,
vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09
is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within
each annual reporting period. The Company adopted ASU 2017-09 on January 1, 2018 and it did not have a material
effect on the Company’s financial position, results of operations or disclosures.
In July 2017, the FASB issued ASU No. 2017-11, Part I. Accounting for Certain Financial Instruments with
Down Round Features and Part II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception (“ASU 2017-11”). Part I of this guidance applies to entities that issue financial instruments such as warrants,
convertible debt or convertible preferred stock that contain down round features. Part II of this guidance replaces the
indefinite deferrals for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial
instruments of nonpublic entities. ASU 2017-11 is effective for annual reporting periods beginning after December 15,
2018, including interim reporting periods within each annual reporting period. The Company has concluded that the
adoption of ASU 2017-11 will not have a material impact on the financial statements.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement – Reporting
Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. This update relates to the impacts of the tax legislation commonly referred to as the Tax Reform Act. The
guidance permits the reclassification of certain income tax effects of the Tax Reform Act from other comprehensive
income to retained earnings (stranded tax effects). The guidance also requires certain new disclosures. The guidance is
effective for annual periods beginning after December 15, 2018, and interim periods within those reporting periods.
Early adoption is permitted. Entities may adopt the guidance using 1 of 2 transition methods; retrospective to each period
(or periods) in which the income tax effects of the Tax Reform Act related to the items remaining in other
comprehensive income are recognized or at the beginning of the period of adoption. The Company is currently
evaluating the impact that the guidance may have on its consolidated financial statements.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, Compensation - Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting which is intended to
reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The amendment
is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early
adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company does not expect the
adoption of this Accounting Standard to have a material effect on its consolidated financial statements.
In July 2018, the FASB issued Accounting Standards Update No. 2018-09, Codification Improvements which
clarifies, corrects errors in, and makes improvements to several Codification Topics, including to:
• Clarify when excess tax benefits should be recognized for share-based compensation awards
• Remove inconsistent guidance in income tax accounting for business combinations
• Clarify the circumstances when derivatives may be offset
• Clarify the measurement of liability or equity-classified financial instruments when an identical asset is
held as an asset
• Allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives to use
the portfolio exception to valuation
The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of
the amendments in this Update do not require transition guidance and will be effective upon issuance of this Update.
However, many of the amendments in this Update do have transition guidance with effective dates for annual periods
beginning after December 15, 2018. The Company is currently evaluating the impact that the guidance may have on its
consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 - Fair Value Measurement (Topic
820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement which improves
the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this
Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon
their effective date. Early adoption is permitted upon issuance of this Update. The Company does not expect the
adoption of this Accounting Standard to have a material effect on its consolidated financial statements.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and
Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or
superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity
for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity
presented in the balance sheet must be provided in a note or separate statement. The analysis should present a
reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive
income is required to be filed. This final rule is effective on November 5, 2018. The Company adopted this release in the
third quarter of 2018.
3. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following:
(In thousands)
Computer software and hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and lab equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018
2017
131 $
508
66
—
705
(605)
100 $
241
508
431
796
1,976
(1,819)
157
Depreciation expense for the years ended December 31, 2018 and 2017, was $74 thousand, and $377 thousand,
respectively. Maintenance and repairs are charged to expense as incurred and any additions or improvements are
capitalized.
On May 3, 2018, the Company assigned the Cambridge Lease to a third party who assumed all of the
Company’s remaining rights and obligations under the Cambridge Lease and as a result wrote off $1.3 million of fully
depreciated assets and also recorded an impairment loss of $48 thousand related to certain fixed assets in connection
with the reassignment.
On August 28, 2017, the Company implemented a strategic restructuring and as a result wrote off $1.8 million
of fully depreciated assets and also recorded an impairment loss of $41 thousand related to certain fixed assets in
connection with the restructuring.
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63
4. INTANGIBLE ASSETS
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Intangible assets, included in “other assets,” consisted of patent licensing fees paid to license intellectual
property (see Note 14). The Company is amortizing the license fee as a research and development expense over the
15– year term of the license.
(In thousands)
Patent licensing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018
2017
200 $ 200
(139)
(156)
61
44 $
For each of the years ended December 31, 2018 and 2017, the amortization expense was $17 thousand.
Amortization expense is expected to be $17 thousand per year for 2019 and 2020 and $10 thousand in 2021.
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
(In thousands)
Severance and restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clinical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018
517 $
489
73
35
176
1,290 $
2017
1,160
196
52
68
162
1,638
December 31, December 31,
6. FAIR VALUES OF ASSETS AND LIABILITIES
The Company groups its assets and liabilities generally measured at fair value in 3 levels, based on the markets
in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets
and liabilities, generally include debt and equity securities that are traded in an active exchange market. Valuations are
obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2—Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires significant management judgment or estimation.
The Company uses valuation methods and assumptions that consider, among other factors, the fair value of the
underlying stock, risk-free interest rate, volatility, expected life, and dividend rates in estimating the fair value for the
warrants considered to be derivative instruments.
(In thousands)
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,743 $
Level 1
Level 2
Level 3 Fair Value
— $ 16,743
— $
At December 31, 2018
At December 31, 2017
(In thousands)
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,887 $
— $
Derivative warrant liability . . . . . . . . . . . . . . . . . . $
Level 1
Level 2
Level 3 Fair Value
— $ 12,887
4
— $
— $
4 $
7. LOAN PAYABLE
In October 2012, the Company entered into a loan agreement with the Massachusetts Development Finance
Agency (“MassDev”). The loan agreement provided the Company with a $2.0 million line of credit from the
Commonwealth of Massachusetts’s Emerging Technology fund, with $200 thousand 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 30 months, commencing on November 1, 2012, and then equal
interest and principal payments over the next 54 months, until the final maturity of the loan on October 5, 2019.
Commencing on May 1, 2015, equal monthly principal payments of $41 thousand are due until loan maturity.
In May 2018, in order to obtain the consent of MassDev for facility changes, including the assignment of the
Cambridge Lease, and the sale of certain assets, the Company paid down $300 thousand of principal on the MassDev
loan. As of December 31, 2018, $100 thousand in principal payments will be due in the next 3 months. In October 2012,
as part of the agreement, the Company issued MassDev a warrant for the purchase of 362 shares of the Company’s
common stock of which 243 shares remaining outstanding at December 31, 2018. The warrant has a 7-year term and is
exercisable at $166 per share. The fair value of the warrant was determined to be $32 thousand and is being amortized
through interest expense over the life of the note. For the years ended December 31, 2018 and 2017, the expense was $7
thousand and $5 thousand respectively, 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 $43 thousand and $71 thousand for the years ended
December 31, 2018 and 2017, respectively.
At December 31, loans payable consisted of the following:
(In thousands)
MassDev Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 852
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(452)
— $ 400
Notes Payable long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(100)
2018
December 31,
2017
8. INCOME TAXES
No provision or benefit for federal or state income taxes has been recorded as the Company has incurred a net
loss for all of the periods presented and the Company has provided a full valuation allowance against its deferred tax
assets.
