Summary of Risks Related to our Business
Some of the factors that could cause actual results to differ are identified below, as well as those discussed in the Item 1A. Risk Factors section in this Form 10-K and within MD&A. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. The occurrence of any of the risks identified below or in the Item 1A. Risk Factors section in this Form 10-K, or other risks currently unknown, could have a material adverse effect on our business, financial condition or results of operations, or we may be required to increase our accruals for contingencies. It is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties:
1. Despite promising results from the Early Feasibility Study for Orion being conducted at UCLA and Baylor we currently have no commercial products or product revenue and may never become profitable.
2. We may face substantial competition in the future and may not be able to keep pace with the rapid technological changes which may result from others discovering, developing or commercializing products before or more successfully than we do.
3. Despite early positive results in our limited initial trials at UCLA and Baylor School of Medicine our ongoing development efforts may never demonstrate the feasibility of our Orion technology.
4. We have not been profitable to date and expect our operating losses to continue for the foreseeable future; we may never be profitable.
5. There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.
6. The COVID-19 pandemic has had an adverse effect on our business and results of operations and is expected to continue to have further adverse effects, which could be material, on our business, results of operations, financial condition, liquidity, and capital investments.
7. Any failure or delay in completing clinical trials or studies for new product candidates or next generation of our products and the expense of those trials could adversely affect our business.
8. We have lost key management and staff personnel because of Covid-19 pandemic. If we fail to recruit highly skilled personnel to replace employees who have left the Company, our ability to identify, develop and commercialize new or next generation product candidates will be impaired, could result in loss of markets or market share and could make us less competitive.
9. We may become involved in future lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.
10. We are increasingly dependent on sophisticated information technology systems, including systems from third parties, and if we fail to properly maintain the integrity of our data or if our products do not operate as intended, our business could be materially and adversely affected.
11. We will need additional capital to support our operations and growth. Additional capital may be difficult to obtain restricting our operations and resulting in additional dilution to our stockholders.
12. Our revenue from sales of Orion, if approved, will be dependent upon the pricing and reimbursement guidelines adopted in each country and if pricing and reimbursement levels are inadequate to achieve profitability our operations will suffer.
13. Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
14. We may acquire additional businesses or form strategic alliances in the future, and we may not realize the benefits of such acquisitions or alliances.
15. Although we believe that our strategy to (i) leverage proven Argus II technology to develop the Orion visual cortical prosthesis and (ii) significantly expand our addressable market to include a portion of the almost six million patients who are blind from eye trauma, optic nerve disease and injury, diabetic retinopathy, glaucoma and other currently untreatable causes is more likely to address a better and faster way to treat many causes of blindness, including the Retinitis Pigmentosa population, we will continue to incur material near term losses, market uncertainty and our stock may experience significant fluctuations as we continue to focus exclusively on Orion.
16.If we are unable to obtain sufficient funding, we may be unable to execute our business plan and fund operations. We may not be able to obtain additional financing on commercially reasonable terms, or at all.
17.Although we are currently in compliance with Nasdaq listing standards in the past we have received notices of deficiencies. If our common stock is delisted, the market price and liquidity of our common stock and our ability to raise additional capital would be adversely impacted.
18. Entities controlled by Gregg Williams, our Chairman of the Board, have the ability to influence or control the outcome of matters submitted for stockholder approval, may limit your ability to influence outcomes of director elections and may have interests that differ from those of our other stockholders.
19. We have the right to issue shares of preferred stock. If we were to issue preferred stock, it is likely to have rights, preferences and privileges that may adversely affect the common stock.
20. Should any of the various conditions to our proposed Merger transaction with Nano Precision Medical Inc. fail to be timely satisfied or if the Merger does not close for any other reason we may be required to pay a termination fee in certain instances, incur substantial cost with no attendant benefit, and experience other adverse effects on our business, financial results, and/or operations. Even if the Merger is completed we may experience additional risks associated with the combined company and its ability to develop its products, finance operations and continue the businesses on an integrated basis.
PART I
Item 1. Business
Our Company
Company Overview
Second SightVivani Medical, Products, Inc. (“Second Sight,Vivani,” the “Company,” “we,” “us,” “our” or similar terms) is a preclinical stage biopharmaceutical company which develops miniaturized, subdermal implants utilizing its proprietary NanoPortal™ technology to enable long-term, near constant-rate delivery of a broad range of medicines to treat chronic diseases. Vivani uses this platform technology to develop and potentially commercialize drug implant candidates, alone or in collaboration with pharmaceutical company partners to address a leading cause of poor clinical outcomes in the treatment of chronic disease, medication non-adherence. For example, approximately 50% of patients treated for type 2 diabetes are non-adherent to their medicines, which can lead to poor clinical outcomes. We are developing a portfolio of miniature, sub-dermal drug implant candidates that, unlike most oral and injectable medicines, are designed with the goal of guaranteeing adherence by delivering therapeutic drug levels for up to 6 months or longer. In addition, our aim is to minimize fluctuations in patients’ drug levels through the use of our NanoPortal technology, which may improve the tolerability profiles for medicines that produce side effects associated with fluctuating drug levels in the blood.
Vivani resulted from the business combination of Second Sight Medical Products, Inc. (“Second Sight”) and Nano Precision Medical, Inc. (“NPM”). Vivani’s main priority is the further development of the company’s lead programs NPM-115 and NPM-119, which are miniature, 6-month, GLP-1 implant candidates for the treatment of chronic weight management and patients with type 2 diabetes, respectively. In parallel, Vivani’s management team remained committed to identifying and exploring strategic options for the Neuromodulation Division (formerly Second Sight) that will enable further development of its pioneering neurostimulation systems from legacy company Second Sight aimed at helping patients recover critical body functions.
Moving forward, Vivani’s focus will be on the further development of NPM-115, NPM-119, and its emerging pipeline of innovative miniature, long-term drug implants to treat patients with chronic diseases and high unmet medical need. The origins of this business started while its current Vivani CEO and NPM co-founder Adam Mendelsohn and two of his graduate school colleagues, Kathleen Fischer and Lily Peng, at the University of California, San Francisco (“UCSF”) and the University of California, Berkeley (“UCB”), entered business school competitions leveraging their growing knowledge of chemistry, drug delivery, and nanoscale technology to propose the development of new miniature, biocompatible, drug implant prototypes capable of releasing therapeutic drug levels over an extended period of time. Based on their success and encouragement from professors and others, including medical device/pharmaceutical icon Alfred E. Mann, Dr. Mendelsohn and colleagues started NPM in 2009 and operations began in 2011 in an incubator on the UCB campus. Today, the Company has developed, manufacturedgrown to 37 full-time employees and marketed implantable visual prostheticsits current headquarters and operations are located at 1350 South Loop Road, Alameda, California.
Vivani’s implant technology, which we refer to as NanoPortal, utilizes a space-efficient design that areallows a miniaturized implant to provide many months of therapeutic delivery of potent molecules. The technology has no moving parts, which is intended to deliver useful artificial vision to blind individuals. We are a recognized global leader in neuromodulation devices for blindness,minimize fluctuating drug delivery over the duration of the implant and are committed tois also tunable. Vivani has primarily been developing new technologies to treatimplant candidates around peptide therapeutics, but the broadest population of sight-impaired individuals.
Leveraging our 20 years of experience in neuromodulation for vision, we are developing the Orion® Visual Cortical Prosthesis System (“Orion”), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due totechnology has potential application across a wide range of causes,molecular types. The key innovative component of the technology is a biocompatible titanium-oxide nano-porous membrane which consists of millions of precisely sized nanotubes whose inner diameters represent the only path for drug molecules to exit the reservoir once the implant is fully assembled.
In February 2022, we announced the signing of a definitive merger agreement between NPM and Second Sight, pursuant to which NPM became a wholly-owned subsidiary of Second Sight. On August 30, 2022, the two companies completed the merger, concurrent with which Second Sight changed its name to Vivani Medical, Inc. and now conducts the present business of the Company. In September 2022, we announced the formation of the Company’s Biopharm Division to advance the assets of the former NPM which includes the further development of the Company’s lead programs, NPM-115 and NPM-119, a miniature, 6-month, GLP-1 implant candidates for the treatment of chronic weight management and patients with type 2 diabetes, respectively. Vivani’s management team remains committed to identifying and exploring strategic options for the Neuromodulation Division (formerly Second Sight) that will enable further development of its pioneering neurostimulation systems from Second Sight to help patients recover critical body functions. On December 28, 2022, the assets and liabilities of this segment were contributed to Cortigent, Inc. a newly formed wholly owned subsidiary of Vivani, in exchange for 20,000,000 shares of common stock of Cortigent. As of December 31, 2023, after giving effect to a 1-for-4 reverse stock split that we implemented, Cortigent had 5,000,000 shares of common stock outstanding, all owned by Vivani.
In March 2023, Vivani announced the filing of a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) for the proposed initial public offering of Cortigent. Cortigent, currently a wholly-owned subsidiary of Vivani, was formed for the purpose of advancing the Company’s pioneering neurostimulation technology. The Registration Statement on Form S-1 was recently amended and filed with the SEC in February 2024 to refresh the financial information and provide minor updates to the business.
On July 6, 2023, Vivani changed its state of incorporation from the State of California to the State of Delaware by means of a plan of conversion, effective July 5, 2023. The reincorporation, including glaucoma, diabetic retinopathy, optic nerve injurythe principal terms of the plan of conversion, was submitted to a vote of, and approved by, Vivani’s stockholders at its 2023 Annual Meeting of Stockholders held on June 15, 2023. As part of this change of incorporation the Company established a par value of $0.0001 per share and all periods have been retroactively adjusted to reflect this change.
An Investigational New Drug Application (“IND”) for NPM-119 (GLP-1 implant) was filed with the U.S. Food and Drug Administration (“FDA”) on July 14, 2023, to support the initiation of the first-in-human study of NPM-119 in patients with type 2 diabetes, also named LIBERATE-1™. On August 18, 2023, FDA provided written notification that the LIBERATE-1 study was on full clinical hold, primarily due to insufficient Chemistry, Manufacturing, and Controls (“CMC”) information to assess the risk to human subjects. Vivani remains actively engaged in discussions with FDA as part of its efforts to lift the clinical hold and plans to submit a Complete Response to the FDA during the first half of 2024.
On August 25, 2023, Vivani and Cortigent entered into an Amendment No. 1 (the “Amendment”) to the Transition Funding, Support and Services Agreement dated March 19, 2023 (the “TFSSA”). Pursuant to the TFSSA, Vivani has agreed to advance funds and provide or diseasecause to be provided to Cortigent the services and eye injury.funding intended to cover salaries and related costs, rent and other overhead in order to permit Cortigent to operate in substantially the same manner in which business operations of Cortigent were previously operated by Second Sight, prior to the formation of Cortigent, which obligations will continue, in the case of the funding obligations, until the earlier of December 31, 2024 or the closing of an initial public offering of Cortigent (the “Funding Support Term”). Under the Amendment, Cortigent has agreed to repay $1,500,000 to Vivani at the conclusion of the Funding Support Term. In addition, at the conclusion of the Funding Support Term, Cortigent will enter into a five-year promissory note at 5% interest for $2,000,000 in favor of Vivani. Consequently, Vivani will forgive any remaining amounts due by Cortigent to it under the TFSSA. In October 2023, Vivani implemented a reduction-in-force to conserve cash that decreased Cortigent’s employees from 14 to 7 while continuing the ongoing Orion® clinical study and basic operations.
In the fourth quarter of 2023, Vivani Medical Australia Pty Ltd., a wholly-owned subsidiary in Australia was established to support studies of our products and product candidates.
In February 2024, Vivani announced positive NPM-115 preclinical weight loss data comparable to semaglutide, the active ingredient in Ozempic®/Wegovy®, and disclosed NPM-139 as a semaglutide implant as our strategy shifted to prioritize our obesity portfolio. In a study in high-fat diet-induced obese mice, NPM-115 generated weight loss of approximately 20% compared to a sham implant control after a 28-day treatment duration, comparable to weight loss observed in mice treated with semaglutide injections (Ozempic®/Wegovy®) in the same study. The Company also disclosed that semaglutide is the active pharmaceutical ingredient in NPM-139, a miniature, subdermal GLP-1 implant in development for chronic weight management, with the added potential benefit of once-yearly administration.
On March 1, 2024, the Company announced that it had entered into a securities purchase agreement with an institutional investor to purchase 3,947,368 shares of common stock and warrants to purchase up to an aggregate of 3,947,368 shares of common stock at a purchase price of $3.80 per share and accompanying warrant in a registered direct offering. The warrants have an exercise price of $3.80 per share, are exercisable immediately upon issuance, and will expire three years following the date of issuance.
On March 6, 2024, the Company announced the appointment of Daniel Bradbury to its Board of Directors. Under Bradbury’s leadership as CEO, Amylin Pharmaceuticals, with partner Alkermes, secured the 2012 approval of Bydureon® (exenatide injection), the world’s first GLP-1 receptor agonist, a class of drugs that now includes blockbusters Ozempic®, Trulicity® and Wegovy®.
Our Proprietary NanoPortal™ Implant Technology
Vivani’s implant technology, which we refer to as NanoPortal, utilizes a space-efficient design that allows a miniaturized implant to provide many months of therapeutic delivery of potent molecules. The technology has no moving parts, which is intended to convert images capturedminimize fluctuating drug delivery over the duration of the implant and is also tunable. Vivani has primarily been developing implant candidates around peptide therapeutics, but the technology has potential application across a wide range of molecular types. The key innovative component of the technology is a biocompatible titanium-oxide nano-porous membrane which consists of millions of precisely sized nanotubes whose inner diameters represent the only path for drug molecules to exit the reservoir once the implant is fully assembled.
We believe the key to the technology’s ability to achieve near constant release of drug without moving parts is the ability to precisely tune the inner diameter of the nanotubes to the same size range as individual drug molecules. If the inner diameter of the nanotubes is smaller than the size of a given drug molecule, there would be no release at all. If the inner diameter of the nanotubes is much larger than the size of a given drug molecule, the rate at which the drug leaves the reservoir would follow traditional physics and would decrease over time as the drug concentration decreases. However, when the opening is close enough in size to the drug molecules, the drug release is constrained and can result in a variety of desirable delivery profiles, including near constant release. Vivani’s NanoPortal technology has demonstrated near constant release in an animal model for six months.
For drug molecules with adequate potency and stability, NanoPortal can allow minimization of the implant size while extending implant duration. A custom delivery profile can also be achieved by adjusting the number of accessible nanotubes, engineering changes to the implant, and/or changes in formulation parameters. With the design flexibility afforded by the NanoPortal technology, Vivani plans to develop a miniature video camera mountedportfolio of drug implant candidates aimed at addressing chronic diseases with high unmet medical need.
Vivani’s NanoPortal technology has demonstrated near constant in vitro release for two dose configurations (see left portion of the chart below). In vitro testing was performed at 37°C on glassesimplant devices stored in a buffer solution adjusted to a physiological pH of 7.4. For a high-dose configuration, the observed near-constant release was demonstrated over the 12-week measurement period, after which the drug began to be depleted. For a low-dose configuration, the observed near-constant release lasted for 24 weeks. In addition, the near-constant in vitro release observed has been shown to translate into sustained exposure levels in vivo over a series6-month duration in an animal model (depicted in a separate chart below). Finally, NanoPortal has demonstrated minimal in vitro fluctuations during 2.5-hour interval sampling periods which demonstrates a very smooth release profile (see right portion of small electrical pulses.the chart below for individual device release rates).
Our Emerging Portfolio
Although Vivani’s proprietary NanoPortal implant technology may potentially be broadly applied across a wide range of therapeutic molecules and disease areas, our initial focus is on peptide therapeutics for the treatment of patients with metabolic disease. The devicepipeline table below depicts our current portfolio of four distinct pre-clinical stage programs targeting type 2 diabetes (in humans and companion cats), and obesity/chronic weight management.
Below is designeda summary description of each pipeline program:
NPM-115: This high-dose exenatide implant candidate is in preclinical stage development for the treatment of chronic weight management in patients with obesity or overweight. Vivani believes that higher doses of exenatide can achieve similar weight loss effects as other GLP-1 products similar to bypass diseased or injured eye anatomy the strategy Novo Nordisk has taken with its semaglutide injection franchise, Ozempic® and Wegovy® for type 2 diabetes and obesity, respectively. Vivani holds all commercial rights to transmitNPM-115.
Obesity is a global epidemic. There are over 764 million people with obesity today and only approximately 2% of these electrical pulses wirelesslypeople are medically treated. Obesity affects both the individual and society at large. Obesity is associated with over 200 health complications and is associated with over 8% of the healthcare budget per country.
Similar to an arraytype 2 diabetes, the treatment of electrodes implantedchronic weight management with GLP-1 products has challenges associated with medication adherence and persistence which can lead to sub-optimal patient outcomes. As shown in the graph below, results from a large, retrospective cohort study recently published in the research journal Obesity, shows improved medication persistence with the newer GLP-1 weight loss products compared to previous products. That said, the one-year persistence of patients taking semaglutide was still only 40%. This highlights the potential for further improvement for the 60% of individuals who were no longer taking semaglutide after one year. The potential benefits for a long-term implant like NPM-115 are clearly apparent when considering that body weight begins to increase shortly after GLP-1 therapy is discontinued.
Preliminary weight loss data of NPM-115 in preclinical models is encouraging. In a study in high fat diet-induced obese mice, NPM-115 generated weight loss of approximately 20% compared to a sham implant control after a 28-day treatment duration, comparable to weight loss observed in mice treated with semaglutide (Ozempic®/Wegovy®) in the same study. The supratherapeutic doses provided for both NPM-115 (single administration delivering exenatide at ~530 nmol/kg/day), and semaglutide (weekly injections of ~2,700 nmol/kg/week), were selected to maximize the weight-loss potential of both exenatide and semaglutide.
| Weight loss in high fat diet-induced obese mice. % weight change from baseline for NPM-115 (exenatide) vs Ozempic® (semaglutide), corrected to control (sham implant). Values are mean ± SE. |
Emerging data on the surfacedurability of effect on weight with NPM-119 provides confidence that a higher-dose exenatide implant (e.g. NPM-115) has the potential as a treatment for chronic weight management. As depicted in the graph below, in a study in healthy rats, a single administration of the brain’s visual cortex, where itCompany’s exenatide implant NPM-119, in development for the treatment of type 2 diabetes, resulted in body weights that were approximately 25% lower than a vehicle implant control after 15 weeks of treatment with an expected duration of effect of six months. NPM-119 delivered exenatide at a rate of approximately 320 nmol/kg/day and has demonstrated smooth, non-fluctuating release of exenatide in both in vitro and in vivo studies. NPM-119 has previously demonstrated pharmacokinetic data exhibiting continuous and therapeutic exenatide exposure levels over a 6-month duration in healthy rats. Since NPM-115 is intended to providea higher-dose version of an otherwise similar product as NPM-119, the perception of patterns of light. We are conducting a six-subject Early Feasibility Studydurability of the Orion device ateffect on weight demonstrated in this study is expected to translate to future studies utilizing NPM-115.
| Weight difference from control in healthy Sprague-Dawley Rats. % weight change from baseline for NPM-119 (exenatide) corrected to control (vehicle implant). Values are mean ± SE. |
NPM-119: This exenatide implant candidate is in preclinical stage development for the Ronald Reagan UCLA Medical Centertreatment of patients with type 2 diabetes with an anticipated duration of six months. Exenatide is a GLP-1 receptor agonist (GLP-1 RA or GLP-1) and was originally approved as the twice-daily subdermal injection, Byetta® (exenatide) injection, approved in Los Angeles2005 by the U.S. Food and Drug Administration (“UCLA”FDA”) as adjunctive therapy to improve glycemic control in patients with type 2 diabetes mellitus who are taking metformin, a sulfonylurea, or a combination of metformin and Baylor College of Medicinea sulfonylurea but have not achieved adequate glycemic control. Byetta was the first GLP-1 to reach the U.S. marketplace. Bydureon BCise® (exenatide extended-release) injection is a once-weekly administration and was approved for use in Houston (“Baylor”). Regularly scheduled visits at both sites were pausedthe US in mid-March 2020 due2017.
According to the coronavirus outbreak, however visits at UCLA resumed mid-September 2020CDC, more than 37 million Americans have diabetes and Baylor resumed90-95% have type 2 diabetes. The total number of people living worldwide with diabetes today is 537 million and is projected to rise to 643 million by 2030 and 783 million by 2045. Of the 537 million people with diabetes today, only 15% have good glycemic control. According to the American Diabetes Association (“ADA”), the total cost of diagnosed diabetes in December 2020. Our 36 month results,the U.S. was $327 billion in 2017, including $237 billion for direct medical costs and $90 billion for reduced productivity. In 2022, global sales of GLP-1 receptor agonists products were nearly $20 billion. Because the current drug adherence rate for type 2 diabetes is only 40-60% for oral and injectable GLP-1 products, Vivani believes there is significant unmet need for a GLP-1 implant that could address non-adherence. Vivani holds all commercial rights to NPM-119.
We believe NPM-119, our lead drug implant candidate, has the potential to address two important limitations of which were measured after the study resumed, indicate to us that:GLP-1 category, namely, poor real-world medication adherence, and a potentially undesirable gastrointestinal tolerability profile.
| ● | We haveTo address real-world medication adherence, NPM-119 is designed to provide 6 months of steady dosing from a good safetysingle miniature, subdermal implant. Current GLP-1 products are associated with only 50-60% real-world medication adherence. Non-adherent patients do not receive the full potential benefits of existing treatments. In addition, medication non-adherence for patients with type 2 diabetes is associated with approximately $5,500 per non-adherent patient in avoidable healthcare costs associated with unnecessary acute care and hospitalization visits. NPM-119 has the potential to offer a highly differentiated 6-month dosage form to address the medication adherence challenge. Results from a small, third-party market research study funded by Vivani indicate that the majority of physicians will be highly likely to recommend a product with the NPM-119 target product profile. Five subjects experienced to their type 2 diabetes patients. In the market research study, primary care physicians (n=10) provided an average rating of 8.3 out of 10 in terms of likelihood of recommending a totalproduct with NPM-119’s target product profile. These preliminary results are encouraging since 90% of fourteen adverse events (AEs) related to the device or to the surgery, through February 2022. One was consideredtype 2 diabetes patients are treated in a serious adverse event (SAE), and all of the adverse events were in the expected category. The one SAE occurred at about three months post-implant, was resolved quickly, and did not require a hospital stay. There have been no serious adverse events due to the device or surgery since June 2018.primary care setting. |
| ● | The efficacy data is encouraging. We measure efficacy by looking at three measuresDuring the September 28, 2023, FDA Open Public Hearing to review the approvability of visual function: The first is square localization, where Orion subjects sit in front of a touch screen and are asked to touch withinITCA 650 (exenatide implant), the boundaries of a square when it appears. The second is direction of motion, where subjects are asked to identify the direction and motion of lines on a screen. The third is grating visual acuity, a measure of visual acuity that is adapted for very low vision. Five subjects have completed these tests at 36-months. For these 36-month results, on square localization, five of five subjects tested in our feasibility study performed significantly better with the system on than off. On direction of motion, five of five performed better with the system on than off. On grating visual acuity, two of five tested had measurable visual acuity on the scale of this test (versus none who can do it with the device off). Another efficacy measurement of day-to-day functionality and benefit is FLORA, an acronym for Functional Low-Vision Observer Rated Assessment. FLORA is an assessment performed by an independent third-party low vision orientationmarket research firm dQ&A Market Research reported results from a patient preference study testing a product profile reflective of both ITCA 650 and mobility specialist who spends time with eachNPM-119 (e.g. miniature, six-month, subdermal, GLP-1 implant). Of the 324 patients currently on GLP-1 therapy, 56% indicated either “Definitely” or “Likely” when asked about the likelihood of the subjects in their homes. The specialist asks each of the subjectsgetting and using a series of questions and also observes them performing 15 or more daily living tasks, such as finding light sources, following a sidewalk, or sorting laundry. The specialist then determines if the system is providing a benefit,GLP-1 implant if it is neutral, or if it is actually hurting the abilities of subjectswas approved by FDA, recommended by their healthcare provider, and covered by insurance. The results from this dQ&A study along with our own market research continue to perform these tasks. FLORA results to date show that 4 out of 4 completing the FLORA at 36 months had positive or mild positive results indicating the Orion system is providing benefit. We reached agreement with the FDA in the fourth quarter of 2019 to utilize a revised version of FLORA asindicate significant market potential for our primary efficacy endpoint in our pivotal trial for Orion, pending successful validation of the instrument.NPM-119 product profile. |
No peer-reviewedA well-documented side effect of the GLP-1 class is poor gastrointestinal (“GI”) tolerability. GI intolerance can present as nausea, vomiting, and/or diarrhea which can lead to volume loss (“hypovolemia”), acute kidney injury (“AKI”) and potentially major cardiovascular adverse events. GI-related issues are the most commonly reported side effect for all drugs in the GLP-1 class. In responding to a marketing application filed for Intarcia Therapeutics’ ITCA 650 exenatide implant candidate, with a proposed indication for use as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus (“T2DM”), the FDA stated in a July 29, 2022 letter that they believe that marked increases in the dose of a GLP-1 are responsible for increased risk of GI intolerance. The establishment of marked GLP-1 dose increases being responsible for GI intolerance combined with the daily in vitro variability exhibited by ITCA 650 resulted in the FDA summarizing their findings as “The clinical data in the three pivotal clinical trials for ITCA 650–including the high rates of nausea, vomiting, and diarrhea, the high rates of discontinuations due to these adverse gastrointestinal reactions, and most notably, the increased risk of AKI comprise safety signals whose root cause can reasonably be concluded to be irregular and uncontrolled exenatide release” and “The data provided to validate the limits of the in vitro dose delivery specifications did not support the safe and effective use of the device constituent of ITCA 650.” We believe Vivani’s NanoPortal technology, which is available yetspecifically designed and tested to deliver regular and controlled exenatide release, may overcome these challenges. Our NanoPortal implant technology has no moving parts that could otherwise contribute to variations in drug release rates. NanoPortal has demonstrated the ability to release exenatide with minimal fluctuations in vitro on time scales that are even shorter than a day as exhibited by the 2.5-hour in vitro release rates that are shown in the NanoPortal Implant Technology section above. Since the half-life of exenatide in humans is 2.4-4 hours, steady release from one 2.5-hour interval to the next is expected to be associated with minimal device-related exposure fluctuations, potentially minimizing the opportunity for gastrointestinal events.
On July 14, 2023, an investigational new drug application (“IND”) to support the Orion system. We are currently negotiatinginitiation of clinical studies with NPM-119 was submitted. Vivani’s First-in-Human (“FIH”) study, called LIBERATE-1, is designed as a 12-week, randomized, clinical study to investigate the safety, tolerability, and full pharmacokinetic profile of NPM-119 in patients with type 2 diabetes. The study will include a Bydureon BCise® (exenatide extended-release injectable suspension) comparator and will also measure changes in glycemic control and changes in body weight. The study will recruit patients on a non-exenatide GLP-1 therapy which will be discontinued prior to randomization. Conditional institutional review board (“IRB”) approval has been obtained pending IND clearance. On August 18, 2023, FDA provided written notification that the LIBERATE-1 study was on full clinical hold due primarily to insufficient Chemistry, Manufacturing and regulatory pathway to commercializationControls (“CMC”) information. Vivani remains actively engaged in discussions with the FDA as part of its efforts to lift the Breakthrough Devices Program.
Productclinical hold and Clinical Development Plans
By further developing our visual cortical prosthesis, Orion, we believe we may be ableenable the expeditious initiations of LIBERATE-1. In parallel, Vivani submitted an application to significantly expand our marketa Human Research Ethics Committee in Australia to include nearly all profoundly blind individuals. The principal notable exceptions for potential usesupport the initiation of the Orion are those who are blind dueCompany’s FIH study in that country. This initial application was not approved and the only cited reason was the existing FDA clinical hold. Vivani remains in discussions with the Human Research Ethics Committee towards obtaining approval in Australia once the FDA clinical hold is lifted. If available, Vivani intends to otherwise currently treatable diseases, individuals who are born blind, or blindness dueutilize research and development incentives and rebates from the Australian government in order to direct damagedefray a portion of the visual cortex, which is rare. However, ofcosts from the estimated 36 million blind people worldwide, theretrial. Since clinical studies conducted in Australia comply with the International Conference on Harmonization guidelines and data generated in Australia are approximately 5.8 million people who are legally blind dueacceptable to causes that are not otherwise treatable. We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agenciesauthorities. Vivani plans to use relevant clinical data generated in Australia to support regulatory submissions in other geographies including the US. Additional guidance will ultimately determinebe provided as new information becomes available.
The LIBERATE-1 study design was discussed in multiple FDA interactions and our Complete Response to the subsetclinical hold is planned for submission to FDA during the first half of these patients who are eligible for the Orion based on our clinical trials and the associated results.
Our objective in designing and developing the Orion visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. A six-subject Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor. Our 36 month results indicate a good safety2024. The pharmacokinetic profile with encouraging efficacy data and benefits in helping subjects perform their daily living tasks. We believe these data results are encouraging and support advancement of Orion into a larger pivotal clinical study. Early promising results are not necessarily indicative of results which may be obtained in our larger Orion clinical trials.
In November 2017,a preclinical study with the FDA granted Breakthrough Devices Program designation for the Orion. This designation is given to a few select medical devices in order to provide more effective treatment of life-threatening or irreversibly debilitating diseases or conditions. This program isNPM-119 configuration (n=8) intended to help patients have more timely access to these medical devices by expediting their development, assessment, and review.
On February 26, 2021, the U.S. Food and Drug Administration (FDA) approved the Argus 2s Retinal Prosthesis System, a redesigned set of external hardware (glasses and video processing unit) initially for use in combinationLIBERATE-1 is provided in the graphic below. The left axis shows experimentally measured exenatide plasma concentrations from rats implanted with NPM-119. The right axis shows expected exenatide plasma concentrations in humans, assuming there are no NPM-119 specific translation effects, based on previously implanted Argus II systemsestablished clearance rate differences between rats and humans when exposed to steady state delivery of exenatide. Since the EC50 (concentration of exenatide which provides half maximal response) is 0.0835 ng/mL, this pharmacokinetic profile is expected to provide therapeutic exposure levels of exenatide in humans unless, for example, there are any device-specific pharmacokinetic translation effects from rats to humans which the results of LIBERATE-1 will determine.
Vivani has also made progress towards preparing for future clinical development of NPM-119. In September 2023, Vivani relocated into a new facility designed to provide suitable capacity for manufacturing of clinical materials for registration studies as well as commercial-scale supply. Based on preliminary discussions with the FDA, Vivani intends to explore the potential use of the 505(b)(2) pathway and believes that a single pivotal trial evaluating a 6-month NPM-119 configuration that is representative of the proposed commercial configuration may be sufficient to support registration in the U.S. That said, throughout the NPM-119 development process, we also intend to further engage with regulatory authorities on the timing, duration, endpoints, number of enrolled patients and other aspects of trial design for future clinical trials of NPM-119.
We have conducted a preclinical study to evaluate proof-of-concept activity of NPM-119. In that study, a six-month implantation of NPM-119 into rats was associated with steady exenatide concentration over the duration of the implant, as depicted in the figure below.
NPM-139: The Company recently identified semaglutide as the active pharmaceutical ingredient in NPM-139, a miniature, subdermal GLP-1 implant in development for chronic weight management, with the added potential benefit of once-yearly administration.
The market for GLP-1 therapy in the treatment of patients with obesity is also attractive and growing rapidly. As an example, Novo Nordisk’s Wegovy® (semaglutide injection) sold approximately nearly $4.5 billion in 2023 and continues to grow rapidly.
OKV-119: This exenatide implant is under development for metabolic diseases in cats including for the treatment of retinitis pigmentosa (RP). The Company expects that the Argus 2s will be adapted to be the external system for the next generation Orion Visual Cortical Prosthesis System currently under development.obesity and diabetes. In addition to ergonomic improvements, the Argus 2s system offers significantly more processing power, potentially allowing for improved video processing.
Our principal offices are located in Los Angeles, California.
Our first commercially approved product, the Argus® II Retinal Prosthesis System (“Argus II”), treats outer retinal degenerations, such as retinitis pigmentosa, also referred to as RP. The Argus II was the only retinal prosthesis approved in the United States by the Food and Drug Administration (“FDA”), and was the first approved retinal prosthesis in the world. RP is a hereditary disease, affecting an estimated 1.52017, there were over 90 million people worldwide including about 100,000 people in the United States, that causes a progressive degeneration of the light-sensitive cells of the retina, leading to significant visual impairment and ultimately blindness. A subset of these patients would be eligible for the Argus II since the approved baseline vision for the Argus II is worse than legally blind (20/200). We commissioned 3rd party market research to estimate the size of the RP market that resulted in an estimate of approximately 1,500 patients in the US with advanced RP that could be treated with the Argus II given the eligibility criteria of our label.
We began selling the Argus II System in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we no longer market the Argus II and have focused all of our resources on the development of Orion.
We are also researching multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with 3rd party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we believe will be complimentary to our products include: eye tracking, object recognition and localization, thermal imaging and depth-based decluttering.
In early March 2020, we commenced clinical validation activities for the FLORA-20 instrument, the primary efficacy endpoint we have selected for our future pivotal clinical trial of Orion. In mid-March 2020, our validation activities were suspended as a result of public health concerns and related social distancing due to COVID-19. We are in the process of evaluating when activities related to the validation study can be resumed.
In May 2020, we completed an underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate gross proceeds of $7.5 million, and net proceeds of approximately $6.7 million after deducting underwriting discounts, commissions and other offering expenses.
In May 2020, we entered into a Letter Agreement with Sylmar Biomedical Park, LLC (the “Landlord”) to terminate our facility leases in which we agreed to vacate the premises by June 18, 2020 and pay $210,730 to bring our leases current and pay a one-time early termination fee of $150,000. Prior to the early termination, we were obligated to pay aggregate base rent of approximately $0.9 million and common area maintenance expenses for the respective remaining terms of our leases in February 2022 and April 2023.
We completed our offer to rescind certain purchases of shares under our ESPP plan on May 27, 2020. We voluntarily offered to rescind the sale of shares of our common stock to employees who purchased those shares under the ESPP and to reimburse any losses upon the sale of our shares of our common stock for certain purchase periods because these shares may not have been exempt from registration under the Securities Act of 1933. The rescission of these share purchases resulted in the repurchase and cancelation of 39,467 shares of our common stock. The total cost for the repurchase of these shares and the reimbursement of any losses from the sale of such shares totaled approximately $270,000.
In June 2020, we commenced a process to dissolve our Swiss subsidiary which is still in process.
On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. Each promissory note was unsecured and accrued interest at a rate of twelve percent (12%) per annum beginning on receipt of the loan amounts. We repaid the principal and accrued interest of $135,000 during the quarter ended June 30, 2021.
On January 22, 2021, we entered into a lease agreement, effective February 1, 2021, to sub-lease office space to replace our existing headquarters. We will pay $17,000 per month, increasing to $17,500 per month on February 1, 2022, plus operating expenses, to lease 17,290 square feet of office space at 13170 Telfair Avenue, Sylmar CA 91342. Additionally, we received full rent abatement for March 2021, and will receive half rent abatement for March 2022. The sub-lease is for two years and two months. We are not affiliates with, or related to, or otherwise have any other relationship with the other parties, other than the lease.
On March 23, 2021, we closed our private placement to seven institutional investors of 4,650,000 shares of common stock at a price of $6.00 per share for aggregate net proceeds of approximately $24.5 million.
On March 26, 2021, the Board of Directors appointed Scott Dunbar to replace Matthew Pfeffer, as acting Chief Executive Officer. Mr. Pfeffer resumed his role as a director at such date.
On June 25, 2021, we closed an underwritten public offering of 11,500,000 shares of common stock at a price of $5.00 per share for aggregate net proceeds of $53.3 million.
On February 4, 2022, we entered into an agreement and plan of merger with Nano Precision Medical, Inc., a California corporation, and, upon and subject to the execution of a joinder, NPM Acquisition Corp., a California corporation and a wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the agreement and subject to the terms and conditions set forth therein, NPM will merge with and into Merger Sub (the “Merger”), and upon consummation of the merger, Merger Sub will cease to exist and NPM will become a wholly-owned subsidiary of the Company. Upon completion of the merger and subject to shareholder approval, the Company will change its name as agreed in the future and may change its trading symbol as NPM requests in writing following consultation with Nasdaq.
Our Technology
Orion works by converting video images captured by a miniature camera housed in a user’s glasses into a series of small electrical pulses that are transmitted wirelessly to an array of electrodes. The Orion array is implanted on the surface of the visual cortex of the brain, bypassing the eye and optic nerve and directly stimulating the region of the brain responsible for vision. The pulses generated are intended to create a perception of patterns of light in the brain. Following the implant surgery, users learn to interpret these visual patterns as artificial vision, allowing them to detect shapes of people and objects in their surroundings.
We believe Orion possesses several unique technological advancements compared to other neurostimulation devices, including a hermetic package with the smallest size and largest number of individually programmable electrodes, and a patented electrode material that allows for high charge densities and small electrode size. Several other engineering challenges, including device reliability, extended lifetime, and a safe and effective bio-interface, were overcome during the development of the products and these solutions have been protected both by patents and by trade secrets. Much of the technology developed for Argus II is also used in Orion. As of December 31, 2021, we have more than 300 issued patents and over 15 pending patent applications worldwide.
We have demonstrated the ability to design products with long-term reliability. The Argus I retinal prosthesis, a proof of concept device that was a predecessor to the Argus II, was implanted in six patients in the United States. Argus I patients were implanted an average of almost seven years, with one patient having used the device for over 10 years. The Argus II system has been implanted in over 350 patients. The average implant duration for these patients is nearly five years with several users continuing to use the system 10 years following implantation.
In November 2017, the FDA granted Breakthrough Devices Program designation for the Orion. This designation is given to a select number of medical devices in order to provide more effective treatment of life-threatening or irreversibly debilitating diseases or conditions. This program is intended to help patients have more timely access to these medical devices by expediting their development, assessment, and review. With this designation, we believe the Orion will have the following advantages during the FDA review process:
| ● | more interactive review both for the Investigational Device Exemption (IDE) and Premarket Approval application; |
| ● | greater reliance on post-market data collection and greater acceptance of uncertainty in the benefit-risk profile at the time of approval; |
| ● | priority review (i.e., review of the submission is placed at the top of the review queue and receives additional review resources); and |
| ● | senior FDA management involvement and assignment of a cross-disciplinary case manager. |
We expect that inclusion in the Breakthrough Devices Program may shorten the timeline required to bring the Orion to market as a commercial product. We also are currently evaluating our pivotal trial design for Orion and hope to reach consensus with the FDA on design specifics. Major elements of our clinical trial design include the number of patients, study duration, and the endpoints suitable for assessing visual function, functional vision and quality of life. We have reached agreement with FDA on the primary effectiveness endpoint, pending validation of an assessment we have developed for the purpose. We are currently working with FDA on alignment on a primary safety endpoint and confirmation of a statistical sample size which will drive the number of subjects to be enrolled in the pivotal study. While negotiations with the FDA are ongoing, we believe the study design will require a minimum pre-market sample population of at least 45 subjects (plus additional post-market subjects) with at least 12 months of follow-up data for each patient prior to submittal of a premarket approval (PMA) application.
Our Markets
According to the World Health Organization (WHO)1, 253 million people suffer from moderate to severe vision impairment worldwide. Of these, 36 million people are considered legally blind. The WHO further estimates that 80% of legal blindness is avoidable, leaving 7.8 million legally blind individuals. We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third-party market research, and physician feedback.
In the U.S., 1.3 million people are legally blind3. We commissioned third-party market research for the potential market for Orion and we currently estimate over 500,000 individualscats in the U.S. It is estimated that up to 40% of cats are legally blind. Of this population, we estimate the potential U.S. addressable market is between 50,000clinically obese, and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset1-4 million cats have diabetes. Americans spent $136.8 billion on their pets in 2022, an increase of these patients who are eligible for the Orion based10.68% from 2021. Spending on our clinical trials and the associated results.
Many other diseases can also cause blindness. Many of the largest causes of visual impairment (i.e. refractive error and cataracts) are avoidable or curable, and their prolonged or untreated impact on vision is largely observed in developing nations and are not part of our target market. Some other causes of blindness, such as brain trauma to the visual cortex, may also not be suitable for treatment by a cortical stimulator. However, the remaining causes of severe vision loss which include glaucoma, diabetic retinopathy, eye trauma, optic nerve disease or injury and many others can result in severe visual impairment that could potentially be treatable by an Orion visual prosthesis system.
We believe that, if approved by the FDA, the Orion will initially treat a subset of these legally blind individuals, likely starting with the ones who are completely blind. If this is the case, we anticipate that if we are further able to collect additional clinical data demonstrating the efficacy of the Orion for patients with better vision, we will be able to expand the approved indications and addressable market of the Orion to include a larger subset of these 5.8 million individuals for whom no effective treatment currently exists.
By further developing our visual cortical prosthesis, Orion, we believe we will significantly expand our market to include nearly all profoundly blind individuals. The only notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare.
1 WHO Fact Sheet, updated October 11, 2018.
2 Congdon N, O’Colmain B, Klaver CC, et al. Causes and prevalence of visual impairment among adults in the United States. Arch Ophthalmol. Apr 2004;122(4):477-485. This percent amount was derived from the rates of different causes of blindness by different races and racial demographic data from 2010 U.S. Census data.