At December 31, 2018, the Company had U.S. federal and Massachusetts net operating loss carryforwards of
$128.9 million and $120.8 million, respectively, of which $117.3 million of federal carryforwards will expire in varying
amounts beginning in 2026 and $11.6 million carry forward indefinitely. 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 $1.2 million and $258 thousand respectively, at December 31, 2018, which will begin to
expire in 2022 unless previously utilized.
64
65
On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was enacted in the United States. The Act
reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a 1-time transition tax on
earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign
sourced earnings. At December 31, 2018, the Company has completed its accounting for the tax effects of enactment of
the Act, including the effects on our existing deferred tax balances, the corresponding valuation allowance and the
1- time transition tax. For the year ended December 31, 2018, the Company recognized no transition tax, have
remeasured deferred taxes, and our reassessment of uncertain tax positions and valuation allowances.
Significant components of the Company’s net deferred tax assets are as follows:
December 31,
2018
(In thousands)
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,846 $ 31,533
1,173
Research and development credit carryforward . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,828
71
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
357
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
35,989
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35,989)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Net deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,390
2,300
11
136
—
38,683
(38,683)
— $
2017
The Company has maintained a full valuation allowance against its deferred tax assets in all periods presented.
A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net
deferred tax assets will not be realized. Since the Company cannot be assured of generating taxable income and thereby
realizing the net deferred tax assets, a full valuation allowance has been provided. During the year ending December 31,
2017, the Company adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. As part of
the adoption, the Company recorded through retained earnings additional deferred tax assets of $642 thousand related to
previously unrecognized tax losses with an equal and offsetting adjustment to the Company's valuation allowance. The
net impact of the adoption on the Company's deferred tax assets was $0. In the years ended December 31, 2018 and
2017, the valuation allowance increased by $2.7 million and decreased by $7.9 million, respectively.
The Company has no uncertain tax positions at December 31, 2018 and 2017 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
12 months. Since the Company is in a loss carryforward position, the Company is generally subject to U.S. federal and
state income tax examinations by tax authorities for all years for which a loss carryforward is available.
Income tax benefits computed using the federal statutory income tax rate differ from the same benefits
computed using the Company’s effective tax rate primarily due to the following:
Statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent differences:
Derivative losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of ASU 2016-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase / (decrease) in valuation reserve . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in federal tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
(21.0)% (34.0)%
(4.7)%
(2.9)%
10.9 %
0.4 %
(0.8)%
1.9 %
— %
2.9 %
1.1 %
(0.2)%
1.4 %
7.4 %
11.5 % (32.0)%
— % 58.1 %
0.0 %
0.0 %
9. COMMON STOCK
In May 2018, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation
to increase the number of shares of authorized common stock from 4,000,000 to 25,000,000 shares of common stock. As
of December 31, 2018, and 2017, 9,309,255, and 1,370,992 shares were issued and outstanding respectively.
In June 2018, the Company closed an underwritten public offering of an aggregate of 1,378,400 Common
Units, at an offering price of $2.00 each, each comprised of 1 share of its common stock, par value $0.00001 per share
and 1 Series A warrant to purchase 1 share of common stock. The public offering also included 6,242,811 pre-funded
units at an offering price of $1.99 each, each comprised of 1 pre-funded Series B Warrant and 1 Series A warrant to
purchase 1 share of common stock. Each Series A warrant has an exercise price of $2.00 per share, exercisable
immediately from the date of issuance and expires 5 years from the date of issuance. Each Series B warrant has an
exercise price of $0.01 per share, exercisable immediately from the date of issuance and expires 20 years from the date
of issuance. The net proceeds to the Company, after deducting the underwriting discounts and commissions and other
offering expenses, were $13.5 million. In September 2018, the Company entered into an Amendment to Warrant Agency
Agreement and Warrants (the “Ladenburg Warrant Amendment”) with Continental Stock Transfer & Trust Company
(“Continental”) that amends the Warrant Agency Agreement, by and between the Company and Continental, as Warrant
Agent, dated June 25, 2018, and the Series A Common Stock Purchase Warrant, and the Series B Pre-Funded Common
Stock Purchase Warrant both dated June 25, 2018 (the Series A and Series B Warrant, collectively the “2018 Warrants”).
The Ladenburg Warrant Amendment adds a provision to each of the warrants that allows the Company or a successor
entity whose stock is not listed on a trading market to, in connection with a Fundamental Transaction (as such term is
defined in the 2018 Warrants) that is not within the Company’s control, purchase the warrant from the holder, at the
holder’s option, by paying the same form of consideration in the same proportion that is offered to the holders of the
Company’s common stock in connection with the Fundamental Transaction, including cash, stock, any combination
thereof and any choice of consideration thereof, in an amount equal to the Black-Sholes Value of the remaining
unexercised portion of the Warrant on the consummation date of the Fundamental Transaction. As a result of the
amendment, the Company reassessed the warrant classification and concluded that the warrants qualified for equity
classification. The fair value of the amended 2018 Warrants was re-measured immediately prior to the date of the
Ladenburg Warrant Amendment with changes in fair value recorded as a loss of $764 thousand in the Company’s
consolidated statement of operations and $14.7 million was reclassified to equity. During the year ended
December 31, 2018, the Company issued an aggregate of 6,242,811 and 34,500 shares of common stock upon the
exercise of Series B and Series A warrants respectively for aggregate proceeds of $131 thousand. The Company
reclassified $10.6 million from derivative warrant liability to additional paid-in capital and recorded a derivative loss of
$1.2 million in connection with the warrant exercises.
In January 2018, the Company entered into a purchase and a registration rights agreement with Lincoln Park
Capital Fund, LLC (“Lincoln Park”), under which it has the right to sell up to $15 million, in shares of its common
stock, $0.00001 par value per share, to Lincoln Park over a 24 month period, subject to certain limitations and conditions
set forth in the purchase agreement and registration rights agreement. On May 30, 2018 the Company’s stockholders
approved to increase the issuance and sale by the Company to Lincoln Park, including the Company’s prior issuances
and sales of shares of common stock to Lincoln Park since January 2018, of up to 1,200,000 shares of common stock. In
accordance with the terms of the purchase agreement, at the time the Company signed the purchase agreement and the
registration rights agreement, it issued 17,192 shares to Lincoln Park as consideration for its commitment to purchase
shares of the Company’s common stock under the purchase agreement and recorded $627 thousand in deferred offering
costs of which the full amount was capitalized into additional paid-in capital as of December 31, 2018. During the year
ended December 31, 2018 the Company sold an aggregate of 256,804 shares to Lincoln Park, for aggregate proceeds of
$3.1 million net of issuance costs.