3 National Eye Institute (http://www.nei.nih.gov/eyedata/blind.asp).
Our Strategy
Our strategy can be summarized as follows:
| ● | Leverage proven Argus technology to develop the Orion visual cortical prosthesis and significantly expand our addressable market to include a portion of the almost 6 million patients who are blind from eye trauma, optic nerve disease and injury, diabetic retinopathy, glaucoma and other untreatable causes. |
| ● | Invest in research and development of technologies intended to enhance the Orion user experience, including eye tracking, distance filtering/decluttering, object and facial recognition and thermal imaging. |
| ● | Continue to provide limited product support for Argus II patients while expanding our overall investment in Orion. |
Global Reimbursement
Obtaining reimbursement from governmental and private insurance companies is critical to our commercial success. Due to the price of the Orion system, our future sales would be limited without the availability of third-party reimbursement. In the U.S., coding, coverage, and payment are necessary for the surgical procedure and Orion system to be reimbursed by payors. Coding will need to be established for the device and the surgical procedure. Coverage and payment vary by payor. The majority of Argus II patients were eligible for Medicare, and coverage was primarily provided through traditional Medicare, sometimes referred to as Medicare Fee-for-Service (“FFS”) or Medicare Advantage. A small percentage of patients were covered by commercial insurers.
| ● | Medicare FFS patients – Coverage is determined by Medicare Administrative Contractors (MACs) that administer various geographic regions of the U.S. |
| ● | Medicare Advantage patients – Medicare Advantage plans are required to cover the same benefits as those covered by the MAC in that jurisdiction. For example, if a MAC in a jurisdiction has favorable coverage for Orion, then typically Medicare Advantage plans in that MAC jurisdiction offer the same coverage. Individual hospitals and ASCs may negotiate contracts specific to that individual facility. In addition, procedural payment is variable and can be based on a percentage of billed charges, payment groupings or other individually negotiated payment methodologies. Medicare Advantage plans also allow providers to confirm coverage and payment for the procedure in advance of implantation. |
| ● | Commercial insurer patients – Commercial insurance plans make coverage and payment rate decisions independent of Medicare, and contracts are individually negotiated with facility and physician providers. |
Currently, we are in the process of evaluating potential reimbursement pathways for Orion in the U.S. market. Compared to Argus II, which was largely catering to the Medicare patient population, Orionpets is expected to triple over the next 10 years, with pet health representing the fastest-growing sub-segment of this market. Since cats are difficult to medicate, we believe that a small subdermal implant administered by a veterinarian at a routine clinic visit can be a welcome option for many pet owners.
The program is partnered with Okava Pharmaceuticals, Inc. (“Okava”) who is responsible for all clinical development and regulatory activities of OKV-119 and, if approved, ultimate commercialization of this product. In 2022, OKV-119 advanced out of the feasibility stage after having produced data demonstrating adequate exenatide exposure and sustained weight loss in cats over a 12-week study. Vivani does not anticipate any significant Vivani focus beyond the support of implant development and manufacturing activities.
Beyond our current pipeline, Vivani intends to apply its extensive experience and proprietary implant technology to develop a pipeline of drug implant candidates that have the potential to address chronic diseases with high unmet medical needs across multiple therapeutic categories and disease areas. For example, Vivani is also following the evaluation of the GLP-1 agonist semaglutide in the treatment of MASH (metabolic associated steatohepatitis) and Alzheimer’s disease. If one or more of these trials shows encouraging results, Vivani believes that a miniature long-term drug implant could have the potential to be an attractive alternative treatment option in these underserved patient populationpopulations.
Our Strategy
Vivani’s mission is to provide people with the freedom to live healthier. Vivani develops miniaturized drug implants using its proprietary NanoPortal implant technology to enable delivery of a more diversebroad range of medicines to treat chronic diseases. These products, designed to address poor medication adherence, are anticipated to significantly improve the health of otherwise non-adherent patients and balanced payor mix due to our potential indications profileprovide assurance to their family members and expected younger patient population, on average. As Orionto the health care professionals who treat them.
Vivani plans to initially test its technology and business model through the clinical and regulatory development of its lead programs, NPM-115 (high-dose exenatide) and NPM-119 (exenatide implant). The active drug, exenatide, is a partmember of the FDA’s Breakthrough Devices program, we are closely evaluating a varietyGLP-1 receptor agonist class of fast-track reimbursement programs,drugs. Drug products, including recent encouraging announcements from CMS proposing modernization of payment policies for medical devices that meet FDA’s Breakthrough Devices designation. Wedrug substances within this relatively new drug class, have also approached some commercial payorsalready been successfully developed and CMS to get their feedback to ensure our overall reimbursement strategy for Orion therapy will cater to their key data requirements.
Market Development Plans
Orion. By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The only notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable. We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligiblemarketed for the Orion based on ourtreatment of both type 2 diabetes and obesity and GLP-1 products are the category leader in revenue for both the type 2 diabetes and obesity drug treatment categories. In addition, GLP-1 receptor agonists have shown promising early clinical trials and the associated results.
Our objective in designing and developing the Orion visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. A six-subject Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor. Regularly scheduled visits at both sites were placed on hold in mid-March due to Covid-19, however visits at UCLA resumed mid-September 2020 and Baylor resumed in December 2020. Our 36 month results for the six subjects indicate a good safety profile with encouraging efficacy data and benefits in helping subjects perform their daily living tasks. We believe these data are encouraging and support advancement of Orion into a larger pivotal clinical study. Early promising results are not necessarily indicative of results which may be obtained in large clinical trials. No assurance can be given that we will achieve similar results in our larger Orion clinical trials. No peer-reviewed data is available yet for the Orion system.
In November 2017, the FDA granted Breakthrough Devices Program designation for the Orion. This designation is givenMASH and they are being evaluated in other therapeutic areas including Alzheimer’s disease. Vivani completed IND-enabling studies and submitted an IND to permit a few select medical devicesFIH study of NPM-119 in order to provide more effective treatment of life-threatening or irreversibly debilitating diseases or conditions. This program is intended to help patients have more timely access to these medical devices by expediting their development, assessment, and review.
COVID-19 Pandemic
In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to wear maskstype 2 diabetes in the office and use their best judgement to work remotely or work in the office. While many of our employees are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.
2023. In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visitsVivani intends to advance its early-stage programs in ongoing clinical trials were delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments,chronic weight management in obese and the inability to access sites for initiation and monitoring. Also, some of our suppliers of certain materials used in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets, and may result in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to ouroverweight individuals. Its business as a result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. See the Risk Factors section for further discussion of the possible impact of the COVID-19 pandemic on our business.strategy includes:
Commercial efforts to develop retinal implants by others include:
| ● | Pixium: A publicly held French company that is developingSubmitting a Complete Response to the PRIMA (sub-retinal implant) for Dry-AMD patients. In 2017, Pixium announced approval for two feasibility studiesFDA aimed at lifting the current clinical hold on NPM-119 during the first half of PRIMA in Dry-AMD patients. One2024; |
| ■ | Since the deficiencies clinical hold resolving the current clinical hold issues, which are primarily Chemistry, Manufacturing and Control, should support future clinical investigations of both NPM-115 as well as NPM-119; |
| ● | Filing a new IND to support the conduct of a First-in-Human study reportedly is in Paris with five subjects, andNPM-115 to investigate the treatment of obesity or chronic weight management before the end of 2024; |
| ■ | Initiating a second Early Feasibility StudyFirst-in-Human study of NPM-115 and/or NPM-119 in the U.S.US or Australia as soon as practical pending the applicable regulatory clearances; |
| ● | Advancing the feasibility assessments for NPM-139 in 2024; |
| ● | Developing manufacturing capabilities and systems to produce materials for future clinical development of five patients is underway at two sites – Pittsburgh, Pennsylvaniaour product candidates; |
| ● | Maintaining, expanding, and Miami, Florida. To date, Pixium has announced the successful implantation and activation of five devices in Paris and two devices in the U.S. with limited performance data reported.protecting our intellectual property portfolio; |
| ● | ● | NanoRetina Inc., a company based in Israel,Seeking regulatory approvals for any product candidates that successfully complete clinical trials; and several other early stage companies are reported to have developed intellectual property or technology that may improve retinal prostheses in the future. A clinical trial is underway in Europe and an unknown number of patients have been implanted. |
| ● | Adding operational, financial, and management information systems and personnel, including personnel to support its planned product development and commercialization efforts, as well as to support its regulatory responsibilities as a public reporting company. |
| ● | Academic entities are also working on vision restoring implants. These include Bionic Vision Australia (an early prototype device has been developed and to our knowledge implanted in three human subjects), Boston Retinal Implant project (preclinical phase), Monash Vision Group (preclinical phase), and the Illinois Institute of Technology (clinical phase). Of these projects, we believe most have not yet demonstrated a working implant, only one has reportedly begun long-term clinical work in humans, and to our knowledge only the Illinois Institute of Technology has received FDA approval to begin clinical trials in the U.S. |
Our Competition
The U.S. life sciencesOur industry is highly competitive. The treatmentcharacterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face competition and potential competition from a number of blindness is a significant clinically unmet needsources, including pharmaceutical and others continuebiotechnology companies, generic drug companies, drug delivery companies and academic and research institutions. Some of these companies are developing therapies that are directly competitive to make progress. There are several approachesour approach. We believe the key competitive factors that will affect the development and commercial success of our product candidates include ease of administration and convenience of dosing, therapeutic efficacy, safety and tolerability profiles and cost. Many of our potential competitors have substantially greater financial, technical, and human resources than we do, as well as more experience in the development of product candidates, obtaining FDA and other foreign regulatory approvals of products, and the commercialization of those products. Consequently, our competitors may develop similar products to treating blindness includingaddress the indications targeted by our current product candidates or for other visual prosthesesindications we may pursue in the future, and non-electrical stimulation treatments. Visual prosthesis approach include:such competitors’ products may be more effective, better tolerated and less costly than our product candidates. Our competitors may also be more successful in manufacturing and marketing their products than we are. We will also face competition in recruiting and retaining qualified personnel and establishing clinical trial sites and patient enrollment in clinical trials.
| ● | Retinal Prostheses: The retina is the first nerve tissue in the visual network that generates electrical signals. A retinal prosthesis implant stimulates the retina with electrodes. We are aware of three primary approaches to this: 1) Subretinal Prosthesis, which is placed beneath the retina and between the retina and choroid, 2) Epiretinal Prosthesis, which is placed on the surface of the retina, and 3) Suprachoridal prosthesis, which is placed outside the choroid (behind the eye). Active retinal prosthesis companies and research groups include:The competition for Vivani will be dependent upon the individual product candidate in development. For Vivani’s lead assets, NPM-115 and NPM-119, the competition could be defined as any drug product/manufacturer approved for use in the treatment of patients with obesity or type 2 diabetes, respectively. However, we believe that our more direct competitors comprise other GLP-1 receptor agonist and combination products with a GLP-1 receptor agonist component approved or in development for those respective indications. In May 2022, Lilly’s Mounjaro™ (tirzepatide) was approved as the first and only combination GIP and GLP-1 receptor agonist for the treatment of adults with type 2 diabetes and in November 2023, Lilly secured approval of a higher dose formulation of tirzepatide injection with the brand name Zepbound® for chronic weight management in adults with obesity or overweight with at least one weight-related condition. Manufacturers with approved GLP-1 receptor agonists or dual receptor agonists include Lilly, Novo Nordisk, AstraZeneca, and Sanofi.
● Pixium Vision: A publicly held French company that is developing the PRIMA (sub-retinal implant) for Dry-AMD patients. In 2017, Pixium announced approval for two feasibility studies of PRIMA in Dry-AMD patients. One study reportedly was in Paris with five subjects, and a second Early Feasibility Study in the U.S. of five patients is underway at two sites – Pittsburgh, Pennsylvania and Miami, Florida. A pivotal study of PRIMA is underway in Europe (France, Germany, and UK) with read-out of results expected in 2023. However, no plans for a pivotal study in the US have been announced.
● The Boston Retinal Implant project is developing a subretinal prosthesis system, but has not advanced to clinical trials.
● Nano Retina Inc., a company based in Israel, and several other early stage companies are reported to have developed intellectual property or technology that may improve retinal prostheses in the future. A Nano Retina clinical trial is underway in Europe and Israel, and 5 subjects reportedly have been implanted to date.
● Bionic Vision Technologies, based in Australia, was recently granted Breakthrough Device status for its Bionic Eye Visual Prosthesis System, a suprachoroidal device. The company has completed a two-year feasibility study and has partnered with Cirtec Medical in the US. It is in the planning stages for a global pivotal study.
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| ● | Optic Nerve Implant: Moving down the visual network path, some are developing a cuff electrode array that is placed around the optic nerve just behind the eye. We believe these are in early research phase. |
| ● | Visual Cortical Prosthesis: To our knowledge, we are the only commercially focused organization developing a visual cortical prosthesis (Orion), which is placed beneath the skull and on the surface of the visual cortex. A few other groups worldwide are developing an intracortical visual prosthesis with electrodes that penetrate the brain, including:.
● Illinois Institute of Technology’s Intracortical Visual Prosthesis (ICVP), a system of wireless, penetrating electrode arrays, has been designated a Breakthrough Device and has advanced to early feasibility study in the US. One subject of 5 has been implanted.
● Monash Vision Group’s Gennaris system is also composed of wireless penetrating arrays. To our knowledge, this project is still in a preclinical phase.
● Neuralink is developing a brain implant with penetrating electrodes that it has demonstrated in animal models. Vision restoration is one of Neuralink’s many stated goals.
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In addition to the marketed GLP-1 products, Intarcia Therapeutics has continued to seek approval of ITCA 650 (six-month exenatide implant) for the treatment of patients with type 2 diabetes since 2016. In public correspondence, FDA asserted that the ITCA 650 New Drug Application did not meet criteria for approval because (i) data submitted in the application do not show that the product would be safe under the proposed conditions of use and (ii) the methods used in, and the facilities and controls used for, the manufacture, processing, or packing of the product are not shown to be adequate to preserve its identity, strength, quality, and purity. Further correspondence disclosed additional deficiencies which included, but were not limited to, data that did not demonstrate adequate device reliability in regard to dose delivery. At the conclusion of the September 28, 2023, FDA Public Forum to debate the approvability of the ITCA 650, Advisory Committee members voted 19-0 that “based on the available data, the Applicant has not demonstrated that the benefits of the ITCA 650 drug-device combination outweigh its risks for the treatment of T2DM”. As we continue to demonstratea result, the potential benefits and safety profileultimate fate of Orion, we may face competition from other entities seeking to develop a visual cortical prosthesis. While we are currently precluded by the exclusion criteria in our Early Feasibility Study from testing Orion in any indication where a current therapeutic option exists, such as with RP using Argus, we or others may ultimately seek to demonstrate the potential benefits and safety profile of a visual cortical prosthesis for RP. ITCA 650 (exenatide implant) remains unclear.
NPM-115
Other approaches not involving electrical stimulation include:NPM-115 (high-dose exenatide implant) candidate is a GLP-1 receptor agonist in development for the treatment of chronic weight management in obese and/or overweight patients. Competition in the GLP-1 class for this indication includes the following:
| | ● | Transplants: transplanting retinal tissueTeva’s Adipex® (phentermine) and generics |
| ● | Roche’s Xenical® (orlistat) generics |
| ● | Vivus’s Qsymia® (phentermine/topiramate extended release) |
| ● | Orexigen’s Contrave® (bupropion/naltrexone) |
| ● | Lilly (Zepbound®/tirzepatide) |
| ● | Novo Nordisk (Saxenda®/liraglutide); and (Wegovy®/semaglutide) |
In addition to the approved products noted above, there are multiple GLP-1 monotherapy agonists, dual agonists and triple agonists in various stages of clinical development.
We believe NPM-115, our lead drug implant candidate for chronic weight management, has the potential to address two important aspects of the GLP-1 category which are associated with the above-mentioned products, namely, poor real-world medication adherence and potential undesirable gastrointestinal tolerability.
NPM-119
NPM-119 (exenatide implant) candidate is a GLP-1 receptor agonist in development for the treatment of type 2 diabetes. Competition in the GLP-1 class for this indication includes the following:
| ● | Lilly (Trulicity®/dulaglutide) and (Mounjaro®/ tirzepatide) |
| ● | Novo Nordisk (Victoza®/liraglutide); (Ozempic®/semaglutide); and (Rybelsus®/semaglutide) |
| ● | AstraZeneca (Bydureon BCise®/exenatide); and (Byetta®/exenatide) |
| ● | Sanofi (Adlyxin®/lixisenatide) |
In addition to the approved products noted above, there are multiple GLP-1 monotherapy agonists, dual agonists and triple agonists in various stages of clinical development which include but are not limited to Lilly (retatrutide) and (orforglipron), Altimmune (pevidutide), Novo Nordisk (CagriSema); Structure Therapeutics (GSBR-1290), and Amgen AMG 133.
We believe NPM-119, our lead drug implant candidate for type 2 diabetes, has the potential to address two important aspects of the GLP-1category which are associated with the above-mentioned products, namely, poor real-world medication adherence and potential undesirable gastrointestinal tolerability.
NPM-139
NPM-139 (semaglutide implant) candidate is in feasibility testing for the treatment of chronic weight management in obese and/or overweight patients. According to the World Obesity Atlas 2022, one billion adults globally will have obesity (BMI ≥30 kg/m2), or about 18% of the adult population, by 2030. In addition, it is expected that there will be 103 million children and 150 million adolescents living with obesity by 2030 as well.
Competition in the treatment of obesity includes the following:
| ● | Teva’s Adipex® (phentermine) and generics |
| ● | Roche’s Xenical® (orlistat) generics |
| ● | Vivus’s Qsymia® (phentermine/topiramate extended release) |
| ● | Orexigen’s Contrave® (bupropion/naltrexone) |
| ● | Lilly (Zepbound®/tirzepatide) |
| ● | Novo Nordisk’s Saxenda® (liraglutide) and Wegovy® (semaglutide) |
| ● | Roche CT-388 (Phase 2); CT-868 (Phase 2) and CT-996 (Phase 1) |
Sales and Marketing
Vivani currently does not have a commercial infrastructure in any geography. As we progress our programs through development, we may build a commercial infrastructure in the United States and selected other territories to support the commercialization of each of our product candidates when we believe a regulatory approval in a particular territory is likely. We intend to conduct market research in connection with designing our commercialization strategy for each of our product candidates. We may seek licensing or other strategic collaborations with, for example, global pharmaceutical company partners, to support our commercialization efforts. We will consider a range of options including building a commercial capability internally, leveraging third-party biopharmaceutical commercialization organizations, other strategic partners, distributors and/or contract sales forces to expand the commercial availability of our product candidates when appropriate.
Our Corporate Information
Vivani was incorporated under the laws of California on December 17, 2009. Its operations began in 2010.
On July 6, 2023, Vivani changed its state of incorporation from the State of California to the State of Delaware by means of a plan of conversion, effective July 5, 2023.
Vivani’s corporate office is located at 1350 South Loop Road, Alameda, CA 94502; its telephone number is (415) 506-8462; and its website is located at www.vivani.com.
Chemistry, Manufacturing, and Controls
Vivani has developed production processes and quality systems to support the manufacture of NPM-119 clinical materials for use in the currently planned FIH (LIBERATE-1) clinical study. A small number of processes are continuing to be refined prior to the production of the materials to be used in the study. In addition, efforts have also been initiated to support potential subsequent clinical investigations.
Vivani has established in-house research, development, and manufacturing capabilities in its corporate headquarters in Alameda, California, U.S. Vivani has also engaged with contract manufacturers and/or analytical laboratories for selected processes when appropriate. In general, Vivani purchases the drug substance from a third-party manufacturer. Vivani intends to conduct all assembly processes in which the drug substance is present, including the associated in-process testing, when producing materials for Phase 1 and Phase 2 clinical trials. Vivani anticipates that all assembly processes in which the drug substance is present, including the associated in-process testing, will be performed by contract manufacturers when producing materials for any registration trial or commercial use. Several device components and all raw materials are purchased from outside vendors according to established specifications. The device assembly processes, including the associated in-process testing, and final product testing are anticipated to be performed by Vivani in Alameda, California. The custom applicator, which is intended to facilitate subdermal placement of the implant in patients, has been designed and will be manufactured by a contract manufacturer. Several device components and the drug substance are purchased from outside vendors according to established specifications.
As the NPM-119 program advances, Vivani may also engage with additional contract analytical and manufacturing organizations as needed. Currently, Vivani is not a party to any long-term, commercial manufacturing agreements.
Intellectual Property
As of December 31, 2023, Vivani held or controlled 14 issued U.S. patents, 8 pending U.S. patent applications, and 12 patents in various jurisdictions outside the United States. Additionally, Vivani is pursuing 22 corresponding patent applications that are pending in various foreign jurisdictions. Further advancement of Vivani’s intellectual property portfolio will require the filing of patent applications related to its proprietary manufacturing process and product candidates. Vivani has patents extending into Australia, China, Germany, India, Japan, Netherlands, New Zealand, Republic of Korea, Russia and the United States of America, as well as trade secrets protecting Vivani’s intellectual property. Vivani’s patent prosecution strategy includes exploration of opportunities to expand its patent life and use cases in order to broaden its existing patent portfolio.