In May 2018, the Company’s Board of Directors approved to increase the number of shares of Common Stock
reserved under the 401(k) Plan by 4,000 shares, bringing the aggregate number of shares of Common Stock eligible for
distribution pursuant to the 401(k) Plan as of that date to 4,100 shares. In the second quarter of 2018, the Company
revised its 401(k) matching policy to move from share matching to cash-based matching. During the year ended
December 31, 2018, the Company issued an aggregate of 440 shares of common stock with a fair value of $6 thousand
to the Company’s 401(k) plan as a matching contribution. The Company contributed $44 thousand in matching cash
contributions to employee 401(k) accounts during the year ended December 31, 2018.
66
67
During the year ended December 31, 2018, the Company issued an aggregate of 1,133 shares of common stock
under the Company’s Employee Stock Purchase Plan (the “ESPP”) and received cash proceeds of $4 thousand.
As part of the adjustment to reflect the Company’s 1-for-25 reverse stock split on its common stock on
April 16, 2018, the Company issued 2,733 shares of common stock to account for the fractional roundup of shareholders.
In September 2018, the Company entered into the Ladenburg Warrant Amendment. As a result of the
amendment, the Company reassessed the warrant classification and concluded that the warrants qualified for equity
classification. The fair value of the amended 2018 Warrants was re-measured immediately prior to the date of the
Ladenburg Warrant Amendment with changes in fair value recorded as a loss of $764 thousand in the Company’s
consolidated statement of operations and $14.7 million was reclassified to equity.
During the year ended December 31, 2018, the Company issued an aggregate of 4,250 shares of common stock
upon vesting of restricted stock units.
During the year ended December 31, 2017, the Company issued an aggregate of 3,576 shares of common stock
upon the exercise of stock options and received cash proceeds from such exercises of $26 thousand.
During the year ended December 31, 2017, the Company issued an aggregate of 139 shares of common stock
upon the exercise of warrants and received cash proceeds from such exercises of $3 thousand.
During the year ended December 31, 2017, the Company issued an aggregate of 3,933 shares of common stock
with a fair value of $183 thousand to the Company’s 401(k) plan as a matching contribution.
During the year ended December 31, 2017, the Company issued an aggregate of 710 shares of common stock
under the ESPP and received cash proceeds of $51 thousand.
During the year ended December 31, 2017, the Company issued an aggregate of 80,857 shares of common
stock to certain holders of warrants, dated May 9, 2014, in exchange for their warrants to purchase an aggregate of
23,102 shares of common stock. The Company did not receive any cash proceeds from the warrant exchanges.
Common Stock Reserves
As of December 31, 2018, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves for the vesting of restricted stock units . . . . . . . . . . . . . . . . . . . . . .
Total Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,673,130
54,849
10,250
7,738,229
10. DERIVATIVE INSTRUMENTS
The warrants issued in connection with the Company’s 2018 underwritten public offering had provisions that
precluded the Company from classifying them as equity instruments (See Note 12). Accordingly, these warrants had
been accounted for as derivative warrant liabilities. The Company used the Black-Scholes model and assumptions that
considered, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life,
and dividend rates in estimating fair value for these warrants.
At inception, the fair value of the Series B pre-funded warrants was estimated at $11.5 million using a Black-
Scholes model with the following assumptions: expected volatility of 202.51%, risk free interest rate of 2.95%, expected
life of 20 years and no dividends.
At inception, the fair value of the Series A warrants was estimated at $13.7 million using a Black-Scholes
model with the following assumptions: expected volatility of 202.51%, risk free interest rate of 2.75%, expected life of 5
years and no dividends.
The Company allocated $13.2 million of the net proceeds to record the relative fair value of the warrant
liability, with the remaining amount of $287 thousand recorded to permanent equity. The Company subsequently
recorded the fair value of the warrant liability at $25.2 million with the loss of $12 million being recorded as a derivative
loss on the Company’s consolidated statement of operations and comprehensive loss during the second quarter of 2018.
During the year ended December 31, 2018, the Company issued an aggregate of 6,242,811 shares of common
stock upon the exercise of Series B warrants for aggregate proceeds of $62 thousand. There are no outstanding Series B
warrants as of December 31, 2018. During the year ended December 31, 2018, the Company issued an aggregate of
34,500 shares of common stock upon the exercise of Series A warrants for aggregate proceeds of $69 thousand. The
Company reclassified $10.6 million from derivative warrant liability to additional paid-in capital and recorded a
derivative loss of $1.2 million in connection with the warrant exercises.
The 2014 Warrants issued in connection with the Company’s May 2014 public offering had anti-dilution
protection provisions and, under certain conditions, required the Company to automatically reprice the 2014 Warrants
(See Note 12). Accordingly, the 2014 Warrants had been accounted for as derivative warrant liabilities. Through the date
of the warrant exchange (see Note 12), the Company used the Binomial Lattice option pricing model and assumptions
that considered, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected
life, and dividend rates in estimating fair value for the 2014 Warrants considered to be derivative instruments.
In May 2018, the Company entered into the Warrant Amendment (as defined below), which removed
provisions that had previously precluded equity classification treatment of the 2014 Warrants on the Company’s balance
sheets. The fair value of the amended 2014 Warrants was re-measured immediately prior to the date of amendment with
changes in fair value recorded as a loss of $1 thousand in the Company’s consolidated statement of operations and $1
thousand was reclassified to equity.
As of December 31, 2018, the Company did not have any liability classified warrants. As of December 31,
2017, the derivative warrant liability was insignificant and was included as a derivative warrant liability in current
liabilities on the balance sheet. Changes in the fair value of the derivative financial instruments were recognized in the
Company’s consolidated statement of operations as a derivative gain or loss.
The assumptions used principally in determining the fair value of the 2014 Warrants as of December 31, 2017
were as follows:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.37 %
2014 Warrants
December 31,
2017
1.91 %
— %
1.35 years
The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying
common stock for each reporting period.
68
69
The table below presents the changes in derivative warrant liability during years ended December 31, 2018 and
2017:
December 31, 2018 and 2017 was $2 thousand and $14 thousand, respectively, and is included in stock-based
compensation expense. In January 2019, 1,065 shares that were purchased as of December 31, 2018 were issued under
the ESPP.
Year Ended December 31,
(In thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Issuance of new warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction in derivative liability due to exercise of warrants . . . . . . . . . .
Reclassification of fair value of derivative liabilities to equity on
2018
2017
4 $ 1,314
—
—
13,172
(10,620)
amendment of warrant agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in derivative liability prior to warrant exchange . . . . . . . . . . . .
Reduction in derivative liability due to warrant exchange . . . . . . . . . . . .
Repurchase of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in the fair value of warrants . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(14,707)
—
—
(14)
12,165
— $
—
3,029
(3,537)
(40)
(762)
4
11. 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”). The 2007 Plan provided that the Company’s
Board of Directors (or committees and/or executive officers delegated by the Board of Directors) could grant incentive
and nonqualified stock options to the Company’s employees, officers, directors, consultants and advisors.
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.
Upon approval of the 2015 Plan by the Company’s shareholders on June 16, 2015, the 2010 Plan was
terminated and no additional shares or share awards have been subsequently granted under the 2010 Plan. As of
December 31, 2018, the total number of shares available to be issued under the 2015 Plan was 188,552 shares, consisting
of 160,000 shares initially authorized under the 2015 Plan shares plus the 12,894 shares that remained available for grant
under the 2010 Plan at the time of its termination adjusted for cumulative cancellations, forfeitures and issuances from
the 2010 Plan and 2015 Plan.
Options issued under the 2007 Plan, 2010 Plan, and 2015 Plan (collectively, the “Plans”) are exercisable for up
to 10 years from the date of issuance.
In March 2015, the Company’s Board of Directors adopted, and the Company’s shareholders subsequently
approved the ESPP. The ESPP allows employees to buy company stock twice a year through after-tax payroll deductions
at a discount from market. The Company’s Board of Directors initially authorized 7,500 shares for issuance under the
ESPP. Commencing on the first day of the year ended December 31, 2016 and on the first day of each year thereafter
during the term of the ESPP, the number of shares of common stock reserved for issuance shall be increased by the
lesser of (i) 1% of the Company’s outstanding shares of common stock on such date, (ii) 2,000 shares or (iii) a lesser
amount determined by the Board of Directors. Under the terms of the ESPP, in no event shall the aggregate number of
shares reserved for issuance during the term of the ESPP exceed 50,000 shares. As of December 31, 2018, there were
7,923 shares reserved for issuance under the ESPP.
The 2015 ESPP is considered a compensatory plan with the related compensation cost recognized over each
respective 6 month offering period. As of December 31, 2018, approximately $1 thousand of employee payroll
deductions had been withheld since July 1, 2018, 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
Share-based compensation
For the years ended December 31, 2018 and 2017, the Company recorded stock-based compensation expense of
$618 thousand and $4.1 million, 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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2.45 - 2.88%
0%
5.62 Years
104%
December 31,
2017
1.69 - 2.36%
0%
6.22 Years
104%
A summary of option activity as of December 31, 2018 and 2017 and changes for the year then ended are
presented below:
Weighted
Average
Exercise
Weighted
Average
Remaining
Contractual
Aggregate
Intrinsic
Term in Years Value
Price
Shares
Options
Outstanding at December 31, 2016 . . . . . . . . . . 127,752 $ 188.00
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,579 $ 98.50
Cancelled/Forfeited . . . . . . . . . . . . . . . . . . . . . . . (46,985) $ 160.00
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.25
Outstanding at December 31, 2017 . . . . . . . . . . 134,770 $ 164.29
15,524 $
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.97
(5,334) $ 173.13
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(90,111) $ 175.00
Cancelled/Forfeited . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2018 . . . . . . . . . .
54,849 $ 100.83
32,522 $ 147.84
Vested at December 31, 2018 . . . . . . . . . . . . . .
(3,576) $
6.93 $
571
7.14 $
22
7.32 $
5.98 $
—
—
The weighted average grant-date fair value of options granted during the years ended December 31, 2018 and
2017 was $3.82 and $2.54 per share, respectively. The total fair value of options that vested in years ended
December 31, 2018 and 2017, was $952 thousand and $3.8 million respectively. As of December 31, 2018, there was
$253 thousand 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 remaining weighted-
average period of 1.99 years at December 31, 2018.
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71
Restricted Stock Units
Warrant Exchange
The following table summarizes the restricted stock unit (“RSU”) activity under the 2015 Equity Incentive Plan
On August 10, 2017, the Company entered into exchange agreements with certain holders of the warrants, dated
for the years ended December 31, 2018 and 2017:
Unvested balance at December 31, 2016 . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Vested/Released . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
Unvested balance at December 31, 2017 . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Vested/Released . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested balance at December 31, 2018 . . .
Number of Grants
Grant Date Fair Value
Weighted-Average
—
23,800
—
(3,800)
20,000
—
(4,250)
(5,500)
10,250
$
$
$
$
$
$
$
—
26.50
—
31.25
25.70
—
24.72
31.25
23.13
For the year ended December 31, 2018, the Company recorded stock-based compensation expense of $88
thousand related to the time-based RSUs. As of December 31, 2018, total unrecognized compensation expense related to
non-vested RSUs amounted to $223 thousand which the Company expects to recognize over a remaining weighted-
average period of 2.68 years. All the RSU’s that remain unvested and outstanding at December 31, 2018 are subject to
time-based vesting.
12. WARRANTS
The following table presents information about warrants to purchase common stock issued and outstanding at
December 31, 2018:
Number of Exercise
Year Issued
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average exercise price . . . .
Weighted average life in years . . . . . .
Classification Warrants
Price
Equity
Equity
Equity
Equity
243 $ 166.00
307 $ 11.75
85,869 $ 250.00
2.00
7,586,711 $
Date of Expiration
10/5/2019
5/9/2021
3/18/2021
6/25/2023
7,673,130
$
4.78
4.46
In June 2018, the Company closed an underwritten public offering of an aggregate of 1,378,400 Common
Units, at an offering price of $2.00 each, each comprised of 1 share of the Company’s common stock, par value
$0.00001 per share and 1 Series A warrant to purchase 1 share of common stock. The public offering also included
6,242,811 pre-funded units at an offering price of $1.99 each, each comprised of 1 pre-funded Series B Warrant, and 1
Series A warrant to purchase 1 share of common stock. Each Series A warrant has an exercise price of $2.00 per share, is
exercisable immediately and expires 5 years from the date of issuance. Each Series B warrant has an exercise price of
$0.01 per share, is exercisable immediately and will expire 20 years from the date of issuance (see Note 10). The net
proceeds to the Company, after deducting the underwriting discounts and commissions and other offering expenses,
were $13.5 million.
At inception the 2014 Warrants and 2018 Warrants had provisions that precluded equity classification. Upon
amendment, the Company assessed whether the warrants required accounting as derivatives and determined that the
warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with
FASB Accounting Standards Codification Topic 815, Derivatives and Hedging. As such, the Company concluded that
the warrants meet the scope exception for determining whether the instruments require accounting as derivatives and
accordingly are classified in stockholders’ equity. See below for a further description of the warrant amendments.
May 9, 2014, to exchange such warrants for shares of common stock equivalent to 3.5 times the number of shares of
common stock issuable to such holders at the $96.75 exercise price under the warrants as of the date of the exchanges.
The Company issued an aggregate of 80,857 shares of common stock to the warrant holders in exchange for their
warrants to purchase an aggregate of 23,102 shares of common stock. The warrants exchanged in this transaction were
subsequently cancelled and terminated.
The Company re-measured the fair value of the exchanged warrants immediately prior to the exchange and
recorded a $3.0 million derivatives loss on the statement of operations and a corresponding increase to the warrant
liability on the balance sheet. The fair value of the warrants immediately prior to the exchange was equivalent to 80,857
shares of common stock at the Company’s closing stock price of $43.75 on August 9, 2017, the day before execution of
the exchange. As a result of the exchange, the Company recorded the settlement by removing the derivative liability
related to the exchanged warrants and recorded the issuance of common stock for $3.5 million.