Below is a further description of certain of Vivani’s key issued patents, including the category of protection, expiration date, number of related patents issued in foreign jurisdictions and the product candidates to which each patent relates. Vivani currently holds or controls:
| ● | 14 patents issued in the United States (U.S. Patent Nos. 7,687,431, 9,511,212, 9,770,412, 9,814,867, 10,045,943, 10,105,523, 10,479,868, 10,525,248, 10,688,056, 10,792,481, 11,021,576, 11,129,791, 11,191,935 and 11,478,430) and 12 patents issued in foreign jurisdictions. One US patent has been allowed but has not yet been issued. The patents are directed to stimulate remaining retinal cells.the manufacture and use of a drug delivery system and more specifically, to a titania nanotube membrane and capsule utilizing the proprietary NanoPortal technology platform. The methods include methods of drug delivery and treatment with a composition such as exenatide, methods to implant a drug delivery system, and methods of manufacturing a nanoporous membrane, as well as an implantable drug delivery system, a titania nanotube membrane, and titania nanotubes. These U.S. patents relate to an apparatus to implant a drug delivery system, an implantable drug delivery system comprising exenatide, a titania nanotube membrane, a method of making a titania nanotube membrane, and a method of making titania nanotubes, which are expected to expire in 2025-2038, while patents issued in foreign jurisdictions are expected to expire in 2024-2035; |
| ● | 4 of the patents issued in the United States (U.S. Patent Nos. 9,511,212, 10,792,481, 11,129,791 and 11,478,430) are also directed to implantable drug delivery devices. These U.S. patents relate to exenatide and are expected to expire in 2035 and 2037; |
| ● | 5 of the patents issued in the United States (U.S. Patent Nos. 9,511,212, 10,105,523, 10,525,248, 10,792,481 and 11,191,935) are also directed to apparatuses and methods for promoting fluid uptake. These U.S. patents relate to an apparatus to implant a drug delivery system and are expected to expire in 2036 and 2038; |
| ● | 5 of the patents issued in the United States (U.S. Patent Nos. 10,479,868, 11,021,576, 10,045,943, 10,688,056 and 11,478,430) and 3 of the patents issued in a foreign jurisdiction are also directed to formulations. These U.S. patents relate to an exenatide composition and an implantable drug delivery system comprising exenatide and are expected to expire in 2035; |
| ● | 1 of the patents issued in the United States (U.S. Patent No. 9,770,412) is also directed to coated nanoporous membranes. This U.S. patent relates to a method of manufacturing a nanoporous membrane and a nanopore membrane, which is expected to expire in 2035; |
| ● | 1 of the patents issued in the United States (U.S. Patent No. 9,814,867) and 4 of the patents issued in foreign jurisdictions, are also directed to titania nanotube membranes. This U.S. patent relates to a method of making a titania nanotube membrane and is expected to expire in 2034; |
| ● | 1 of the patents issued in the United States (U.S. Patent No. 7,687,431) and 5 of the patents issued in foreign jurisdictions, are also directed to nanotube fabrication. This U.S. patent relates to a method of making titania nanotubes and is expected to expire in 2025; and |
| ● | 19 pending U.S. applications and 18 applications pending in foreign jurisdictions, which are directed to implantable drug delivery devices, methods to control release, and formulations. |
Wherever possible, Vivani seeks to protect its inventions by filing U.S. patents as well as foreign counterpart applications in select other countries. Because patent applications in the U.S. are maintained in secrecy for at least eighteen months after the applications are filed, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, Vivani cannot be certain that it was the first to make the inventions covered by each of its issued or pending patent applications, or that Vivani was the first to file for protection of inventions set forth in such patent applications. Vivani’s planned, or potential products may be covered by third-party patents or other intellectual property rights, in which case continued development and marketing of its products would require a license. Required licenses may not be available to Vivani on commercially acceptable terms, if at all. If Vivani does not obtain these licenses, it could encounter delays in product introductions while it attempts to design around the patents, or Vivani could find that the development, manufacture, or sale of products requiring such licenses are not possible.
In addition to patent protection, Vivani also relies on know-how, trade secrets, and the careful monitoring of proprietary information, all of which can be difficult to protect. Vivani seeks to protect some of its proprietary technology and processes by entering into confidentiality agreements with its employees, consultants, and contractors. These agreements may be breached, Vivani may not have adequate remedies for any breach and its trade secrets may otherwise become known or be independently discovered by competitors. To the extent that Vivani’s employees or its consultants or contractors use intellectual property owned by others in their work for Vivani, disputes may also arise as to the rights in related or resulting know-how and inventions.
Government Regulation
Regulatory authorities in the U.S. at the federal, state, and local level and in other countries extensively regulate, among other things, the research and clinical development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, pricing, and export and import of drugs, medical devices and combinations of drugs and devices (combination products) such as those we are developing. Generally, before a new drug or drug-device combination product can be marketed, considerable data demonstrating its quality, safety, and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review, and approved by the relevant regulatory authority.
In the U.S., the FDA regulates drugs, devices and combination products under the Federal Food, Drug, and Cosmetic Act (“FDCA”), and its implementing regulations. These products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s, or another regulatory authority’s, refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution, injunctions, fines, debarment, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
U.S. Drug Development
Our product candidates are subject to regulation as combination products, which means that they are composed of both a drug product and device product. If marketed individually, each component would be subject to different regulatory pathways and reviewed by different centers within the FDA. A combination product, however, is assigned to a center that will have primary jurisdiction over its regulation based on a determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our product candidates, the primary mode of action is attributable to the drug component of the product, which means that the FDA’s Center for Drug Evaluation and Research has primary jurisdiction over the premarket development, review and approval of our product candidates. Accordingly, we plan to investigate our products through the IND framework and seek approval through the NDA pathway. The process required by the FDA before a drug may be marketed in the U.S. generally involves the following:
| ● | completion of extensive preclinical laboratory tests, animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice regulations; |
| | ● | Stem Cells: generally, involves implanting immature retinal support cells aimed at slowing retinal degeneration. A single patient in London, England with wet AMD was reportedly implanted in 2015 withsubmission to the FDA of an embryonic stem cell line in a study sponsored by Pfizer. This study has been suspended. Patients with dry AMD were recruited in several countries (US, UK, and South Korea) for similar small studies. Data from these early-stage studies are encouraging with regard to safety and potential therapeutic benefit, but these have been described as Phase ½IND, which must become effective before human clinical trials with the likely next step of ongoing in vitro cell optimization and small clinical validation studies prior to larger pivotal studies . A few other study groups are investigating different human embryonic stem cell and induced pluripotent stem cell lines for retinal diseases, but to our knowledge, they are all in early stages.may begin; |
| | ● | Genetics and Gene Therapy: involves identifying a specific gene that is causing retinal problems (there are over 120 for retinitis pigmentosa alone) resulting in visual impairments and blindness and inserting healthy genes intoapproval by an individual’s cells using a virus as a delivery mechanism to treat the diseases. A company (Spark Therapeutics) completed a phase 3 study in 21 patients with a median age of 11 for a gene that affects a very small percentage of retinitis pigmentosa patients, RPE65. That company applied for and received FDA approval for Luxturna in 2018. Pricing for these injections is reported toindependent IRB representing each clinical site before each clinical trial may be approximately $850,000 for both eyes. We believe that there is virtually no overlap with our current market since our patients generally are adults (Orion was studied in adults 22-74 years old). Luxturna also treats better sighted patients since it is aimed at improving or preserving residual vision. In contrast, Orion seeks to create artificial vision where vision is completely lost.initiated; |
| | ● | Optogenetics Therapy: aimed at slowing down, reversing, and/or eliminatingperformance of adequate and well-controlled human clinical trials in accordance with an applicable IND and other clinical study related regulations, sometimes referred to as good clinical practices (“GCP”) regulations, to establish the process by which photoreceptors insafety and efficacy of the eye are compromised. This therapy requires using the patient’s cells with a virus as a delivery mechanism intended to cause cells within the eye to become light sensitive. Animal work has shown that these cells are not sensitive enough to respond to ambient light, so this approach currently also requires a light amplifier outside the body to increase light delivered to the retina. Several phase 1/2a and 2b/3 trials of optogenetic treatmentsproposed drug for RP or related diseases are active in the US, but none of these treatments have been approved for marketing in any markets, to our knowledge. its proposed indication; |
| | ● | Nutritional Therapy: involves diets or supplements that are thoughtsubmission to prevent or slow the progressFDA of vision loss.an NDA which, for a combination product like our product candidates, is expected to include information and data regarding the drug delivery device technology; |
| | ● | Implantable Telescope: VisionCare Ophthalmic Technologies, Inc. offerssatisfactory completion of an FDA approved implantable miniature telescope for AMD, a magnifying device that is implanted inpre-approval inspection of the eye. The VisionCare telescope is approved for use in patientsmanufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with severe to profound vision impairment (best corrected visual acuity of 20/160 to 20/800) due to dry AMD.the FDA’s current good manufacturing practice requirements (“cGMP”); |
| | ● | Wicab’s The BrainPort® V100 includes a video camera mounted on a pairpotential FDA inspection of sunglasses, a hand-held controller, and tongue array. The tongue array contains 400 electrodes and is connected toVivani, the glasses via a flexible cable. White pixels fromclinical trial sites or other vendors that generated the camera are felt ondata in support of the tongue as strong stimulation, black pixels as no stimulation, and gray levels as medium levels of stimulation. This device is indicated for the profoundly blind.NDA; |
| | ● | There are currently no known treatments for dry AMD after the disease has caused severe to profound vision loss nor are there any established treatments that delay or reverse the progressionpayment of dry AMD other than supplements.associated user fees; |
| | ● | Therapies exist for Wet AMD that delayreview by an FDA advisory committee, where appropriate or if applicable; |
| ● | FDA review and approval of the progression of visual impairmentNDA prior to any commercial marketing or slightly improve the vision, rather than completely curing or reversing its course. These therapies are approved in many regions throughout the world,sale; and |
| ● | compliance with any post-approval requirements, including the U.S.potential requirement to implement a Risk Evaluation and European UnionMitigation Strategy (“EU”REMS”)., and the potential requirements to conduct post-approval studies. |
In November 2022, Vivani signed a long-term lease at 1350 South Loop Road, Alameda, CA 94502 to accommodate office space, R&D, analytical labs and a GMP manufacturing suite to support our research and development activities for our Biopharm Division. We moved into the new facility in September 2023.
On February 1, 2023, our Neuromodulation division entered into a lease agreement, effective March 1, 2023, to sublease office space at 27200 Tourney Road, Suite 315, Valencia, CA 91355 to replace their existing headquarters, under a lease that expired on March 1, 2023.
Employees
As of December 31, 2021,2023, we had 1537 employees including 10 in clinical, regulatoryour Biopharm Division and research and development; and 57 employees in administration.our Neuromodulation division. Of these persons, all are employed in the United States. We believe that the continued success of our business will depend, in part, on our ability to attract and retain qualified personnel, and we are committed to developing our people and providing them with opportunities to contribute to our growth and success. None of these employees is covered by a collective bargaining agreement, and we believe our relationship with our employees is good to excellent.
Properties
Our principal office and facilities are located at 13170 Telfair Avenue, Sylmar CA 91342, which consists of approximately 17,290 rentable square feet at a current base rent of about $17,000 per month. Our sub-lease expires in March 2023. We believe that these premises are adequate for our foreseeable needs.
Available Information
Our website address is www.secondsight.com.www.vivani.com. We make available free of charge through a link provided at our website our Forms 10-K, 10-Q and 8-K as well as any amendments thereto. These reports are available as soon as reasonably practicable after they are filed with the Securities and Exchange Commission.
Item 1A. Risk Factors
Risks RelatedThis Form 10-K contains forward-looking information based on our current expectations. Because our business is subject to Dependencemany risks and our actual results may differ materially from any forward-looking statements made by or on Our Commercial Productsbehalf of us, this section includes a discussion of important factors that could affect our business, operating results, financial condition and the trading price of our common stock. You should carefully consider these risk factors, together with all of the other information included in this Form 10-K as well as our other publicly available filings with the SEC.
Despite promising results from the Early Feasibility StudyRisks Related to Our Financial Position and Need for Orion being conducted at UCLA and Baylor we currently have no commercial products or product revenue and may never become profitable.Additional Capital
To date, we have not generated profit from sales of our now discontinued Argus II product and will not generate revenues until we complete the development and attain the marketing approval for Orion. We have relied principally on financing from the sale of equity securities and the receipt of government and other grants to fund our operations. We expect that our future financial results will depend primarily on our success in further developing the Orion, conducting FDA approved clinical trials and obtaining clearance or approval for, launching, selling and supporting our Orion technology. To establish these operations we will need to expend significant resources on hiring additional personnel, conducting continued scientific and product research and development, engaging in further pre-clinical and clinical investigation, giving expanded attention to intellectual property development and prosecution, seeking domestic and international regulatory approvals, marketing and promotion, capital expenditures, working capital, general and administrative expenses, and fees and expenses associated with our capital raising efforts. We expect to incur costs and expenses related to consulting costs, laboratory development costs, hiring of scientists, engineers, sales representatives and other operational personnel, and the continued development of relationships with potential partners as we continue to seek regulatory clearance or approval for our products. As a pre-revenue company we continue to incur significant operating losses, and we expect to continue to incur additional losses for at least the next several years. We cannot assure you that we will generate revenue or be profitable in the future. Our future or updated Orion products may never be cleared or approved or become commercially viable or accepted for use.
Investment in medical device technology entails material uncertainty and is highly speculative. It entails substantial upfront capital expenditures over time and significant risk that any potential product will fail to demonstrate adequate safety, efficacy, clinical utility or acceptance by physicians and blind individuals. Investors should evaluate an investment in us in light of the uncertainties encountered by developing medical technology companies in a competitive environment. There can be no assurance that our efforts will be successful or that we will ultimately be able to achieve profitability. Even if we 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 adversely affect the market price of our common stock and could significantly impair our ability to raise capital, expand our business or continue to implement our business plan.
Our commercial and financial success depends on our products being accepted in the market, and if not achieved will result in our not being able to generate revenues to support our operations.
Even if we are able to obtain favorable reimbursement within the markets that we serve, commercial success of our products will depend, among other things, on their acceptance by retinal specialists, ophthalmologists, brain surgeons, general practitioners, low vision therapists and mobility experts, hospital purchasing and controlling departments, patients, and other members of the medical community. The degree of market acceptance of any of our product candidates will depend on factors that include:
● cost of treatment;
● pricing and availability of future alternative products;
● the extent of available third-party coverage or reimbursement;
● perceived efficacy of the Orion system relative to other future products and medical solutions; and
● prevalence and severity of adverse side effects associated with treatment.
The activities of competitive medical device companies, or others, may limit our revenue from the sale of the Orion system.
Our commercial opportunities for the Orion system may be reduced if our competitors develop or market products that are more effective, are better tolerated, receive better reimbursement terms, achieve greater acceptance by physicians, have better distribution channels, or are less costly.
Currently, to our knowledge, no other medical devices comparable to the Orion system have been approved by regulatory agencies, in the U.S. or Europe, to restore some functional vision in persons who have become blind due to unpreventable causes. Other visual prosthesis companies such as Pixium are developing retinal implant technologies to partially restore some vision in blind patients mainly from age related macular degeneration. Pixium’s initial RP prosthesis product was withdrawn from the market. A previous competitor, Retina Implant, has withdrawn from the market. Neither Retina Implant nor Pixium has filed for market approval with the FDA. To our knowledge Pixium has obtained an IDE for a feasibility study in the U.S. for its PRIMA product, which is directed toward age related macular degeneration or AMD, and is conducting a pivotal trial of PRIMA in several countries in Europe. The Illinois Institute of Technology’s Intracortical Visual Prosthesis group is currently recruiting participants for a US early feasibility study of a visual cortical prosthesis, and has recently implanted one subject. Neuralink has recently demonstrated a cortical implant in animal models. Vision restoration is one of Neuralink’s stated goals. These and other potentially competitive therapies, if or when developed or brought to market, may result in pricing and market access pressure even if the Orion system is otherwise viewed as a preferable therapy.
Many privately and publicly funded universities and other organizations are engaged in research and development of potentially competitive products and therapies, such as stem cell and gene therapies, some of which may target multiple indications of our product candidates. These organizations include pharmaceutical companies, biotechnology companies, public and private universities, hospital centers, government agencies and research organizations. Our competitors include large and small medical device and biotechnology companies that may have significant access to capital resources, competitive product pipelines, substantial research and development staff and facilities, and substantial experience in medical device development.
We may face substantial competitionare a preclinical-stage company with a limited operating history, and have no products approved for commercial sale.
We are a preclinical-stage biopharmaceutical company. In August 2022, we completed a business combination of Second Sight and NPM, to form our current company. Following the business combination, we are focusing primarily on the development of our proprietary NanoPortal technology and the development of miniaturized, subdermal drug implants capable of the long-term delivery of medicine in patients with chronic diseases with high unmet medical need. Our pipeline includes our current product candidates NPM-115, NPM-119, NPM-139 and OKV-119, which we have partnered with Okava Pharmaceuticals, Inc. All of our product candidates are in early-stage development and none of our product candidates have entered into clinical-stage testing, been approved for marketing, or are being marketed or commercialized.
As a result, we have no meaningful historical operations upon which to evaluate our business and prospects and we have not yet demonstrated an ability to successfully initiate and conduct clinical trials or obtain marketing approval for any of our product candidates or otherwise successfully overcome the risks and uncertainties frequently encountered by companies in the biopharmaceutical industry. We have not generated any revenues to date, and we continue to incur significant research and development and other expenses. As a result, we have not been profitable and have incurred operating losses in every reporting period since our inception. During the years ended December 31, 2022 and 2023, we reported net losses of $13.9 million and $25.7 million, respectively, and had an accumulated deficit of $98.4 million as of December 31, 2023.
For the foreseeable future, we expect to continue to incur significant and increasing losses as we expand our research and development activities, seek regulatory approvals for our product candidates and begin to commercialize them if they are approved by the FDA the European Medicines Agency (“EMA”) or comparable foreign authorities. Even if one or more of our product candidates complete their clinical development, achieve marketing approval and are commercialized, we may never become profitable.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced biopharmaceutical companies in rapidly evolving fields. If one or more of our product candidates receive marketing approval, we also may need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We have not yet demonstrated an ability to successfully overcome such risks and difficulties, or to make such a transition.
We do not anticipate generating revenue from product sales for the foreseeable future and may notnever be able to keep pace with the rapid technological changes which may result from others discovering, developing or commercializing products before or more successfully than we do.profitable.
In general,The viability of our business depends on our ability to generate revenue from product sales. Vivani’s current pipeline is focused on the development of our proprietary NanoPortal™ technology and commercializationthe development of newminiaturized, subdermal drug implants capable of the long-term delivery of medicine in patients with chronic diseases with high unmet medical devices is highly competitive and is characterized by extensive research and development and rapid technological change. Physicians and persons who may be suitable for the Orion implant likely will consider many factors including product reliability, clinical outcomes, product availability, price, and product and patient support services thatneed. However, we may never be able to provide. Market share as it develops can shift as a resultdevelop or commercialize marketable products from our current pipeline or achieve profitability. Revenue from the sale of technological innovation and other business factors. Major shiftsany product candidate for which regulatory approval is obtained will be dependent, in industry market share have occurred in connection with product problems, physician advisories and safety alerts, reflectingpart, upon the importancesize of product quality and reliabilitythe markets in the medical device industry,territories for which regulatory approval is obtained, the accepted price for the product, the acceptance of the product by physicians and patients, the ability to obtain reimbursement at any quality problems withprice and whether we own the commercial rights for that territory. In addition, if the market size for our processes, goods and services could harm our reputationproduct candidates is smaller than estimated, the indication or intended use approved by regulatory authorities is narrower than expected, or the target patient population for producing high-qualitytreatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, and would erode our competitive advantage, sales and market share. Our competitors may develop products or other novel approaches and technologies to deal with treating blindness that are more effective, safer or less costly than any thateven if approved. Even if we are developing, andable to generate revenue from the sale of any approved products, we may not become profitable. Even if those products gain market acceptance our revenue and financial results couldwe achieve profitability in the future, such profitability may not be adversely affected.sustained in subsequent periods.