Following the warrant exchange, there were additional warrants, dated May 9, 2014, to purchase shares of
common stock that remain outstanding (“Outstanding 2014 Warrants”). As a result of the Company’s issuance of
common stock in exchange for certain of the liability warrants, the exercise price of the Outstanding 2014 Warrants was
adjusted downwards from $96.75 per share to $20.75 per share and additional warrants were issued such that the
Outstanding 2014 Warrants were exercisable for an aggregate of 1,941 shares of common stock.
Warrant Cancellation
In the fourth quarter of 2017, the Company entered into warrant cancellation agreements with certain holders of
the Outstanding 2014 Warrants to cancel and terminate such warrants for total cash consideration of $40 thousand. As of
December 31, 2017, the remaining Outstanding 2014 Warrants were exercisable for an aggregate of 537 shares of
common stock.
During the year ended December 31, 2018 the Company entered into warrant cancellation agreements with
certain holders of the Outstanding 2014 Warrants to cancel and terminate such warrants for total cash consideration of
$14 thousand. As of December 31, 2018, the sole remaining Outstanding 2014 Warrants were exercisable for an
aggregate of 307 shares of common stock.
Warrant Amendments
In May 2018, the Company entered into a warrant amendment agreement with the sole remaining holder of an
Outstanding 2014 Warrant (the “Warrant Amendment”). The warrant holder received cash compensation of $19
thousand and a 2 year extension of warrant term in exchange for the removal of all anti-dilution provisions except those
for stock splits, reverse splits or stock dividends. As a result of the amendment, the Company reclassified the remaining
2014 warrants valued at $1 thousand to stockholders’ equity (see Note 10).
In September 2018, the Company entered into the Ladenburg Warrant Amendment. As a result of the
Ladenburg Warrant Amendment, the Company reclassified the 2018 Warrants valued at $14.7 million to stockholders’
equity (see Note 10).
13. 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. In the second quarter of 2018 the Company revised its 401(k)-matching policy to move from share
matching to cash-based matching. For the year ended December 31, 2018, the Company made matching contributions in
the form of cash and shares of the Company’s common stock. For the year ended December 31, 2017, the Company
made matching contributions in the form of shares of the Company’s common stock only. For the years ended
December 31, 2018 and 2017, the Company issued 440, and 3,933 shares of its common stock, respectively, with related
fair values of $6 thousand and $183 thousand respectively, which were recorded as expense in the statement of
operations.
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73
14. 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
thousand licensing fee and is required to pay certain annual maintenance fees, milestone payments and royalties. License
fees are capitalized and the gross total at December 31, 2018 and 2017 was $200 thousand (see Note 4). The Company
accounts for milestone payments, maintenance fees and royalties when they become due and payable. The Company did
not pay any milestone payments for the year ended December 31, 2018. For the year ended December 31, 2017, the
Company expensed milestone payments of $175 thousand.
15. COMMITMENTS AND CONTINGENCIES
Leases
On November 30, 2011, the Company entered into a commercial lease for 26,342 square feet of office,
laboratory and manufacturing space in Cambridge, Massachusetts (as amended on September 17, 2012 and October 31,
2017, the “Cambridge Lease”). The term of the Cambridge Lease is 6 years and 3 months, with one 5-year extension
option. On August 21, 2017, the Company exercised its option for the 5-year extension on the Cambridge Lease. The
5- year renewal lease term commences on November 1, 2018 and ends on October 31, 2023. The terms of the Cambridge
Lease require a standby letter of credit in the amount of $311 thousand.
On March 31, 2016, the Company entered into a short-term lease, to sub-lease 5,233 square feet of its facility
(the “2016 Sublease”). The 2016 Sublease term was from April 1, 2016 through January 31, 2017. In connection with
the 2016 Sublease, the Company received sublease income for the year ended December 31, 2017 of $26 thousand,
which was recorded as an offset to rent expense.
On June 13, 2017, the Company entered into a new short-term lease, to sub-lease 5,233 square feet of its facility
(the “Moderna Sublease”). The lease term was from July 1, 2017 through October 26, 2018. On June 19, 2017, the
Company received a $55 thousand security deposit under the terms of the Moderna Sublease. In conjunction with the
assignment of the Cambridge Lease on May 3, 2018 further described below, this security deposit was transferred to the
third party that assumed the lease. In connection with the Moderna Sublease, the Company received sublease income of
$112 thousand for the year ended December 31, 2018, which was recorded as an offset to rent expense.
On May 3, 2018, the Company assigned the Cambridge Lease to a third party who assumed all of the
Company’s remaining rights and obligations under the Cambridge Lease including the Moderna Sublease. On the same
date as the lease assignment, the Company entered into a sublease for 5,104 square feet of space, originally part of the
Cambridge Lease, from the third party to which the Company assigned the Cambridge Lease (the “Current Cambridge
Lease”). The Current Cambridge Lease commenced on May 3, 2018 and expires October 31, 2023 and contains rent
holiday and rent escalation clauses. In connection with the Cambridge Lease Assignment and the Current Cambridge
Lease, the $311 thousand standby letter of credit was terminated, and a new standby letter of credit was established for
$40 thousand. On November 1, 2018, the standby letter of credit was increased to $60 thousand. The $55 thousand
security deposit under the Moderna Sublease was transferred to the third party and $603 thousand of deferred rent was
removed from the consolidated balance sheets as of June 30, 2018. The resulting gain was recorded within the
consolidated statement of operations and comprehensive loss during the second quarter of 2018. The Company also
wrote off certain furniture, fixtures and equipment (including laboratory equipment) and recorded an impairment charge
of $48 thousand for the year ended December 31, 2018.
The Company recognizes rent expense on a straight-line basis over the term of the lease and records the
difference between the amount charged to expense and the rent paid as prepaid rent or deferred rent liability. As of
December 31, 2018, and December 31, 2017, the amount of prepaid rent was $17 thousand and $0, respectively. As of
December 31, 2018, and December 31, 2017, the amount of deferred rent liability was $0 and $397 thousand,
respectively
Pursuant to the terms of the non-cancelable lease agreements in effect at December 31, 2018, the future
minimum rent commitments are as follows:
(In thousands) Year Ended December 31,
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
243
375
386
398
339
1,741
Total rent expense for the years ended December 31, 2018 and 2017, including month-to-month leases, was
$837 thousand, and $1.2 million, respectively.
Compensation Commitment
The Company entered into a compensation arrangement with an executive during September 2016 which
provided for a future cash payment by the Company to the executive based on the February 13, 2017 stock price of the
executive’s former employer. The award was earned over a period of 1 year. The expense related to the compensation
arrangement was $174 thousand for the year ended December 31, 2017. As of December 31, 2018, there were no
outstanding payments to the executive.
Lawsuits with Former Employee
In November 2013, the Company filed a lawsuit against Francis Reynolds, its former Chairman, Chief
Executive Officer and Chief Financial Officer, in Middlesex Superior Court, Middlesex County, Massachusetts (InVivo
Therapeutics Holdings Corp. v. Reynolds, Civil Action No. 13-5004). The complaint alleged 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 involved approximately $500 thousand worth of personal
and/or exorbitant expenses that the Company alleged 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 alleged 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 sought monetary
damages and a declaratory judgment. The counterclaims related to Mr. Reynolds’s allegations that the Company and the
Company’s Board of Directors interfered with the performance of his duties under the terms of his employment
agreement, and that Mr. Reynolds was entitled to additional shares upon the exercise of certain stock options that he did
not receive. On January 9, 2014, the Company, along with the directors named in the counterclaims, filed the Company’s
answer denying that Mr. Reynolds was entitled to any relief. On March 3, 2017, the counterclaim defendants filed a
motion for summary judgement on all counterclaims asserted by Mr. Reynolds. On October 18, 2017, the Court allowed
the motion for summary judgment in substantial part, and denied it in part. The Court, citing disputed issues of fact,
declined to dismiss the counterclaims for breach of contract, breach of implied covenant of good faith and fair dealing,
and declaratory judgment concerning Mr. Reynolds’ attempted exercise of certain stock options, which Mr. Reynolds
claims is the equivalent of 47,864 shares of common stock, but dismissed all other claims asserted by Mr. Reynolds. In
July 2018, the parties reported the case as settled to the Court.
Vendor Dispute
In July 2018, the Company entered into a settlement agreement with a former vendor under which the vendor
agreed to pay the Company $1.2 million, of which the full amount has been paid and is included in other income on the
statement of operations and other comprehensive loss.
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16. RESTRUCTURING
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
In August 2017, the Company implemented a strategic restructuring. In conjunction with the strategic
restructuring, the Company completed a reduction in force eliminating approximately 39% of its workforce.
FINANCIAL DISCLOSURE
None.
The Company did not record any restructuring expenses for the year ended December 31, 2018. For the year
Item 9A. CONTROLS AND PROCEDURES
ended December 31, 2017, the Company recorded $898 thousand in restructuring expenses, including employee
severance benefits and related costs, as well as a write-off of certain fixed assets.
Evaluation of the Company’s Disclosure Controls
The following table summarizes the restructuring costs by category for the periods indicated:
(In thousands)
Research and development . . . . . . . . . . . . $
General and administrative . . . . . . . . . . . .
Restructuring Costs . . . . . . . . . . . . . . . . . . . $
Year Ended December 31, 2017
Cash
Non-Cash (1)
Total
669 $
188
857 $
41 $
—
41 $
710
188
898
(1) The non-cash restructuring expenses represent write-offs of certain fixed assets in connection with the
restructuring. The write-offs were recorded as a charge to research and development expense on the statement
of operations.
The following table summarizes the restructuring reserve for the periods indicated:
(In thousands)
Restructuring reserve beginning balance . . . . . . . . . . . . . . $
December 31, 2018 December 31, 2017
—
348 $
Cash restructuring expenses incurred during
the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts paid during the period . . . . . . . . . . . . . . . . . .
Restructuring reserve ending balance . . . . . . . . . . . . . . . . $
—
(348)
— $
857
(509)
348
17. RELATED PARTY TRANSACTIONS
In January 2017, the Company entered into a consulting agreement with Dr. Robert Langer, a member of the
Company’s Scientific Advisory Board, who at the time of entering into the consulting agreement was a holder of over
5% of the Company’s common stock, for certain consulting services. Dr. Langer was one of the original co-founders of
the Company. Pursuant to the terms of the agreement, the Company initially agreed to pay Dr. Langer $250 thousand per
year in consulting fees, but that amount was reduced effective October 2017 to $100 thousand per year in consulting
fees. For the years ended December 31, 2018 and 2017 the Company paid Dr. Langer $83 thousand and $204 thousand
in consulting fees respectively.
Dr Langer holds less than 5% of the Company’s common stock as of December 31, 2018.
18. SUBSEQUENT EVENTS
In connection with the employment agreement for the Company's new Chief Finance Officer and Treasurer, the
Company granted a non-statutory stock option to purchase up to 90,000 shares of the Company’s common stock, as an
inducement grant outside of the Company’s 2015 Stock Incentive Plan pursuant to Nasdaq Listing Rule 5635(c)(4).
On March 1, 2019, the Company paid off the remaining outstanding MassDev loan payable amounts.
Our management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of its disclosure controls and procedures as of December 31, 2018. 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 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 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, 2018, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the Company’s
disclosure controls and procedures were not effective due to deficiencies in internal control over financial reporting as
discussed and defined in “Management’s Annual Report on Internal Control over Financial Reporting” referred to
below.
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.
Our management conducted an evaluation of the effectiveness of the Company’s internal control over financial
reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that
our internal control over financial reporting was not effective at December 31, 2018 because of the material weakness
described below.
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Based on the COSO criteria, management identified control deficiencies that constitute a material weakness. A
Plan for Remediation
“material weakness”, as defined by COSO, is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is more than a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or detected in a timely manner. Management has identified
the following deficiencies in our internal control over financial reporting:
• We did not perform a timely and ongoing entity-level risk assessment to identify and assess changes that
could significantly impact the system of internal control over financial reporting. New risks arising from
changes to certain of our systems, personnel and processes during the year were not identified, assessed
and responded to in a timely manner. The lack of a timely and ongoing entity-level risk assessment
constituted an internal control design deficiency, which resulted in more than a remote likelihood that a
material error would not have been prevented or detected.
• We did not follow appropriate system development lifecycle controls when implementing a new general
ledger accounting system in July 2018. Furthermore, we did not conduct continuous risk assessments and
monitoring activities, or adequately identify and analyze risks of financial misstatements due to error
and/or fraud and, therefore we did not adequately identify and assess the changes that impacted the system
of internal control. Additionally, we did not have adequate information technology general controls
(“ITGCs”) in the areas of user access, change management, and computer operations over certain systems
that support the financial reporting process. These deficiencies could result in occurrences of unmonitored
access to certain applications, unsupervised changes being implemented, and an absence of information to
enable us to implement adequate detective controls. These deficiencies may have adversely impacted the
functionality of key applications, and the integrity of underlying data that supports the effectiveness of
system-generated data and reports used in financial reporting.
• We did not formally develop or perform evaluations to ascertain whether the components of internal
control were present and functioning through the period ended September 30, 2018. This affected our
ability to identify, evaluate and communicate internal control deficiencies in a timely manner to those
parties responsible for taking corrective action, including senior management and the Board of Directors,
as appropriate. The lack of timely evaluations of the components of internal control constituted an internal
control design deficiency, which resulted in more than a remote likelihood that a material error would not
have been prevented or detected.