Our ability to generate revenue and achieve profitability depends significantly on our ability, either independently or in collaboration with third parties, to achieve several objectives, including:
| ● | successful completion of preclinical studies resulting in data that is supportive of advancing to an IND submission; |
| ● | successful submission and acceptance of INDs or comparable applications; |
| ● | successful initiation of clinical trials; |
| ● | successful and timely completion of nonclinical and clinical development of our product candidates; |
| ● | establishing and maintaining relationships with contract research organizations (CROs) and clinical sites for the clinical development of our product candidates; |
| ● | timely receipt of marketing approvals from applicable regulatory authorities for any product candidates for which we successfully complete clinical development; |
| ● | developing an efficient and scalable manufacturing process for our candidates, including obtaining finished products that are appropriately packaged for sale; |
| ● | establishing and maintaining commercially viable supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and meet the market demand for our product candidates, if approved; |
| ● | successful commercial launch following any marketing approval, including the development of a commercial infrastructure, whether in-house or with one or more collaborators; |
| ● | a continued acceptable safety profile following any marketing approval of our product candidates; |
| ● | commercial acceptance of our product candidates by patients, the medical community and third-party payors; |
| ● | satisfying any required post-marketing approval commitments to applicable regulatory authorities; |
| ● | identifying, assessing, and developing new product candidates; |
| ● | obtaining, maintaining, and expanding patent protection, trade secret protection and regulatory exclusivity in the United States and target international markets; |
| ● | protecting our rights in our intellectual property portfolio; |
| ● | defending against third-party interference or infringement claims, if any; |
| ● | entering into, on favorable terms, any collaboration, licensing, or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates; |
| ● | obtaining coverage and adequate reimbursement by third-party payors for our product candidates; |
| ● | addressing any competing therapies and technological and market developments; and |
| ● | attracting, hiring, and retaining qualified personnel. |
We may never be successful in achieving its objectives and, even if we do, may never generate revenue that is significant or large enough to achieve or maintain profitability. Any failure to become and remain profitable would decrease the value of our company and could impair our ability to maintain or further our research and development efforts, raise additional necessary capital, grow our business, and continue our operations.
We will require substantial additional financing to pursue our business objectives, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development, commercialization efforts or other operations.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive, and uncertain process that takes years to complete. Our operations have consumed substantial amounts of cash, and we expect our expenses to increase in connection with our ongoing activities, particularly as we conduct clinical trials of our product candidates. Even if one or more of our product candidates is approved for commercial sale, we will incur significant costs associated with sales, marketing, manufacturing, and distribution activities. Our expenses could increase beyond expectations if required by the FDA, the EMA or other regulatory agencies to perform clinical trials or preclinical studies in addition to those that we currently anticipate. For example, on August 18, 2023, FDA provided written notification that the LIBERATE-1 study was on Full Clinical Hold exclusively due to insufficient CMC information to assess the risk to human subjects. Vivani remains actively engaged in discussions with FDA as part of its efforts to lift the clinical hold and enable the expeditious initiation of LIBERATE-1. If we failare required to develop new products conduct additional nonclinical and/or enhance existing products,clinical activities, our leadershipoverall expenditures relating to our NPM-119 program would increase. Other unanticipated costs may also arise. Because the design and outcome of our planned and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amount of resources and funding that will be necessary to successfully complete the development and commercialization of any product candidate. We are not permitted to market or promote any product candidate before it receives marketing approval from the regulatory authorities. Accordingly, we will need to obtain substantial additional funding in the marketsorder to continue our operations and pursue our business objectives.
There can be no assurance that we serve could erode,will be able to raise sufficient additional capital on acceptable terms or at all. If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, we may be required to delay, limit, or eliminate one or more of our business objectives, and our competitiveness, and business, financial condition and results of operations may be materially adversely affected. If we are unable to continue our business, including due to inadequate funding, you could lose your investment.
Vivani’s future capital requirements will depend on many factors, including, but not limited to:
| ● | the scope, rate of progress, results and cost of its clinical trials, preclinical studies, and other related activities; |
| ● | its ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements; |
| ● | the timing of, and the costs involved in, obtaining regulatory approvals for any of its current or future product candidates; |
| ● | the number and characteristics of the product candidates it seeks to develop or commercialize; |
| ● | the cost of manufacturing clinical supplies, and establishing commercial supplies, of its product candidates; |
| ● | the cost of commercialization activities if any of its current or future product candidates are approved for sale, including marketing, sales, and distribution costs; |
| ● | the expenses needed to attract and retain skilled personnel; |
| ● | the costs associated with being a public company; |
| ● | the amount of revenue, if any, received from commercial sales of its product candidates, should any of its product candidates receive marketing approval; and |
| ● | the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing possible patent claims, including litigation costs and the outcome of any such litigation. |
We may raise capital in the form of equity or debt financing, partnerships, collaborations, licensing, spin-offs or other strategic transactions. If we raise additional capital by issuing equity securities, the ownership of our existing may be reduced, and accordingly these shareholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences, and privileges senior to those of its common stock. If we raise funding through debt instruments or facilities, lenders may require us to pledge some or all of our assets as collateral. We may also be required to observe financial, operational and other covenants that constrain our business and operations. If we enter into partnerships, collaborations, licensing or other strategic transactions, we may be required to grant rights to third parties, including rights to develop and market product candidates, that we would otherwise have retained.
Despite early positive results in our limited initial trials at UCLAOur ability to utilize its net operating loss (“NOL”) carry-forwards and Baylor School of Medicine our ongoing development effortscertain other tax attributes may never demonstrate the feasibility of our Orion technologybe limited..
Our research and development efforts remain subject to allUnder Section 382 of the risks associated withInternal Revenue Code of 1986, as amended, or the development of new technology. Our Orion technology, though based on our FDA approved Argus II retinal prosthesis, isCode if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change NOL carry-forwards and other pre-change tax attributes to offset its post-change income may be limited. We have not yet fully developed. Developmentcompleted a study to assess whether any ownership changes, as defined by Section 382 of the underlying technology, includingCode, have occurred. Past, current and future ownership changes may limit our ability to utilize remaining tax attributes.
As of December 31, 2023, we had federal and apportioned state NOL and federal and state R&D credit carry-forwards available to offset future taxable income and income taxes as follows (in thousands):
| | | As of December 31, 2023 | |
| Pre TCJA (Tax Cuts and Jobs Acts of 2017) period federal NOL carry-forward, begin expiring 2030 | | $ | 47,353 | |
| Post TCJA period federal NOL carry-forward, with no carry-forward limitation | | | 136,332 | |
| Total federal NOL carry-forward | | $ | 183,685 | |
| | | | | |
| State NOL carry-forward, begin expiring 2030 | | $ | 120,068 | |
| | | | | |
| Federal R&D tax credit carry-forward, begin expiring in 2036 | | $ | 2,518 | |
| State R&D carry-forward, no expiration date | | $ | 7,524 | |
| | | | | |
| Total R&E related deferred income tax assets (net of applicable amortization) | | $ | 5,120 | |
| | | | | |
| Reserve for uncertain income tax positions | | | Nil | |
Furthermore, under recently enacted U.S. tax legislation, although the further development and refinementtreatment of our Orion technology,tax losses generated in taxable years ending before December 31, 2017, has generally not changed, tax losses generated in taxable years beginning after December 31, 2017 may only be affected by unanticipated technical or other problems, among other development and research issues, and the possible insufficiencyutilized to offset 80% of funds needed in order to complete development of these products or devices. Regulatory and clinical hurdles, adverse reactions experienced in trials, or other operational or regulatory challenges alsotaxable income annually. This change may result in delays and causerequire us to incur additional expenses that may increase our needpay federal income taxes in future years despite generating a loss for capitalfederal income tax purposes in prior years.
Risks Related to Product Development, Clinical Testing and result in additional losses. For example, three of the six subjects implanted in the Early Feasibility Study have been explanted by the subjects’ request. While all had been implanted at least three years, the explants represent a limit in the long-term data that can be collected in the current study. If we cannot complete, or if we experience significant delays in developing our technology, applications or products for use by those patients who can benefit from vision restoration, particularly after incurring significant expenditures, our business may fail and investors may lose the entirety of their investment.Commercialization
Since we have had an operating historyWe are dependent on the successful development, regulatory approval and commercialization of losses and have no current revenue producing operations, the futureone or more of our business is difficult to evaluateproduct candidates, there can be no assurance that we may achieve any of these objectives..
We have spent significant time, money and effort on the licensing and development of our core assets, including NPM-115 (high-dose exenatide implant), NPM-119 (exenatide implant) in preclinical stage development, NPM-139 (semaglutide implant), and OKV-119 (exenatide implant for feline patients) in initial feasibility testing with our proprietary NanoPortal implant technology. To date, we have not commenced clinical testing of any of our operationsproduct candidates. All of our product candidates will require additional development, including clinical trials as well as further preclinical studies to evaluate their safety, tolerability and pharmacokinetics, and to optimize their formulation. Our product candidates may require significant additional testing before advancing to pivotal clinical trials that are designed to generate sufficient safety and efficacy data to support a marketing application. Even if we conduct and complete such testing of our product candidates, there can be no assurance that we will obtain marketing approval for one or more of these candidates. Positive results obtained during early development do not necessarily mean later development will succeed or that regulatory approvals will be obtained. Our drug development efforts may not lead to commercially-viable products for any number of reasons, including because our product candidates fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities to support marketing approval, or because we have inadequate financial or other resources to advance our product candidates through development and approval processes. If any of our product candidates fail to demonstrate sufficient safety or efficacy data at any time to support their continued development, or we encounter other challenges in the development of our product candidates, we would experience potentially significant delays in, or be required to abandon, development of the product candidate.
We do not anticipate that any of our product candidates will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin commercialization for a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we may be unable to commercialize them successfully for a variety of reasons, either independently or in collaboration with third parties. These include, for example, the availability of alternative treatments, lack of cost-effectiveness, the cost of manufacturing the product on a consolidated basis have consisted of the continued developmentcommercial scale and clinical studiescompetition with other drugs. The success of our Orion-focused technologiesproduct candidates may also be limited by the prevalence and implementationseverity of any adverse side effects or the early partswillingness of patients and healthcare providers to use or administer our drug implants. If we fail to develop, obtain approval for and commercialize one or more of our product candidates, our business plan. We have incurred significant operating losses in each year since our inceptionwould be materially and we will continue to incur additional losses for the next several years. In addition, our losses may be greater than expected and our operating results may suffer. We have limited historical financial data upon which we may base our projected revenue and base our planned operating expenses. This operating history makes it difficult to evaluate our technology or prospective operations and business prospects.adversely impacted.
Clinical development involves a lengthy and expensive process with an uncertain outcome,outcomes. We may incur additional costs and results of earlier studiesexperience delays in developing our product candidates, and initial trialsour clinical development efforts may not be predictive of future trialyield favorable results.
ClinicalTo receive regulatory approval for our product candidates, adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the FDA, the EMA, and comparable foreign authorities. We have not yet conducted clinical trials for our current product candidates and clinical testing of such product candidates may not yield results to support continued development or seeking regulatory approval. The development process is expensive, and can take several or moremany years to complete, and its outcome is inherently uncertain.has an uncertain outcome. Failure or delay can occur at any timestage of the process. We may experience numerous unforeseen events during, or as a result of, the development process that could delay or prevent development and approval of our product candidates, including the following:
| ● | we may be unable to initiate or conduct planned clinical trials on our anticipated timelines, including as a result of failing to obtain any clearances necessary to conduct clinical trials or being subject to clinical holds that prevent continuation of such trials; |
| ● | clinical trials may produce negative or inconclusive results; |
| ● | preclinical studies conducted with product candidates during clinical development to, among other things, evaluate their safety, tolerability and pharmacokinetics and optimize their formulation may produce unfavorable results; |
| ● | patient recruitment and enrollment in clinical trials may be slower than anticipated; |
| ● | costs of development may be greater than anticipated; |
| ● | our product candidates may cause undesirable side effects that delay or preclude regulatory approval or limit their commercial use or market acceptance, if approved; |
| ● | if one or more product candidates are developed in collaboration with third parties, such parties may not devote sufficient resources to these clinical trials or other preclinical studies of these candidates or conduct them in a timely manner; |
| ● | we may face delays or other challenges associated with the availability and sourcing key raw materials and/or key components; and |
| ● | we may encounter difficulties in developing product candidates related to our proprietary NanoPortal implant technology or difficulties associated with the long-term purity, potency, safety, or stability of our product candidates. |
For example, on August 18, 2023, FDA provided written notification that the LIBERATE-1 study was on Full Clinical Hold exclusively due to insufficient Chemistry, Manufacturing, and Controls (“CMC”) information to assess the risk to human subjects. Vivani remains actively engaged in discussions with FDA as part of its efforts to lift the clinical trial process. Successhold and enable the expeditious initiation of LIBERATE-1. However, there can be no assurance that we can address the issues identified by the FDA in nonclinical studiesa timely manner or at all, and we may incur additional expenses in connection with our efforts to advance NPM-119 into the clinic.
Even if we experience success in early feasibility clinical studies doesdevelopment for any product candidate, that experience may not ensure that expandedbe replicated in later development or with respect to any other product candidates. For example, in our industry, product candidates in later-stage clinical trials that will be usedroutinely fail to support regulatory submissions will be successful. These setbacks may be caused by, among other things, nonclinical findings made whiledemonstrate adequate safety and efficacy despite having progressed through initial clinical trials were underway, and safety or efficacy observations made in clinical trials, including previously unreported adverse events. preclinical testing.
Even if our clinical trials generate data that we believe are completed, the resultspromising, such data may not be sufficient to obtainsupport seeking marketing approval by the FDA, the EMA, or comparable foreign authorities. Further, data generated during development can be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities may interpret such data in different ways than we do. If we fail to generate data that adequately demonstrate the safety and efficacy of our product candidates to support marketing approval from regulatory authorities, we will not be able to market and commercialize these product candidates.
From time to time, in addition to or as an alternative to raising capital through equity or debt offerings, we may seek to selectively and opportunistically enter into collaborations with third parties to assist in the development and potential future commercialization of some or all of our product candidates. However, there can be no assurance that we will be able to establish such collaborations on acceptable terms, if at all, or it may take longer than expected to establish new collaborations. Even if we enter into one or more of such collaborations, the risks associated with the development of product candidates still remain, and there can be no assurance that our potential collaborators will successfully develop, seek approval or clearance for and commercialize any of our product candidates.
Our product candidates may have serious adverse, undesirable or unacceptable side effects that could delay, pause or terminate our clinical trials, or prevent us from obtaining regulatory approval for or commercialize such product candidates. If such side effects are identified during the development of our product candidates or following approval, if any, we may need to abandon our development of such product candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval, if any.
Undesirable side effects observed in preclinical studies or clinical trials of our product candidates could interrupt, delay, or halt their development and could result in the denial of regulatory approval by the FDA, the EMA, or comparable foreign authorities for any or all targeted indications or adversely affect the marketability of any such product candidates that receive regulatory approval.
Our product candidates may exhibit adverse effects in preclinical toxicology studies and adverse interactions with other drugs. Our product candidates may require a risk management program that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post-marketing observational study, and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician specialists or physicians trained in the use of the drug or could be limited to a more restricted patient population. Any risk management program required for approval of our product candidates could potentially have an adverse effect on our business, financial condition, and results of operations.
Undesirable side effects involving our product candidates may have other significant adverse implications on our business, financial condition, and results of operations. For example:
| ● | our collaborators may terminate any development agreements covering these product candidates; |
| ● | if any development agreements are terminated, we may determine not to further develop the affected product candidates due to resource constraints and may not be able to establish additional collaborations for their further development on acceptable terms, if at all; |
| ● | if we were to later continue the development of these product candidates and receive regulatory approval, earlier findings may significantly limit their marketability and thus significantly lower our potential future revenues from their commercialization; and |
| ● | we may be subject to product liability or shareholder litigation. |
In addition, even if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by such products (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:
| ● | regulatory authorities may withdraw or limit their approval of the product, or we may decide to cease marketing and sale of the product voluntarily; |
| ● | regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication; |
| ● | regulatory authorities may impose conditions under a risk evaluation and mitigation strategy (“REMS”), including distribution of a medication guide to patients outlining the risks of such side effects or imposing distribution or use restrictions and/or requiring special training for prescribers of the product; |
| ● | change the way the product is administered, conduct additional clinical trials or preclinical studies regarding the product, change the labeling of the product, or change the product’s manufacturing facilities; |
| ● | we may be subject to regulatory investigations and government enforcement actions; |
| ● | we may decide to recall or remove such products from the marketplace; |
| ● | we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; |
| ● | we may fail to secure acceptance of our product candidates from physicians, healthcare payers, patients and the medical community; and |
| ● | our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.
Our efforts to identify and develop product candidates beyond those in our current pipeline may not succeed, and any product candidates that we select for clinical development may not actually begin clinical trials.
We intend to expand our current pipeline of core assets by advancing drug implants from future and ongoing feasibility programs into preclinical and clinical development. However, the process of identifying and developing drug implants is expensive, time-consuming, and unpredictable. Data from our current preclinical programs may not support the clinical development of its lead compounds or other compounds from these programs, and we may not identify any additional drug compounds suitable for recommendation for clinical development. Moreover, any drug compounds that we select for clinical development may not generate sufficient safety and efficacy data that would support advancement into clinical trials or to continue clinical trials that are ongoing. Such findings would potentially impede our ability to maintain or expand our development pipeline. Our ability to identify new drug implants and advance them into preclinical and clinical development also depends upon our ability to fund our research and development operations, and there can be no assurance that additional funding will be available on acceptable terms, or at all.
We could experience delays in the commencement or completion of clinical trials, which could result in increased costs or otherwise impair our research and development efforts.
Delays in the commencement or completion of clinical trials could significantly impact our drug development costs and otherwise impair our research and development efforts. We do not know whether planned clinical trials will begin on time or be completed on schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including, but not limited to, delays related to:
| ● | obtaining regulatory approval to commence one or more clinical trials; |
| ● | reaching agreement on acceptable terms with prospective third-party contract research organizations (“CROs”) and clinical trial sites; |
| ● | obtaining institutional review board approval to conduct one or more clinical trials at a prospective site; |
| ● | recruiting and enrolling patients to participate in one or more clinical trials; and |
| ● | the failure of our collaborators to adequately resource our product candidates. |
For example, on August 18, 2023, FDA provided written notification that the LIBERATE-1 study was on Full Clinical Hold primarily due to insufficient Chemistry, Manufacturing, and Controls (“CMC”) information to assess the risk to human subjects. Vivani remains actively engaged in discussions with FDA as part of its efforts to lift the clinical hold and enable the expeditious initiation of LIBERATE-1. However, there can be no assurance that we can address the issues identified by the FDA in a timely manner or at all, and we may incur additional expenses in connection with our efforts to advance NPM-119 into the clinic.
In addition, once a clinical trial has begun, it may be suspended or terminated by us or our collaborators, institutional review boards, or, if applicable, data safety monitoring boards charged with overseeing our clinical trials, the FDA, the EMA, or comparable foreign authorities due to a number of factors, including:
| ● | failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols; |
| ● | inspection of the clinical trial operations or clinical trial site by the FDA, the EMA or comparable foreign authorities resulting in the imposition of a clinical hold; |
| ● | unforeseen safety issues; or |
| ● | lack of adequate funding to continue the clinical trial. |
If we experience delays in the completion or termination of any clinical trial of our product candidates, the development of product candidates will be impaired. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development process and our anticipated timelines for seeking marketing approval. Such delays could also allow our competitors to obtain marketing approval for their own product candidates before we do or may shorten the patent protection period during which we may have the exclusive right to commercialize our product, if approved. Any of these occurrences may harm our business, financial condition, and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Results of preclinical trials may not be predictive of the results of later-stage clinical trials, and many product candidates fail to achieve regulatory approval despite showing initial promise in early-stage testing.
The results of preclinical studies of product candidates may not be predictive of the results of clinical trials, and results from early-stage clinical testing may not be replicated in later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. We may experience similar setbacks in our development programs for these or other reasons.
As product candidates are developed through preclinical, early-stage clinical and late-stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late-stage clinical trials, approval and commercialization, such changes carry the risk that they will not achieve these intended objectives.
Any of these changes could make the results of our planned clinical trials or other future clinical trials less predictable and could cause our product candidates to perform differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and generate revenues.
Interim, “top-line”topline and preliminary resultsdata from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publishpublicly disclose interim, top-linetopline or preliminary resultsdata from our clinical trials.trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical studies. Interim resultsdata from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. DifferencesAdverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, others, including regulatory authorities, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects and may cause the trading price of our common stock to fluctuate significantly.or financial condition.
Risks RelatedWe may experience delays in the enrollment of patients in our clinical trials, which would adversely affect our ability to Our Common Stockinitiate, conduct and complete such trials on our anticipated timelines.