We have not had sufficient time to fully remediate all the aforementioned deficiencies and therefore, some of
the control deficiencies continued to exist as of December 31, 2018. We believe the control deficiencies described
herein, when aggregated, represent a material weakness in our internal control over financial reporting at December 31,
2018 because such deficiencies result in a reasonable possibility that a material misstatement in our annual or interim
consolidated financial statements may not be prevented or detected on a timely basis by our internal controls. As a result
of this assessment, we have therefore concluded that our internal controls over financial reporting were not effective at
December 31, 2018.
Despite the existence of the material weakness described above, our consolidated financial statements are
presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States
of America.
Changes in Internal Control Over Financial Reporting
Other than as described above in “Management’s Annual Report on Internal Control over Financial Reporting,”
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.
We are currently taking actions to remediate the deficiencies in our internal controls over financial reporting
and are implementing additional processes and controls designed to address the underlying causes associated with the
above-mentioned deficiencies. We are committed to remediating the deficiencies described above and developed and
began remediation efforts during the year ended December 31, 2018 and will continue such for 2019. During the year
ended December 31, 2018 and continuing into 2019, our internal control remediation efforts include the following:
•
In the three months ended December 31, 2018, we performed an entity-level risk assessment to evaluate the
implication of relevant risks on financial reporting, including the impact of potential fraud-related risks and
the risks related to non-routine transactions, if any, on internal control over financial reporting. We plan to
make this a continuous process in 2019 and thereafter.
• We are exploring opportunities to implement a new general ledger accounting system that would address
some of the limitations inherent in the current general ledger accounting system. We intend to engage
information technology and financial reporting personnel to perform a risk and control assessment of the
new general ledger accounting system as part of the system selection process. In the interim, we will also
design and identify sufficient compensating controls to address the limitations inherent with our existing
general ledger accounting system. If we decide to forgo a new general ledger accounting system
implementation, sufficient compensating controls will be performed indefinitely.
•
In December 2018, we engaged a third-party to perform an evaluation to ascertain whether the components
of internal control were present and functioning throughout the three months ended December 31, 2018.
We plan to make this a continuous process through 2019 to ensure that internal control deficiencies are
evaluated and communicated in a timely manner to those parties responsible for taking corrective action,
including senior management and the Board of Directors, as appropriate. The third-party will also assist
management in designing and evaluating the ITGCs over all financially-significant systems.
We believe these actions will be effective in remediating the deficiencies described above. As we continue to
evaluate and work to improve our internal control over financial reporting, we may determine to take additional
measures to address the deficiencies or determine to modify the remediation plan described above. Until the remediation
steps set forth above are fully implemented and operating for a sufficient period of time, the material weakness described
above will continue to exist.
Item 9B. OTHER INFORMATION
None.
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PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated herein by reference from the portions of the definitive
Proxy Statement to be filed with the Securities and Exchange Commission within 120 days following the end of our
2018 fiscal year under the heading “Corporate Governance”.
The information relating to security ownership by certain beneficial owners and management is incorporated
herein by reference from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days following the end of our 2018 fiscal year under the heading “Stock Ownership of
Management and Principal Shareholders."
Code of Ethics
Securities Authorized for Issuance under Equity Compensation Plans
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 by this Item is incorporated herein by reference from the portions of the definitive
Proxy Statement to be filed with the Securities and Exchange Commission within 120 days following the end of our
2018 fiscal year under the headings “Executive Compensation” and “Compensation Tables.”
Pay Ratio
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to
provide the information under this item.
The following table provides certain information about shares of our common stock that may be issued under
our existing equity compensation plan as of December 31, 2018, which consists of our 2007 Equity Incentive Plan, 2010
Equity Incentive Plan, 2015 Equity Incentive Plan, and Employee Stock Purchase Plan or other equity compensation
plans not approved by security holders.
The inducement grant that was approved by our Board of Directors on December 17, 2018 and awarded to our
new Chief Financial Officer is excluded from the table below, as the effective date of the grant was January 14, 2019.
The terms and conditions of the plan include the terms and conditions of the Nonstatutory Stock Option Agreement
included as Exhibit 10.32 of this Annual Report on Form 10-k.
(a)
Number of
securities
(b)
to be issued upon Weighted-average
the exercise of
outstanding
options,
warrants and
rights
exercise price
of outstanding
options,
warrants
and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)
65,099 $
65,099 $
84.96
84.96
188,552
188,552
Plan Category
Equity compensation plans approved by
security holders . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required by this Item is incorporated herein by reference from the portion of the definitive
Proxy Statement to be filed with the Securities and Exchange Commission within 120 days following the end of our
2018 fiscal year under the headings “Certain Relationships and Related Transactions” and "Corporate Governance".
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference from the portion of the definitive
Proxy Statement to be filed with the Securities and Exchange Commission within 120 days following the end of our
2018 fiscal year under the proposal heading “Ratification of Appointment of Independent Registered Public Accounting
Firm”.
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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 following is a list of exhibits filed as part of this Annual Report on 10-K.
Exhibit
No.
2.1 Agreement and Plan of Merger, dated October 4, 2010, by and between Design Source, Inc. and InVivo
Description
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).
3.3 Certificate of Change Pursuant to NRS 78.209 filed with Nevada Secretary of State, dated April 13, 2018
(incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the
SEC on April 16, 2018).
3.4 Certificate of Amendment to Articles of Incorporation of InVivo Therapeutics Holdings Corp. (incorporated
by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC June 1,
2018.)
4.1 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).
4.2 Warrant dated October 5, 2012 issued to Massachusetts Development Finance Agency (incorporated by
reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on
October 9, 2012).
4.3 Form of Warrant of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 4.1 to the
Company’s Current Report on Form 8-K, as filed with the SEC on May 6, 2014).
4.4 Form of Warrant Agreement (incorporated by reference from Exhibit 4.1 to the Company’s Current Report
on Form 8-K, as filed with the SEC on March 3, 2016).
4.5 Form of Series A Warrant (incorporated by reference from Exhibit 10.35 to the Company’s Registration
Statement on Form S-1/A (File No. 333- 224424) as filed with the SEC on June 14, 2018).
4.6 Form of Series B Warrant (incorporated by reference from Exhibit 10.35 to the Company’s Registration
Statement on Form S-1/A (File No. 333- 224424) as filed with the SEC on June 14, 2018).
4.7 Amendment to Warrant Agency Agreement, by and between InVivo Therapeutics Holdings Corp. and
Continental Stock Transfer & Trust Company, as Warrant Agent, dated September 27, 2018 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on
September 28, 2018).
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).
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 Amendment Two to the Exclusive License, dated August 29, 2017, by and between Children’s Medical
Center Corporation and InVivo Therapeutics Corporation (incorporated by reference from Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2017, as filed with the
SEC on January 3, 2018).
10.9 Form of Indemnification Agreement (for directors and officers) (incorporated by reference from
Exhibit 10.19 to the Company’s Registration Statement on Form S-1 (File No. 333-171998), as filed with the
SEC on February 1, 2011).