Identifying and qualifying patients to participate in our clinical trials is critical to our success. Patient enrollment depends on many factors, including:
| ● | the size of the patient population required for analysis of the trial’s primary endpoints and the process for identifying patients; |
| ● | identifying and enrolling eligible patients, including those willing to discontinue use of their existing medications; |
| ● | the design of the clinical protocol and the patient eligibility and exclusion criteria for the trial; |
| ● | safety profile, to date, of the therapeutic candidate under study; |
| ● | the willingness or availability of patients to participate in our trials, including due to the perceived risks and benefits, stigma or other side effects of use of a controlled substance; |
| ● | the willingness or availability of patients to participate in our trials, including due to any public health crisis such as the COVID-19 pandemic and the emergence of new COVID-19 variants; |
| ● | perceived risks and benefits of our approach to treatment of indication; |
| ● | the proximity of patients to clinical sites; |
| ● | our ability to recruit clinical trial investigators with the appropriate competencies and experience; |
| ● | the availability of competing clinical trials; |
| ● | the availability of new drugs approved for the indication the clinical trial is investigating; |
| ● | clinicians’ and patients’ perceptions of the potential advantages of the drug being studied in relation to other available therapies, including any new therapies that may be approved for the indications we are investigating; and |
| ● | our ability to obtain and maintain patient informed consents. |
Even once enrolled we must retain a sufficient number of patients to complete any of our trials.
If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which may impair the significance of such results and cause regulatory authorities to require additional testing. Additionally, enrollment delays in our clinical trials may result in increased development costs for our product candidates, delay our development timelines or force us to abandon one or more of our programs altogether.
We have not been profitablemay experience difficulty identifying, training and/or certifying an adequate number of healthcare professionals to dateproperly implant and, expectwhen appropriate, explant our operating lossesdrug implants candidates, which may impair our ability to continue for the foreseeable future; we may never be profitable.conduct our clinical trials.
We have incurred operating lossesOur drug implant candidates require properly trained healthcare professionals, which may include doctors, nurse practitioners and generated negative cash flows sincenurses, for sub-dermal placement into patients. These healthcare professionals would also be responsible for removal and replacement of a new drug implant. There can be no assurance that sufficient numbers of trained and/or certified healthcare professionals will be available or that the training or certification requirements will not be more burdensome than anticipated. Both factors could lead to difficulties in conducting our inceptionclinical trials and have financedimpair our operations principally through equity investments and borrowings. Our ability to generate sufficient revenues to fund operations is uncertain. For the fiscal year ended December 31, 2020, we generated no revenue from operations and incurred a net loss of $14.9 million. For the fiscal year ended December 31, 2021, we generated no revenue from operations and incurred a net loss of $8.9 million. Our total accumulated deficit through December 31, 2021, was $328.6 million.development efforts for our product candidates.
As a result of our limited commercial operating history, revenue is difficult to forecast. We expect expenses to increase in the future as we expand our activities in connection with the further development of Orion. We cannot assure you that we will be profitable in the future. Accordingly, the extent of our future losses and the time required to achieve profitability, if ever, is uncertain. Failure to achieve profitability could materially and adversely affect the value of our common stock and our ability to effect additional financings. The success of the business depends on our ability to increase revenues to offset expenses. If we do not achieve profitability, or otherwise fall short of projections, our business, financial condition and operating results will be materially adversely affected.
Sales,If our competitors have product candidates that are approved faster, marketed more effectively, are better tolerated, have a more favorable safety profile, or the availability for sale, of substantial amounts ofare demonstrated to be more effective than our common stock could adversely affect the value ofown, our common stock.
We cannot predict the effect, if any, that future sales of our common stock, or the availability of our common stock for future sales, will have on the market price of our common stock. Sales of substantial amounts of our common stock in the public market and the availability of shares for future sale could adversely affect the prevailing market price of our common stock. This in turn could impair our future ability to raise capital through an offering of our equity securities.
Therecommercial opportunity may be future salesreduced or other dilution of our equity, which may adversely affect the market price of our common stock.
We are not restricted from issuing additional shares of common stock. The market price of our common stock could decline as a result of sales of our common stock and warrants or the perception that such sales could occur. We may issue and sell additional shares of our common stock in private placements or registered offerings in the future. We also may conduct additional registered rights offerings in the future pursuant to which we may issue shares of our common stock or other securities.
Risks Relating to Our Operations
The COVID-19 pandemic has had an adverse effect on our business and results of operations and is expected to continue to have further adverse effects, which could be material, on our business, results of operations, financial condition, liquidity, and capital investments.
In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread globally. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, most states in the U.S., including California, where we are headquartered, have declared a state of emergency. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns.
In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to wear masks in the office and use their best judgement to work remotely or work in the office. While many of our employees are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.
In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. For example, scheduled patient visits to our clinical sites at UCLA and Baylor were temporarily put on hold due to COVID-19. Visits have now resumed at both sites. In addition, the validation study for the revised FLORA assessment was paused due to travel requirements for its completion. Also, some of our suppliers of certain materials used in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We could experience further harm to our business and we cannot anticipate all of the ways in which health epidemics such as COVID-19 and its variants could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change.
COVID-19 has directly and indirectly adversely affected Second Sight and will likely continue to do so for an uncertain period of time. In March and April 2020 we laid off the majority of our employees as a result of COVID-19 and an inability to obtain financing. We retain approximately fifteen of our employees to oversee current operations, including some that were re-hired once our financial situation improved and the future of the company became clearer. The cumulative effects of COVID-19 and its variants on the Company cannot be predicted at this time, but could include, without limitation:
● reputational damages of the Company and its products;
● inability to raise additional funds to finance and continue our operations;
● inability to maintain adequate office laboratory facilities;
● inability to retain and hire experienced personnel;
● diminished ability, or inability, to enroll patients or complete clinical trials and other activities required to achieve regulatory clearance of our products under development
● inability to finalize our plan for and enroll patients into our proposed pivotal clinical trial;
● material delays or inability to complete development and commercialization of Orion;
● inability to satisfy Nasdaq’s continued listing requirements and possible delisting; and
● other uncertain events that may have negative impact on our operations.
Materials necessary to manufacture Orion may not be available on commercially reasonable terms, or at all, which may delay development, manufacturing and commercialization of our products.
We rely on numerous suppliers to provide materials, components and services necessary to produce the Orion system and next generation product candidates. Certain suppliers are currently sole source because of our low manufacturing volumes and our need for specialty technical or other engineering expertise. Our suppliers may be unable or unwilling to deliver these materials and services to us timely as needed or on commercially reasonable terms. Should this occur, we would seek to qualify alternative suppliers or develop in-house manufacturing capability but may be unable to do so. Substantial design or manufacturing process modifications and regulatory approval might be required to facilitate or qualify an alternate supplier. Even where we could qualify alternative suppliers the substitution of suppliers may be at a higher cost and cause time delays including delays associated with additional possible FDA review, that could impede the production of the Orion system, reduce gross profit margins and impact our ability to deliver our products as may be timely required to meet demand.
Any failure or delay in completing clinical trials or studies for new product candidates or next generation of our products and the expense of those trials could adversely affect our business.
Preclinical studies and clinical trials required to demonstrate the safety and efficacy of incremental changes, including new wearables and software enhancements and for new product candidates such as Orion are time consuming and expensive. If we are required to conduct additional clinical trials or other studies with respect to any of our product candidates beyond those that we have contemplated, if we are unable to successfully complete our clinical trials or other studies or if the results of these trials or studies are not positive or are only modestly positive, we may be delayed in obtaining marketing approval for those product candidates, we may not be able to obtain marketing approval or we may obtain approval for indications that are not as broad as intended. Our product development costs also will increase if we experience delays in testing or approvals.
The completion of clinical trials for our product candidates could be delayed because of our inability to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical trials; delays in patient enrollment and variability in the number and types of patients available for clinical trials; difficulty in maintaining contact with patients after treatment, resulting in incomplete data; poor effectiveness of product candidates during clinical trials; unforeseen safety issues or side effects; and governmental or regulatory delays and changes in regulatory requirements and guidelines.
If we incur significant delays in our clinical trials, our competitors may be able to bring their products to market before we do which could result in harming our ability to commercialize our products or potential products. If we experience any of these occurrences our business will be materially harmed.
We have lost key management and staff personnel because of Covid-19 pandemic. If we fail to recruit highly skilled personnel to replace employees who have left the Company, our ability to identify, develop and commercialize new or next generation product candidates will be impaired, could result in loss of markets or market share and could make us less competitive.
We have laid off the majority of our employees including key members of our executive management team because Covid-19 outbreak affected our ability to fund our operations. Our existing employees could leave our company with little or no prior notice. The loss of any management executive or any other principal member of our management team or our inability to attract and retain skilled employees could impair our ability to identify, develop and market new products or effectively deal with regulatory and reimbursement matters. Will McGuire, our President and Chief Executive Officer, tendered his resignation effective March 27, 2020 and our Board appointed Matthew Pfeffer, a member of our Board of Directors, as acting chief executive officer, and Edward Sedo, our Controller, as Principal Accounting and Financial Officer. On March 26, 2021 Matthew Pfeffer relinquished his position as acting chief executive officer and the Board appointed Scott Dunbar, our Senior Patent Counsel and Compliance Officer, as acting chief executive officer. To the extent that we lose experienced personnel, it is critical that we develop other employees, hire new qualified personnel and successfully manage the transfer of critical knowledge. No assurance can be given that we will be able to do so.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.eliminated.
The U.S. Foreign Corrupt Practices Actbiopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We intend to adopt policies for compliance with these anti-bribery laws, which often carry substantial penalties. We cannot assure youa strong emphasis on proprietary products. While we believe that our internal control policiestechnology, knowledge, experience, and procedures alwaysscientific resources enable us to compete in our industry, we face competition from many different sources, including commercial biopharmaceutical enterprises, academic institutions, government agencies and private and public research institutions. Any product candidates that we develop and, if approved, commercialize will protect us from reckless or other inappropriate acts committed by our affiliates, employees or agents. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial positioncompete with existing therapies and results of operations and could causenew therapies that may become available in the market value of our common stock to decline.
Risks Related to Intellectual Property and Other Legal Mattersfuture.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, clinical trials, regulatory approvals, and marketing approved products. Some of our competitors with the GLP-1 receptor agonist drug class include companies such as Novo Nordisk, AstraZeneca, and Eli Lilly. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our competitors may succeed in developing technologies and therapies that are more effective, better tolerated or less costly than those of our own, or that would render our product candidates obsolete and non-competitive. Even if we obtain regulatory approval for any of our product candidates, our competitors may succeed in obtaining regulatory approvals for their products earlier than we do. We will also face competition from these third parties in recruiting and retaining qualified scientific and management personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs or advantageous to our business.
We believe that the key competitive factors affecting the viability of product candidates, if approved, are likely to be their efficacy, safety, tolerability, frequency and route of administration, convenience and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party payors.
Multiple GLP-1 receptor agonist products have been proven effective to reduce cardiovascular morbidity and mortality, including Trulicity (dulaglutide), Ozempic/Wegovy (semaglutide injection), and Victoza (liraglutide), Medical Guidelines may recommend preferential use of GLP-1 receptor agonists that have positive cardiovascular morbidity and mortality data in the products approved labeling. Since Bydureon, the NPM-119 reference drug, did not demonstrate a reduction in cardiovascular morbidity and mortality, NPM-119 will not have this claim in the approved product label unless we generate positive cardiovascular outcomes data with NPM-119. The lack of a cardiovascular outcomes benefit in the NPM-119 label may decrease its market potential, if approved.
If wethe FDA or our licensors are unable to protect our/their intellectual property, then our financial condition, results of operations and the valueother applicable regulatory authorities approve generic products that compete with any of our technology and productsproduct candidates, the sales of our product candidates, if approved, could be adversely affected.
PatentsOnce an NDA, including a Section 505(b)(2) application, is approved, the product covered becomes a “listed drug” which can be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA. FDA regulations and other proprietary rights are essentialapplicable regulations and policies provide incentives to manufacturers to create modified versions of a drug to facilitate the approval of an ANDA or other application for similar substitutes. If these manufacturers demonstrate that their product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or labeling, as our product candidate, they might only be required to conduct a relatively inexpensive study to show that their generic product is absorbed in the body at the same rate and to the same extent as, or is bioequivalent to, our business, andproduct candidate (and in some cases even this limited bioequivalence testing can be waived by the FDA). Competition from generic equivalents to our product candidates could substantially limit our ability to compete effectively with other companies is dependent upongenerate revenues and therefore to obtain a return on the proprietary natureinvestments we have made in our product candidates.
We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our technologies.product candidates.
The process of manufacturing our product candidates is complex, highly regulated, and subject to numerous risks. For example, the process of manufacturing our product candidates is susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes for any of our product candidates could result in reduced production yields, product defects, and other supply disruptions. If microbial, viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period to investigate and remedy the contamination. In addition, the manufacturing facilities in which its product candidates are made could be adversely affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
In addition, any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of our product candidates. We also rely upon trade secrets, know-how, continuing technological innovationsmay need to take inventory write-offs and licensing opportunitiesincur other charges and expenses for product candidates that fail to develop, maintain and strengthen our competitive position. Wemeet specifications, undertake costly remediation efforts, or seek to protect these, in part, through confidentiality agreements with certain employees, consultants and other parties. Ourcostlier manufacturing alternatives.
The commercial success will depend in part on the ability of our licensors to obtain, maintain (including making periodic filingsproduct candidates, if approved, depends upon their market acceptance among physicians, patients, healthcare payors, and payments) and enforce patent protection for their intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute or continue to prosecute the patent applications which we have licensed. Even if patents are issued in respect of these patent applications, we or our licensors may fail to maintain these patents, may determine not to pursue litigation against entities that are infringing upon these patents, or may pursue such enforcement less aggressively than we ordinarily would. Without adequate protection for the intellectual property that we own or license, other companies might be able to offer substantially identical products for sale, which could unfavorably affect our competitive business position and harm our business prospects. Two patents licensed from the John Hopkins University (the JHU Patents) expired in 2018, along with our License Agreement with the Johns Hopkins University. The expiration of the JHU Patents removes a barrier to entry for competitors who may be interested in selling a product competitive with Argus II. The JHU Patents are specific to retinal stimulation and have no effect on Orion technology.medical community.
Even if issued, patentsour product candidates obtain regulatory approval, they may be challenged, invalidated, or circumvented, which could limitnot gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any of our ability to stop competitors from marketing similar products or limit the length of term of patent protection that we may have for our products.product candidates, if approved, will depend on several factors, including:
| ● | the effectiveness of our approved product candidates as compared to competitive products; |
| ● | adequately trained healthcare professionals willing to administer our product candidates; |
| ● | patient willingness to adopt our approved product candidates rather than competitive therapies; |
| ● | our ability to provide acceptable evidence of safety and efficacy; |
| ● | relative convenience and ease of administration; |
| ● | the prevalence and severity of any adverse side effects; |
| ● | restrictions on use in combination with other products; |
| ● | availability of alternative treatments; |
| ● | pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements, based on the profile of our product candidates and target markets; |
| ● | effectiveness of our sales and marketing strategy; |
| ● | our ability to obtain sufficient third-party coverage or reimbursement; and |
| ● | potential product liability claims. |
Litigation orIn addition, the potential market opportunity for our product candidates is difficult to estimate. Our estimates of the potential market opportunity for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party claims of intellectual property infringement or challenges to the validityresearch reports and other surveys. Independent sources have not verified all of our patents would require usassumptions. If any of these assumptions proves to use resourcesbe inaccurate, then the actual market for our product candidates could be smaller than our estimates of their potential market opportunity. If the actual market for our product candidates is smaller than we expect, the market potential for our product candidates may be limited. If we fail to protect our technology and may prevent or delay the development, regulatory approval or commercialization Orion system or new product candidates. Further, the validity of someachieve market acceptance of our patents has been challenged.
Pixium has three currently pending oppositions inproduct candidates, the European Patent Office (EPO) challenging the validity of European patents owned by Second Sight. The EPO proceedings involving Pixium and Second Sight are:
● EP1937352 Sub-Threshold Stimulation to Precondition Neurons for Supra-Threshold Stimulation – cancelled in the Opposition Division, appeal pending.
● EP2061549 – Package for an Implantable Neural Stimulation Device - Cancelled in the Opposition Division, appeal pending.
● EP2185236 – Implantable Device for the Brain – Upheld in the Opposition Division, appeal pending.
If we are the target of claims by third parties asserting that our products or intellectual property infringe upon the rights of others we may be forced to incur substantial expenses or divert substantial employee resources from our business and, if successful, those claims could result in our having to pay substantial damages or prevent us from developing one or more product candidates. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.
The validity of some of our patents has been challenged. If we experience patent infringement claims, or if we elect to avoid potential claims others may be able to assert, we or our collaborators may choose to seek, or be required to seek, a license from the third-party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspectviability of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly. The cost to us of any litigation or other proceeding, regardless of its merit, even if resolved in our favor, could be substantial. Some of our competitors may be able to bear the costs of such litigation or proceedings more effectively than we can because of their having greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Intellectual property litigation and other proceedings may, regardless of their merit, also absorb significant management time and employee resources.limited.
If we fail to comply withobtain and sustain an adequate level of reimbursement by third-party payors for our obligations in the agreements under which we license development or commercialization rights to products or technology from third parties, we could lose license rights that are important to our business.product candidates, if approved, potential future sales would be materially adversely affected.
We hold an exclusive licenseEven if our product candidates receive marketing approval, there will be no viable commercial market without reimbursement from the Doheny Eye Institute (DEI) to intellectual property relating to the Argus II visual prosthesis and Orion cortical visual prosthesis. This license imposes various commercialization, milestone payment, profit sharing, insurance and other obligations on us. If we fail to comply with any material obligations, DEI will have the right to terminate the license, which covers part of the Argus and Orion systems. The existing or future patents to which we have rights based on our agreements with DEIthird-party payors. Reimbursement policies may be too narrow to prevent third parties from developing or designing around these patents.affected by future healthcare reform measures. We cannot be certain that reimbursement will be available for our product candidates. Additionally, we may loseeven if there is a viable commercial market, if the level of reimbursement is below our exclusive rights to the patentsexpectations, our anticipated revenue and patent applications we license in the event of a breach or termination of the license agreement. The license expires with the expiration of the last of the licensed patents on August 8, 2033. The royalty in the agreement is 0.5% of the patented portion of Argus II system sales. All of the patents in the DEI agreement are co-owned by Second Sight and DEI. We license DEI’s interest in the patents to maintain our exclusive use on that intellectual property. Should the license terminate, we retain the right to utilize the intellectual property, but may notgross margins will be able to prevent others from doing so, in which case we may lose a competitive advantage.adversely affected.
Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan, and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.
Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. Third-party payors may also limit the covered indications. Cost-control initiatives could decrease the price that we might establish for products, which could result in product revenues being lower than anticipated. If we are unable to protect the intellectual property used in our products, others may be able to copy our innovations which may impair our ability to compete effectively in our markets.
The strength of our patents involves complex legalshow a significant benefit over existing therapies, Medicare, Medicaid, and scientific questions and can be uncertain. We have over 300 issued patents and over 15 pending patent applications worldwide as of December 31, 2021. Our patent applications may be challenged or fail to result in issued patents and our existing or future patents may be too narrow to prevent third parties from developing or designing around our intellectual property and in that event we may lose competitive advantage and our business may suffer.
Further, the patent applications that we license or have filed may fail to result in issued patents. The claims may need to be amended. Even after amendment, a patentprivate payors may not issue and in that event we may not obtain the exclusive use of the intellectual property that we seek and may lose competitive advantage which could result in harmbe willing to our business.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization activitiesprovide reimbursement for Orion.
Although we are not currently aware of any litigation or other proceedings or third-party claims of intellectual property infringement related to the Argus II or Orion systems, the medical device industry is characterized by many litigation cases regarding patents and other intellectual property rights. Other parties may in the future allege that our activities infringe their patents or that we are employing their proprietary technology without authorization. We may not have identified all the patents, patent applications or published literature that affect our business either by blocking our ability to commercialize our product, by preventing the patentability of one or more aspects of our products or those of our licensors or by covering the same or similar technologies that may affect our ability to market our product.
In addition, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain future licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be unable to further develop and commercialize one or moreapproved, which would significantly reduce the likelihood of oursuch product candidates which could harm our business significantly.
We may become involved in future lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may file infringement claims, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or of our licensors is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
The U.S. Patent and Trademark Office may initiate interference proceedings to determine the priority of inventions described in or otherwise affecting our patents and patent applications or those of our collaborators or licensors. An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the U.S.
We are increasingly dependent on sophisticated information technology systems, including systems from third parties, and if we fail to properly maintain the integrity of our data or if our products do not operate as intended, our business could be materially and adversely affected.gaining market acceptance.
We are increasingly dependent on sophisticated information technology systems forexpect that private insurers will consider the efficacy, cost-effectiveness, safety, and tolerability of our products and infrastructure, and we rely on these information technology systems, including technology from third-party vendors, to process, transmit and store electronic information in our day-to-day operations. We continuously monitor, upgrade and expand the systems we operate to improve information systems capabilities. Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop or contract new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, and the increasing need to protect patient and customer information. In addition, third parties may attempt to hack into our products or systems and may obtain data relating to patients with our products or proprietary information. If we fail to maintain or protect our information systems and data integrity with cyber security effectively, we could lose existing customers, have difficulty attracting new customers, have problemsproduct candidates in determining whether to approve reimbursement for such product cost estimatescandidates and establishing appropriate pricing, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, have regulatory sanctions, fines, or penalties imposed, have increases in operating expenses, incur expenses or lose revenue as a result of a data privacy breach, or suffer other adverse consequences. Thereat what level. Obtaining these approvals can be no assurance that our processa time consuming and expensive process. Our business, financial condition and results of upgrading and expanding our information systems capabilities, protecting and enhancing our systems including cyber security methods, and developing new systems to keep pace with continuing changes in information processing technology willoperations would be successful or that additional systems issues willmaterially adversely affected if we do not arise in the future. Our products contain hardware and software protections which are intended to prevent unauthorized access or controlreceive adequate reimbursement of our implanted device. However,product candidates, if an unauthorized user is ableapproved, from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to breach our controlsMedicare patients, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition and gainresults of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, oneor deny or limit reimbursement of, our devices implanted in a patient, serious harm, injury and/or death may result. Any significant breakdown, intrusion, interruption, corruption, or destruction of these systems, as well as any data breaches, could have a material adverse effect on our business.product candidates.
Product liability lawsuits could divert our resources, resultReimbursement systems in substantial liabilitiesinternational markets vary significantly by country and reduceby region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the commercial potential of our products.
We face a risk of product liability claims arising from the prosthesis being implanted, and itcannot be commercially launched until reimbursement is possible that we may be held liable for injuries of patients who receive our product. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend.approved. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forego further commercialization of one or more of our products. We maintain product liability insurance relating to our clinical trials and commercial sales, with an aggregate coverage limit under these insurance policies of $10 million, and while we believe this amount of insurance currently is sufficient to cover our product liability exposure, these limits may not prove adequate to fully cover potential liabilities. In addition, we may not be able to obtain or maintain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims, which could prevent or inhibit the commercial production and sale of our products. If the use of our products harm or are alleged to harm people, we may besome foreign markets, prescription pharmaceutical pricing remains subject to costly and damaging product liability claims that exceed our policy limits and cause us significant losses that could seriously harm our financial condition or reputation.
Legislative or regulatory reform of the health care system in the U.S. and foreign jurisdictions may adversely impact our business, operations or financial results.
Our industrycontinuing governmental control even after initial approval is highly regulated and changes in law may adversely impact our business, operations or financial results. In March 2010, the Patient Protection and Affordable Care Act, and a related reconciliation bill were signed into law. This legislation changes the current system of healthcare insurance and benefits intended to broaden coverage and control costs.granted. The law also contains provisions that will affect companies in the medical device industry and other healthcare related industries by imposing additional costs and changes to business practices.
Moreover,negotiation process in some foreign countries including countries in Europe and Canada, the pricing of approved medical devices is subject to governmental control. In these countries, pricing negotiations with governmental authorities can takeexceed 12 months or longer after the receipt of regulatory approval and product launch.months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares thegenerates cost-effectiveness or health economics data of our product candidatecandidates in comparison to other available therapies. Our business could be materially harmed
If the prices for our product candidates, if approved, are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our products, our future revenue, cash flows and prospects for profitability will suffer.
Since our product candidates are designed to deliver active medication for up to six months or longer, there may be additional risks associated with the third-party payor’s willingness or desire to reimburse the full product cost at the time of purchase. We may develop customized reimbursement practices or policies to address potential concerns from payors if appropriate. There are no assurances that customized reimbursement practices or policies, if needed, will be effective and the potential impact on revenues and profits is unavailabledifficult to project.
Risks Related to Regulatory Approval and Other Legal and Compliance Matters
Our product candidates are subject to extensive regulation under the FDA, the EMA and comparable foreign authorities, and must undergo extensive clinical testing that can be costly and time consuming, with no assurance that regulatory approval will be obtained for any of our product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing, and distribution of our product candidates are subject to extensive regulation by the FDA and other U.S. regulatory agencies, the EMA, or comparable authorities in foreign markets. In the U.S., neither we nor any collaborators are permitted to conduct clinical testing in humans with our product candidates unless and until clearance is received to conduct clinical investigations under an investigational new drug application (IND) from the FDA or receive similar authorizations abroad. For example, we are not able to commence clinical trials of NPM-119 in the U.S. until we successfully address and lift the FDA’s current clinical hold. In addition, marketing of such product candidates may not occur unless and until approval of a new drug application (NDA) from the FDA or similar approvals by comparable foreign regulatory authorities are secured.
The process of obtaining these approvals is expensive, often takes many years, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Approval policies or regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult for us to achieve such approval in a timely manner or at all. Any guidance that may result from recent FDA advisory panel discussions may make it more expensive to develop and commercialize such product candidates. In addition, with respect to our current pipeline, we have filed only one IND, which is on clinical hold, and no NDAs with the FDA or similar applications with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency approval in a timely manner, if at all, for our product candidates.
Despite the time and expense invested, and even if we observe promising results from clinical testing of our product candidates, regulatory approval is never guaranteed. In our industry, many companies have experienced significant setbacks when seeking marketing approval from regulatory agencies, despite having generated promising data from clinical testing of their product candidates. For example, the FDA has rejected both original and resubmitted NDAs from Intarcia Therapeutics for its exenatide implant candidate for the treatment of type 2 diabetes. Based on public correspondence from the FDA, the agency asserted that the data submitted in the applications did not show that the product would be safe under the proposed conditions of use and that the methods used in, and the facilities and controls used for, the manufacture, processing, or packing of the product were not shown to be adequate to preserve its identity, strength, quality, and purity. Further correspondence disclosed additional deficiencies, including that data that did not demonstrate adequate device reliability in regard to dose delivery. While we seek to avoid such outcomes in developing our product candidates based on our proprietary NanoPortal technology, there can be no assurance that such product candidates will not experience similar setbacks if and when we apply for regulatory approval. Similar results would significantly jeopardize the approvability of our product candidates that employ the NanoPortal technology.
Any inability to obtain these approvals would prevent us from commercializing our product candidates. The FDA, the EMA or comparable foreign authorities can delay, limit, or deny approval of a product candidate for many reasons, including:
| ● | a product candidate may not be deemed safe or effective; |
| ● | the FDA could determine that we cannot rely on the Section 505(b)(2) regulatory pathway or other pathways we have selected, as applicable, for our lead product candidate; |
| ● | agency officials of the FDA, the EMA or comparable foreign authorities may find the data from non-clinical or preclinical studies, chemistry, manufacturing, and controls, and/or clinical trials generated during development is inadequate, contained clinical deficiencies or otherwise failed to demonstrate the safety and effectiveness of our product candidate for any indication; |
| ● | the FDA, the EMA or comparable foreign authorities may not find the data from bioequivalence studies and/or clinical trials sufficient to support the submission of an NDA or to obtain marketing approval in the U.S., including any findings that the clinical and other benefits of our product candidate outweigh their safety risks; |
| ● | the FDA, the EMA or comparable foreign authorities may determine that we have identified the wrong listed drug or drugs or that approval of our Section 505(b)(2) application for our product candidate is blocked by patent or non-patent exclusivity of the listed drug or drugs or of other previously approved drugs with the same conditions of approval as our product candidate, as applicable; |
| ● | the FDA, the EMA or comparable foreign authorities may not approve in the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for the manufacture of our product candidates; |
| ● | the FDA, the EMA or comparable foreign authorities may audit some or all of our clinical research study sites to determine the integrity of our data and may reject any or all of such data; |
| ● | the FDA, the EMA, or a comparable foreign authority may approve our lead product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials; |
| ● | the FDA, the EMA or a comparable foreign authority may change its approval policies or adopt new regulations; or |
| ● | may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our lead product candidate. |
With respect to one or more of our product candidates, including NPM-119 (exenatide implant), we plan to seek regulatory approval in the U.S. by filing an NDA under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, which is referred to as the 505(b)(2) pathway. The 505(b)(2) pathway allows at least some of the information required for NDA approval, such as safety and efficacy information on the active ingredient, to come from studies not conducted by or for the applicant. For NPM-119, we intend to rely on certain information from Bydureon® and/or Bydureon BCise®, AstraZeneca’s exenatide extended-release injectable products. If we are unable to reference data generated for Bydureon® and/or Bydureon BCise®, additional clinical studies, including a cardiovascular outcomes (CVOT) study, may be required and would add significant additional costs and a significant delay in our efforts to seek and secure marketing approval. Further, if a CVOT study were conducted, there can be no assurance that the study would generate favorable results and support U.S. registration.
Although we have discussed our intention to use the 505(b)(2) regulatory pathway with the FDA, there can be no assurance that this pathway will be acceptable, and there can be no assurance that the FDA will not require additional testing to support seeking approval in the U.S. If the 505(b)2 regulatory pathway is not available, the costs of development may significantly increase and the projected timeline to approval and launch would be significantly delayed.
Even if a product is approved, the FDA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials and/or reporting as conditions of approval. Regulators of other countries and jurisdictions have their own procedures for the approval of product candidates with which we must comply prior to marketing in those countries or jurisdictions.
Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the U.S. or other countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidate.
We intend to utilize the 505(b)(2) pathway for the regulatory approval of NPM-119 and other of our product candidates. Final marketing approval of NPM-119 or any of our other product candidates by the FDA, or other regulatory authorities may be delayed, limited, in scope or amount or if pricing is set at unsatisfactory levels.denied, any of which would adversely affect our ability to generate operating revenues.
We intend to pursue a regulatory pathway pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA, for the approval of NPM-119 and other of our product candidates, which allows us to rely on existing clinical data for the drug. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, and permits the submission of an NDA where at least some of the information required for approval comes from preclinical studies or clinical trials not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The FDA interprets Section 505(b)(2) of the FDCA to permit the applicant to rely upon the FDA’s previous findings of safety and efficacy for an approved product. The FDA requires submission of information needed to support any changes to a previously approved drug, such as published data or new studies conducted by the applicant or clinical trials demonstrating safety and efficacy. The FDA could refuse to file our NDA submissions, request additional information before accepting our submissions for filing or require additional information to sufficiently demonstrate safety and efficacy to support approval.
If the FDA does not agree that the 505(b)(2) regulatory pathway is appropriate or scientifically justified for our product candidates, we may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. For example, if we are unable to establish a bridge between our product candidates and the listed drug upon which we rely to demonstrate that such reliance is justified, we may be required to show safety and efficacy through one or more additional clinical trials. If this were to occur, the time and financial resources required to obtain FDA approval for these product candidates, and the complications and risks associated with these product candidates, would likely substantially increase. Moreover, an inability to pursue the 505(b)(2) regulatory pathway would likely result in new competitive products reaching the market more quickly than our product candidates, which would likely materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the 505(b)(2) regulatory pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.
Notwithstanding the approval of many products by the FDA pursuant to 505(b)(2), over the last few years some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2) to allow reliance on the FDA’s prior findings of safety and effectiveness. If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit. Moreover, the FDA adopted an interpretation of the three-year exclusivity provisions whereby a 505(b)(2) application can be blocked by exclusivity even if does not rely on the previously-approved drug that has exclusivity (or any safety or effectiveness information regarding that drug). Under the FDA’s interpretation, the approval of NPM-119 or other of our product candidates may be blocked by exclusivity awarded to a previously-approved drug product that shares certain innovative features with NPM-119 or our other product candidate, even if our 505(b)(2) application does not identify the previously-approved drug product as a listed drug or rely upon any of its safety or efficacy data. Any failure to obtain regulatory approval of our product candidates would significantly limit our ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues.
Even if we are successful in pursuing the 505(b)(2) regulatory pathway for NPM-119, or other of our product candidates, we cannot assure you that we will receive the requisite or timely approval for commercialization of NPM-119 or other of our product candidates. Although the Section 505(b)(2) pathway allows us to rely in part on the FDA’s prior findings of safety or efficacy for approved listed drugs or on published literature for which we do not have a right of reference, the FDA may determine that prior findings by the FDA or the published literature that we believe supports the safety or efficacy of NPM-119 or other of our product candidates is insufficient or not applicable to our application or that additional studies will need to be conducted. To the extent that we are relying on the 505(b)(2) regulatory pathway based on the approval of a listed drug for a similar indication, the FDA may require that we include in the labeling of NPM-119 or another of our product candidates, if approved, some or all of the safety information that is included in the labeling of the approved listed drug. Moreover, even if any of our product candidates are approved via the 505(b)(2) regulatory pathway, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product, such as a Risk Evaluation and Mitigation Strategy, or REMS, which is a risk mitigation plan which could include medication guides, physician communication plans, or elements to assure safe use, or ETASU, such as restricted distribution methods, patient registries and other risk minimization tools.
Additional time may be required to obtain regulatory approval for our product candidates because they are combination products.
Some of our product candidates, including NPM-119 which is designed as a GLP-1 implant for treatment of type 2 diabetes, are drug-device combination products which require coordination within the FDA and similar foreign regulatory agencies for review of their device and drug components. A combination product generally is defined as a product comprised of components from two or more regulatory categories (e.g., drug/device, device/biologic, drug/biologic). Each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a new drug, biologic or device. In order to facilitate pre-market review of combination products, the FDA designates one of its centers to have primary jurisdiction for the pre-market review and regulation of the overall product based upon a determination by the FDA of the primary mode of action of the combination product. Where approval of the drug and device is sought under a single application, there could be delays in the approval process due to the increased complexity of the review process and the lack of a well-established review process and criteria. The EMA has a parallel review process in place for combination products, the potential effects of which in terms of approval and timing could independently affect our ability to market our combination products in Europe. Although the FDA and similar foreign regulatory agencies have systems in place for the review and approval of combination products such as ours, we may experience delays in the development and commercialization of our product candidates due to regulatory timing constraints and uncertainties in the product development and approval process.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in clinical trials must be manufactured in accordance with cGMPs. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of an NDA or marketing authorization application (MAA) on a timely basis and must adhere to good laboratory practices (GLP) and cGMP regulations enforced by the FDA, the EMA, or comparable foreign authorities through their facilities inspection program. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we plan to oversee the contract manufacturers that we use, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business, financial condition, and results of operations.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA, the EMA, or comparable foreign authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval, or suspension of production. As a result, our business, financial condition, and results of operations may be materially and adversely affected.
Additionally, if supply from one manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines. These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed, and our development efforts would be impaired.
Even if one or more of our product candidates receive regulatory approval in the U.S., we may never receive comparable approvals outside of the U.S.
In order to market any products outside of the U.S., we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among countries and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed in these risk factors regarding FDA approval in the U.S. as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay seeking or obtaining such approval would impair our ability to commercialize our product candidates in territories outside of the U.S.
Even if any of our product candidates receive regulatory approval, we will be subject to ongoing legal and regulatory compliance requirements, and regulatory agencies may impose post-approval requirements or, under certain circumstances, withdraw such approval.We may be subject to substantial penalties regulatory requirements or if we experience unanticipated problems with our products following approval.
Even if one or more of our product candidates receive regulatory approval, the FDA, the EMA, or comparable foreign authorities may still impose significant restrictions on the indicated uses or marketing of the product candidates or impose ongoing requirements for potentially costly post-approval studies and trials. In addition, regulatory agencies subject a product, its manufacturer and the manufacturer’s facilities to continual review and periodic inspections. Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations and applicable product tracking and tracing requirements. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also comply with product tracking and tracing requirements and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the U.S. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, on our company or on any of our collaborators, including requiring withdrawal of the product from the market.
Our product candidates will also be subject to ongoing FDA, the EMA, or comparable foreign authorities’ requirements, including those related to the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product candidates that are approved for commercialization. If our product candidates fail to comply with applicable regulatory requirements, or there is later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing processes, a regulatory agency may:
| ● | issue warning or untitled letters or other notices of possible violations; |
| ● | impose civil or criminal penalties or fines or seek disgorgement of revenue or profits; |
| ● | suspend any ongoing clinical trials; |
| ● | refuse to approve pending applications or supplements to approved applications filed by us or our collaborators; |
| ● | withdraw any regulatory approvals; |
| ● | impose restrictions on operations, including costly new manufacturing requirements, or shut down our manufacturing operations; |
| ● | refuse to approve pending applications or supplements to approved applications that we submit; |
| ● | refuse to permit the import or export of products; or |
| ● | seize or detain products or require a product recall. |
Additionally, under the Food and Drug Omnibus Reform Act of 2022, sponsors of approved drugs and biologics must provide 6 months’ notice to the FDA of any changes in marketing status, such as the withdrawal of a drug, and failure to do so could result in the FDA placing the product on a list of discontinued products, which would revoke the product’s ability to be marketed.
The FDA, the EMA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.
The FDA, the EMA and comparable foreign authorities strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or comparable foreign authorities as reflected in the product’s approved labeling. If we receive marketing approval for one or more of our product candidates for any particular indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved label, if the physicians personally believe in their professional medical judgment that our products could be used in such manner. However, if we are found to have promoted our products for any off-label uses, the federal government could levy civil, criminal, or administrative penalties, and seek fines against us. Such enforcement has become more common in the industry. The FDA, the EMA or comparable foreign authorities could also request that we enter into a consent decree or a corporate integrity agreement or seek a permanent injunction against us under which specified promotional conduct is monitored, changed, or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business, financial condition, and results of operations.
Current and future legislation may increase the difficulty and cost of commercializing our product candidates and may affect the prices that we may obtain if our product candidates are approved for commercialization.
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory approval of our product candidates, restrict, or regulate post-approval activities and affect our ability to profitably sell any product candidates that obtain regulatory approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we, or any of our collaborators, may receive for any approved products. For more information, see “Business-Government Regulation – Healthcare Reform & the Patient Protection and Affordable Care Act.”
Current and future legislation may increase the difficulty and cost to commercialize our product candidates, if approved, and affect the prices obtained, including changes in coverage and reimbursement policies in certain market segments for our product candidates, which could make it difficult to sell our product candidates, if approved, profitably. Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell our product candidates, if approved, profitably.
Since its enactment, there have been executive, judicial, and Congressional challenges to certain aspects of the ACA. In June 2021, the United States Supreme Court held that Texas and other challengers had no legal standing to challenge the ACA, dismissing the case without specifically ruling on the constitutionality of the ACA. Accordingly, the ACA remains in effect in its current form. It is unclear how this Supreme Court decision, future litigation, or healthcare measures promulgated by the Biden administration will impact our business, financial condition, and results of operations. Complying with any new legislation or changes in healthcare regulation could be time-intensive and expensive, resulting in material adverse effect on our business.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. The Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in 2013, and will remain in effect through 2031. Under the current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal, and state levels directed at containing or lowering the cost of healthcare. We cannot predict what healthcare reformthe initiatives that may be adopted in the future. FurtherThe continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
| ● | the demand for our product candidates if approved; |
| ● | our ability to receive or set a price that it believes is fair for its products; |
| ● | our ability to generate revenue and achieve or maintain profitability; |
| ● | the level of taxes that we will be required to pay; and |
| ● | the availability of capital. |
We expect that the ACA, the Inflation Reduction Act of 2022, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, lower reimbursement, and new payment methodologies. This could lower the price that we receive for any product candidates, if approved. Any denial in coverage or reduction in reimbursement from Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which may prevent us from being able to generate sufficient revenue, attain profitability or commercialize our product candidates, if approved.
At the state level, individual states are also increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state legislativegovernments will pay for healthcare products and services, which could result in reduced demand for our current or future product candidates or additional pricing pressures. In particular any policy changes through CMS as well as local state Medicaid programs could have a significant impact on our business.
Inadequate funding for the FDA, the SEC, and other government agencies, including from government shutdowns, or other disruptions to these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, the ability to hire and retain key personnel and the acceptance of user fees payments, and statutory, regulatory, developments appear likely, and policy changes. Average review times at the agency have fluctuated in recent years as a result. If a prolonged government shutdown occurs, if the FDA is required to furlough review staff or necessary employees, or if the agency operations are otherwise impacted, it could significantly affect the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
We may be exposed to product liability, non-clinical and clinical liability risks which could place a substantial financial burden on our business.
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing, and marketing of medical products and the subsequent sale of these products by. In addition, the use in our clinical trials of pharmaceutical and related products and the subsequent sale of these products may cause us to bear a portion of or all product liability risks. If a products liability claim is brought against us, we expect ongoing initiativeswill be required to expend significant time and resources in defending against such a claim, and such defense may not ultimately be successful. We do not currently maintain clinical trial liability insurance, although we intend to seek coverage in connection with initiating our first clinical trial of NPM-119. There can be no assurance that we will secure clinical trial liability insurance on commercially reasonable terms or at all. As a result, products liability risks could have a material adverse effect on our business, financial condition, and results of operations.
Our research and development activities involve the use of hazardous materials, which are subject to regulation, related costs and delays and potential liabilities.
Our research and development activities may involve the controlled use of hazardous materials and chemicals. If an accident occurs, we could be held liable for resulting damage, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Additional federal, state, and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of these laws or regulations.
Risks Relating to Our Intellectual Property
We may not be able to adequately protect our proprietary or licensed technology.