10.10 Lease Agreement, dated November 30, 2011, between InVivo Therapeutics Corporation and RB Kendall
Fee, LLC (incorporated by reference from Exhibit 10.25 to the Company’s Registration Statement on
Form S-1 (File No. 333-178584), as filed with the SEC on December 16, 2011).
10.11 Lease Guaranty, dated November 30, 2011, by InVivo Therapeutics Holdings Corp. (incorporated by
reference from Exhibit 10.26 to the Company’s Registration Statement on Form S-1 (File No. 333-178584),
as filed with the SEC on December 16, 2011).
10.12 First Amendment of Lease between InVivo Therapeutics Corporation and RB Kendall Fee, LLC, dated
September 17, 2012 (incorporated by reference from Exhibit 10.31 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC on March 12, 2013).
10.13 Second Amendment of Lease between InVivo Therapeutics Corporation and RB Kendall Fee, LLC, dated
October 31, 2017 (incorporated by reference from Exhibit 10.13 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2017, as filed with the SEC on March 12, 2018).
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21.1 Subsidiaries of InVivo Therapeutics Holdings Corp. (incorporated by reference from Exhibit 21.1 to the
Company’s Current Report on Form 8-K, as filed with the SEC on November 1, 2010).
23.1+ Consent of RSM US LLP
31.1+ Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2+ Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1+ Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.
32.2+ Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Label Linkbase Document.
101.PRE XBRL Taxonomy Presentation Linkbase Document.
* Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of Form 10-K.
+ Filed herewith.
Item 16. FORM 10-K SUMMARY
None.
10.14* 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).
10.15 Promissory Note dated October 5, 2012 in favor of Massachusetts Development Finance Agency
(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the
SEC on October 9, 2012).
10.16 Purchase Agreement, dated January 25, 2018, between InVivo Therapeutics Holdings Corp. and Lincoln Park
Capital Fund, LLC (incorporated by reference from Exhibit 1.1 to the Company’s Current Report on
Form 8- K, as filed with the SEC on January 26, 2018).
10.17 Registration Rights Agreement, dated January 25, 2018, between InVivo Therapeutics Holdings Corp. and
Lincoln Park Capital Fund, LLC (incorporated by reference from Exhibit 1.2 to the Company’s Current
Report on Form 8-K, as filed with the Commission on January 26, 2018).
10.18* 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).
10.19* 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).
10.20* Consulting Agreement, dated June 29, 2017, by and between InVivo Therapeutics Holdings Corp. and
Richard Toselli, M.D. (incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2017, as filed with the SEC on August 8, 2017).
10.21* Letter Agreement, dated December 17, 2017, by and between Mark D. Perrin and InVivo Therapeutics
Holdings Corp. (incorporated by reference from Exhibit 10.26 to the Company’s Registration Statement on
Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
10.22* Employment Agreement, dated December 18, 2017, by and between Richard Toselli and InVivo
Therapeutics Holdings Corp. (incorporated by reference from Exhibit 10.27 to the Company’s Registration
Statement on Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
10.23* Consulting Agreement, dated January 3, 2018, by and between Mark D. Perrin and InVivo Therapeutics
Holdings Corp. (incorporated by reference from Exhibit 10.28 to the Company’s Registration Statement on
Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
10.24* Letter Agreement, dated March 7, 2018, by and between Pamela Stahl and InVivo Therapeutics Holdings
Corp (incorporated by reference from Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2017, as filed with the SEC on March 12, 2018).
10.25* Consulting Agreement, dated January 19, 2018, by and between Tamara L. Joseph and InVivo Therapeutics
Holdings Corp. (incorporated by reference from Exhibit 10.30 to the Company’s Registration Statement on
Form S-1/A (File No. 333-222738) as filed with the SEC on February 9, 2018.)
10.26 Form of Exchange Agreement, dated as of August 10, 2017, between InVivo Therapeutics Holdings Corp.
and certain holders of warrants (incorporated by reference from Exhibit 10.1 to the Company’s Current
Report on Form 8-K, as filed with the SEC on August 10, 2017).
10.27 Assignment and Assumption of Lease and Consent at Landlord, dated May 3, 2018 by and among Shiseido
Americas Corporation, ARE-MA Region No. 59 LLC and InVivo Therapeutics Holdings Corp. (incorporated
by reference from Exhibit 10.34 to the Company’s Registration Statement on Form S-1/A (File
No. 333- 224424) as filed with the SEC on June 14, 2018).
10.28 Sublease, dated May 3, 2018, by and between Shiseido Americas Corporation and InVivo Therapeutics
Holdings Corp.(incorporated by reference from Exhibit 10.35 to the Company’s Registration Statement on
Form S-1/A (File No. 333- 224424) as filed with the SEC on June 14, 2018).
10.29* Letter Agreement, dated May 7, 2018, by and between Christopher McNulty and InVivo Therapeutics
Holding Corp. (incorporated by reference from Exhibit 10.36 to the Company’s Registration Statement on
Form S-1/A (File No. 333- 224424) as filed with the SEC on June 14, 2018).
10.30* Amendment to Employment Agreement, by and between InVivo Therapeutics Holdings Corp. and Richard
Toselli, dated October 1, 2018 (incorporated by reference from Exhibit 10.1 to the Company’s Current
Report on Form 8-K, as filed with the SEC on October 5, 2018).
10.31* Employment Agreement, dated December 24, 2018, between the Company and Richard Christopher
(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the
SEC on January 14, 2019).
10.32* Nonstatutory Stock Option Agreement, dated January 14, 2019, between the Company and Richard
Christopher (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, as
filed with the SEC on January 14, 2019).
84
85
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: April 1, 2019
Date: April 1, 2019
INVIVO THERAPEUTICS HOLDINGS CORP.
By:
/s/ RICHARD TOSELLI, M.D
Name: Richard Toselli
Title: President, Chief Executive Officer and Director
(Principal Executive Officer)
By:
/s/ RICHARD CHRISTOPHER
Name: Richard Christopher
Title: Chief Financial Officer and Treasurer (Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ RICHARD TOSELLI M.D
Richard Toselli
President, Chief Executive Officer and
Director (Principal Executive Officer)
/S/ RICHARD CHRISTOPHER
Richard Christopher
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
April 1, 2019
April 1, 2019
/s/ C. ANN MERRIFIELD
C. Ann Merrifield
/s/ DANIEL R. MARSHAK
Daniel R. Marshak
/s/ CHRISTINA MORRISON
Christina Morrison
/s/ RICHARD J. ROBERTS
Richard J. Roberts
Chair of the Board
April 1, 2019
Director
Director
Director
April 1, 2019
April 1, 2019
April 1, 2019
86
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A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2018 AS FILED WITH THE SEC,
EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST
TO: INVESTOR RELATIONS DEPARTMENT, INVIVO THERAPEUTICS HOLDINGS CORP., ONE KENDALL SQUARE,
BUILDING 1400 WEST, 4TH FLOOR, SUITE B14402, CAMBRIDGE, MA 02139. EXHIBITS WILL BE PROVIDED UPON WRITTEN
REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.
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