Our business depends on our ability to protect our proprietary technology. We rely on a combination of trade secret, patent, copyright and trademark laws, and confidentiality, licensing, and other agreements with employees and third parties, all of which offer only limited protection. We may also in-license additional intellectual property rights in the future. We cannot be certain that patent enforcement activities by our current or future licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. We also cannot be certain that our current or future licensors will allocate sufficient resources or prioritize enforcement of such patents. Even if we are not a party to these legal actions, an adverse outcome could prevent us from continuing to license intellectual property that we may need to operate our business.
We plan to seek, through prosecution of patent applications covering our owned technology, adequate patent protection for our proprietary drug technology. If we are compelled to spend significant time, money and resources protecting or enforcing our patents and future patents that we may possess, designing around patents held by others or licensing or acquiring, potentially for large fees, patents or other proprietary rights held by others, our business, financial condition, and results of operations may be materially and adversely affected. If we are unable to effectively protect the intellectual property that we own or in-license, other companies may be able to offer the same or similar products for sale, which could materially adversely affect our business, financial condition, and results of operations. The patents of others from whom we may license technology, and any future patents we may own, may be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing the same or similar products or limit the length of term of patent protection that we may have for our product candidates, if approved.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection for licensed patents, pending patent applications and potential future patent applications and patents could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications will be due to be paid to the U.S. Patent and Trademark Office (USPTO) and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the applicable patent and/or patent application. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs with respect to our in-licensed patents or patent applications that we may file in the future, our competitors might be able to use its technologies, which would have a material adverse effect on our business, financial condition, and results of operations.
The patent positions of pharmaceutical products are often complex and uncertain. The breadth of claims allowed in pharmaceutical patents in the U.S. and Europe.many jurisdictions outside of the U.S. is not consistent. For example, in many jurisdictions, the support standards for pharmaceutical patents are becoming increasingly strict. Some countries prohibit method of treatment claims in patents. Changes in either the patent laws or interpretations of patent laws in the U.S. and other countries may diminish the value of our licensed or owned intellectual property or create uncertainty. In addition, publication of information related to our product candidates may prevent us from obtaining or enforcing patents relating to these product candidates.
Patents that we currently own or license and patents that we may own or license in the future do not necessarily ensure the protection of our licensed or owned intellectual property for a number of reasons, including, without limitation, the following:
| ● | the patents may not be broad or strong enough to prevent competition from other products that are identical or similar to our own product candidates; |
| ● | there can be no assurance that the term of a patent can be extended under the provisions of patent term extensions afforded by U.S. law or similar provisions in foreign countries, where available; |
| ● | the issued patents and patents that we may obtain or license in the future may not prevent generic entry into the market for our product candidates; |
| ● | we or our licensors may be required to disclaim part of the term of one or more patents; |
| ● | there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim; |
| ● | there may be prior art of which we are aware, which we do not believe affects the validity or enforceability of a patent claim, but which, nonetheless, ultimately may be found to affect the validity or enforceability of a patent claim; |
| ● | there may be other patents issued to others that will affect our freedom to operate; |
| ● | if the patents are challenged, a court could determine that they are invalid or unenforceable; |
| ● | there might be a significant change in the law that governs patentability, validity and infringement of our licensed patents or any future patents that we may own that adversely affects the scope of our patent rights; |
| ● | a court could determine that a competitor’s technology or product does not infringe our licensed patents, or any future patents we may own; and |
| ● | the patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations or could be subject to compulsory licensing. If we encounter delays in our development efforts or clinical trials, the period of time during which we could market our product candidates, if approved, under patent protection would be reduced. |
Our competitors may be able to circumvent our licensed patents or future patents we may own by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting abbreviated new drug applications to the FDA in which our competitors claim that our licensed patents or any future patents we may own are invalid, unenforceable, or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend or assert our licensed patents, or any future patents we may own, including by filing lawsuits alleging patent infringement by such third parties. In any of these types of proceedings, a court or other agency with jurisdiction may find our licensed patents or any future patents we may own invalid or unenforceable. We may also fail to identify patentable aspects of our research and development efforts before it is too late to obtain patent protection. Even if we own or in-license valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship, scope, ownership, priority, validity, or enforceability. In this regard, third parties may challenge our licensed patents, or any future patents we may own in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized.
We may not be successful in obtaining or maintaining necessary rights to develop and commercialize our product candidates.
We utilize our NanoPortal technology to develop long-term drug implant candidates that are designed to deliver active compounds to patients. Some of our product candidates may deliver active compounds that are proprietary to one or more third parties. For example, from our current pipeline, NPM-139 delivers an active ingredient that is proprietary to another company, although we do not anticipate submitting an application for marketing approval with NPM-139 until the relevant intellectual property owned by another company has expired. Similarly, in the future, we may develop one or more additional product candidates that utilize active ingredients that are proprietary to another third party. If we advance future programs utilizing compounds that are proprietary to another company for further development, we will need to negotiate and enter into one or more licenses with the relevant third parties in order to conduct such activities. However, there can be no assurance that we can enter into such agreements on commercially reasonable terms or at all.
We may also need to partner, acquire or in-license additional intellectual property in the future with respect to other product candidates. Moreover, we may be unable to acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for our product candidates. We may face competition with regard to acquiring and in-licensing third-party intellectual property rights, including from a number of more established companies. These reformsestablished companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual property rights to us. We also may be unable to acquire or in-license third-party intellectual property rights on commercially acceptable terms or at all.
If we are unable to successfully obtain required third-party intellectual property rights or maintain our existing intellectual property rights, we may need to abandon development of the related program and our business, financial condition and results of operations could be materially and adversely affected.
We may infringe the intellectual property rights of others, which may prevent or delay our development efforts and prevent us from commercializing or increase the costs of commercializing our product candidates, if approved.
Our business depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which we are not aware that our product candidates infringe. There also could be patents that we believe are not infringed, but that we may ultimately be found to infringe.
Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made, and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our product candidates infringe. For example, pending applications may exist that claim or can be amended to claim subject matter that our product candidates infringe. Competitors may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover our product candidates.
Third parties may assert that we are employing their proprietary technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are costly and could adversely affect our business, financial condition and results of operations and divert the attention of managerial and scientific personnel. If we are sued for patent infringement, we would need to demonstrate that our activities either do not infringe the claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business. In addition, we may not have sufficient resources to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover our activities, the holders of any of these patents may be able to block our ability to commercialize our product candidates, if approved, unless it we acquire or obtain a license under the applicable patents or until the patents expire.
We may not be able to enter into licensing arrangements or make other arrangements on reasonable terms or at all. Any inability to secure licenses or alternative technology could result in delays in the commercialization of our product candidates, if approved, or lead to the prohibition of their manufacture or sale. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material and adverse effect on our business, financial condition, and results of operations.
An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuit that would delay or prevent the review or approval of our product candidates.
We expect to submit NDAs under Section 505(b)(2) of the FDCA for our product candidates. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from preclinical studies or clinical trials that were not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. A 505(b)(2) NDA enables the applicant to reference published literature for which the applicant does not have a right of reference and the FDA’s previous findings of safety and effectiveness for a previously approved drug. For 505(b)(2) NDAs, the patent certification and related provisions of the Hatch-Waxman Amendments apply.
Accordingly, if the applicant relies for approval on the safety or effectiveness on information for a previously approved drug, referred to as a listed drug, the applicable is required to include patent certifications in our 505(b)(2) NDA regarding any applicable patents covering the listed drug. If there are applicable patents listed in the FDA publication Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book, for the listed drug, and the applicant seeks to obtain approval prior to the expiration of one or more of those patents, the applicant is required to submit a Paragraph IV certification indicating its belief that the relevant patents are invalid or unenforceable or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)(2) application. Otherwise, the 505(b)(2) NDA cannot be approved by the FDA until the expiration of any patents listed in the Orange Book for the listed drug.
If we submit any Paragraph IV certification that may be required, we will be required to provide notice of that certification to the NDA holder and patent owner. Under the Hatch-Waxman Amendments, the patent owner may file a patent infringement lawsuit after receiving such notice. If a patent infringement lawsuit is filed within 45 days of the patent owner’s or NDA holder’s receipt of notice (whichever is later), a one-time, automatic stay of the FDA’s ability to approve the 505(b)(2) NDA is triggered, which typically extends for 30 months unless patent litigation is resolved in favor of the Paragraph IV filer or the patent expires before that time. Accordingly, we may invest a significant amount of time and expense in the development of one or more product candidates only to be subject to significant delay and patent litigation before such product candidates may be commercialized, if at all.
In addition, a 505(b)(2) NDA will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the listed drug, or for any other drug with the same protected conditions of approval as our product, has expired. The FDA also may require us to perform one or more additional clinical trials or measurements to support the change from the listed drug, which could be time consuming and could substantially delay our achievement of regulatory approval. The FDA also may reject any future 505(b)(2) NDAs and require us to submit traditional NDAs under Section 505(b)(1), which would require extensive data to establish safety and effectiveness of the product for the proposed use and could cause delay and additional costs. In addition, the FDA could reject any future 505(b)(2) application and require us to submit a Section 505(b)(1) NDA or a Section 505(j) ANDA if, before the submission of our 505(b)(2) application, the FDA approves an application for a product that is pharmaceutically equivalent to ours and determines that our product is inappropriate for review through the 505(b)(2) pathway. These factors, among others, may limit our ability to commercialize our product candidates successfully.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on maintaining and protecting our intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is costly, time-consuming, and inherently uncertain. For example, the U.S. previously enacted and implemented wide-ranging patent reform legislation. Specifically, on September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”) was signed into law and included a number of significant changes to U.S. patent law, and many of the provisions became effective in March 2013. However, it may take the courts years to interpret the provisions of the Leahy-Smith Act, and the implementation of the statute could increase the uncertainties and costs surrounding the prosecution of our patents and future patent applications and the enforcement or defense of our licensed and future patents.
In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty regarding our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, and defending patents on product candidates in all jurisdictions throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in jurisdictions where we have not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain or license patent protection, but where patent enforcement is not as strong as that in the U.S. These products may compete with our product candidates in jurisdictions where we do not have any issued or licensed patents and any future patent claims, or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our licensed patents and future patents we may own, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and defending its licensed and owned intellectual property both in the U.S. and abroad. For example, China currently affords less protection to a company’s intellectual property than some other jurisdictions. As such, the lack of strong patent and other intellectual property protection in China may significantly increase our vulnerability regarding unauthorized disclosure or use of our intellectual property and undermine our competitive position. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
To protect our proprietary and licensed technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who have access to our proprietary know how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.
We expect to employ individuals who were previously employed at other biopharmaceutical companies. Although we have no knowledge of any such claims against us, and to date none our employees have been subject to such claims, 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 such third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.
If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our patents and any future patents we may own, our business, financial condition and results of operations may be materially and adversely affected.
Depending upon the timing, duration, and specifics of FDA regulatory approval for our product candidates, one or more of our licensed U.S. patents or future U.S. patents that we may license or own may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. In certain instances, the Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during drug development and the FDA regulatory review process. This period is generally one-half the time between the effective date of an investigational new drug application IND (falling after issuance of the patent), and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. The patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method of manufacturing it may be extended. However, we may not receive an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will not be lengthened and third parties, including our competitors, may obtain approval to market competing therapies sooner than we expect. As a result, our revenue from applicable therapies could be materially reduced and our business, financial condition, results of operations, and prospects could be materially harmed.
Risks Related to Our Reliance on Third Parties
Use of third parties to manufacture our product candidates may increase the risk that we will not have sufficient quantities of our product candidates, products, or necessary quantities at an acceptable cost.
We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates, and we lack the resources and the capabilities to do so. As a result, we currently rely on third parties for supply of the active pharmaceutical ingredients, or API, in our product candidates, and our other drug components, as well as the device components of our drug-device combination product candidates. Our current strategy is to outsource all manufacturing of our product candidates and products to third parties.
We currently engage, or plan to engage, third-party manufacturers to manufacture our product candidates and related supplies and packaging. There is no guarantee that we can maintain our relationships with these manufacturers and we may incur added costs and delays in identifying and qualifying any replacements for such manufacturers. There is no assurance that we will be able to timely secure further needed supply arrangements on satisfactory terms, or at all. Our failure to secure these arrangements as needed ability to commercialize our product candidates.
Reliance on third-party manufacturers entails additional risks, including:
| ● | reliance on third parties for manufacturing process development, regulatory compliance and quality assurance; |
| ● | limitations on supply availability resulting from capacity and scheduling constraints of third parties; |
| ● | the possible breach of manufacturing agreements by third parties because of factors beyond our control; and |
| ● | the possible termination or non-renewal of the manufacturing agreements by the third party, at a time that is costly or inconvenient to us. |
If we do not maintain our key manufacturing relationships or if our third-party manufactures fail to comply with applicable regulations, we may need to find replacement manufacturers or develop our own manufacturing capabilities, which could delay or impair our ability to obtain regulatory approval for our products. If we do find replacement manufacturers and enter into agreements with them on terms and conditions favorable to us and there could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.
If any third-party manufacturer with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different third-party manufacturer, which we may not be able to do on reasonable terms, if at all. In either scenario, our product supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original third-party manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change third-party manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidate according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a third-party manufacturer may possess technology related to the manufacture of our product candidate that such manufacturer owns independently. This would increase our reliance on such third-party manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.
Third-party manufacturers may not be able to comply with the regulatory requirements, known as cGMP, applicable to drug-device combination products, including applicable provisions of the FDA’s drug cGMP regulations, device cGMP requirements embodied in the QSR or similar regulatory requirements outside the United States. Our failure, third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of our product candidates. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA.
We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs and QSRs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which could cause significant delays in our operating timelines and would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP and QSR requirements. Any failure to comply with cGMP or QSR requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.
The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with applicable cGMPs and QSRs. Contract manufacturers may face manufacturing or quality control problems causing drug substance or device component production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP or QSR requirements. Any failure to comply with cGMP or QSR requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.
We rely, and expect to continue to rely, on third parties to conduct our preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully perform carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates on the timelines that we anticipate or at all.
We have relied and intend to continue to rely upon third-party CROs, medical institutions, clinical investigators, and contract laboratories to monitor and manage data for our ongoing research and development efforts. Nevertheless, we remain responsible for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards, and our reliance on these third parties does not relieve us of our responsibilities. We and our CROs and other vendors are required to comply with cGMP, good clinical practices (“GCP”) and GLP, which are a collection of laws and regulations enforced by the FDA, the EMA, and comparable foreign authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign authorities may require us to perform additional preclinical studies and clinical trials. We cannot guarantee that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory approval processes.
We may not be able to enter into arrangements with CROs on commercially reasonable terms, or at all. In addition, our CROs are not our own employees, and except for remedies available to us under our agreements with such CROs, we will not be able to control whether they devote sufficient time and resources to our ongoing research and development activities. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they 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 protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and our development activities will be impaired. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be harmed.
Switching or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition, or results of operations.
Our efforts to seek, secure and maintain partnerships, collaborations or other strategic initiatives with respect to one or more of our programs may not be successful.
As part of our business strategy, we have entered into, and seek to enter into partnerships, collaborations and other strategic initiatives with respect to one or more of our programs, with the goal of maximizing the value of such assets. For example, we have a collaboration with Okava Pharmaceuticals, Inc. with respect to OKV-119. In March 2023, we announced that our wholly owned subsidiary Cortigent, Inc., which was created to continue the historical business of Second Sight, has filed a registration statement for a potential initial public offering of common stock. However, there can be no assurance that these arrangements will yield their intended benefits or that we will receive any return on our efforts and resources invested into these arrangements.
In addition, we may from time to time in the future enter into additional arrangements with biopharmaceutical companies for the development or commercialization of our product candidates. We face significant competition in seeking such transactions with such collaborators. Moreover, collaboration arrangements are complex, and time consuming to negotiate, execute and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements, and the terms of these arrangements may not be favorable to us. If collaborate with a third party for development and commercialization of a product candidate, we may be required to relinquish some or all of the control over that product candidate to the third party. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.
Disagreements between parties to a collaboration arrangement can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a mutually beneficial manner. In some cases, collaborations with biopharmaceutical companies and other third parties are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect our business, financial condition, and results of operations.
If we are unable to develop our own commercial organization or enter into agreements with third parties to sell and market our product candidates, if approved, we may be unable to generate significant revenues.
We currently do not have a sales and marketing organization, and we have no experience as a company in the sales, marketing, and distribution of approved products. If any of our product candidates are approved for commercialization, we may be required to develop its sales, marketing, and distribution capabilities, or make arrangements with a third party to perform sales and marketing services. Developing a sales force is expensive and time consuming and could delay any product launch. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force that we do establish may not be capable of generating sufficient demand for our product candidates, if approved. To the extent that we enter into arrangements with collaborators or other third parties to perform sales and marketing services, we may be required to relinquish a portion of the revenues from product sales to those third parties. If we are unable to establish adequate sales and marketing capabilities, independently or with others, we may not be able to generate significant revenues and may not become profitable.
Our current and future relationships with investigators, healthcare professionals, consultants, third-party payors, and customers will be subject to applicable healthcare regulatory laws. Failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.
Although we do not currently have any products on the market, our operations may be directly, or indirectly through our prescribers, consultants, customers, and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how it researches, markets, sells and distributes its product candidates for which it obtains marketing approval. For more information, see “Business – Government Regulation – Healthcare Laws & Reimbursement.”
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations.
If we are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, and individual imprisonment, any of which could adversely affect our ability to operate our business and our results of operations.
Risks Related to Ownership of Our Common Stock
Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.
As of December 31, 2023, our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned approximately 38% of our common stock. Accordingly, these stockholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or the board of directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our common stock.
Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.
Vivani resulted from the August 2022 business combination of Second Sight and NPM. Vivani’s main priority is the further development of the company’s lead programs NPM-115 and NPM-119, which are miniature, 6-month, GLP-1 implant candidates for the treatment of chronic weight management and patients with type 2 diabetes, respectively. In parallel, Vivani’s management team remained committed to identifying and exploring strategic options for the Neuromodulation Division (formerly Second Sight) that will enable further development of its pioneering neurostimulation systems to help patients recover critical body functions.
Because the NPM business did not become a reporting company by conducting an underwritten initial public offering of our common stock, security analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our common stock.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
You should not rely on an investment in our common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt financing arrangement we enter into may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock.
The designation of our common stock as “penny stock” would limit the liquidity of our common stock.
Our common stock may be deemed a “penny stock” (as that term is defined under Rule 3a51-1 of the Exchange Act) in any market that may develop in the future. Generally, a “penny stock” is a common stock that is not listed on a securities exchange and trades for less than $5.00 a share. Prices often are not available to buyers and sellers and the market may be very limited. Penny stock in start-up companies is among the riskiest equity investments. Broker-dealers who sell penny stock must provide purchasers with a standardized risk-disclosure document prepared by the SEC. The document provides information about penny stock and the nature and level of risks involved in investing in the penny stock market. A broker must also provide purchasers with bid and offer quotations and information regarding broker and salesperson compensation and make a written determination that the penny stock is a suitable investment for the purchaser and obtain timelythe purchaser’s written agreement to the purchase. Many brokers choose not to participate in penny stock transactions. If our common stock is deemed “penny stock”, because of penny stock rules, there may be less trading activity in any market that develops for our common stock in the future and stockholders are likely to have difficulty selling their shares.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our common stock.
The Financial Industry Regulatory Authority (“FINRA”) has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect on the market for and price of our common stock.
The market price of our common stock may be highly volatile, and may be influenced by numerous factors, some of which are beyond our control.
The market price for our common stock may from time to time fluctuate substantially due to a variety of factors, including market perception of our ability to meet our growth projections and expectations, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our business and the business of others in our industry. In addition, the stock market itself is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons related and unrelated to their operating performance and could have the same effect on our common stock. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
| ● | results of clinical trials of our product candidates; |
| ● | the timing of the release of results of our clinical trials; |
| ● | results of clinical trials of our competitors’ products; |
| ● | safety issues with respect to our products or our competitors’ products; |
| ● | regulatory actions with respect to our products or our competitors’ products; |
| ● | actual or anticipated fluctuations in our financial condition and operating results; |
| ● | publication of research reports by securities analysts about us or our competitors or our industry; |
| ● | our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; |
| ● | additions and departures of key personnel; |
| ● | strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; |
| ● | the passage of legislation or other regulatory developments affecting us or our industry; |
| ● | fluctuations in the valuation of companies perceived by investors to be comparable to us; |
| ● | sales of our common stock by us, our insiders or our other stockholders; |
| ● | speculation in the press or investment community; |
| ● | announcement or expectation of additional financing efforts; |
| ● | changes in accounting principles; |
| ● | terrorist acts, acts of war or periods of widespread civil unrest; |
| ● | natural disasters and other calamities; |
| ● | changes in market conditions for biopharmaceutical stocks; and |
| ● | changes in general market and economic conditions. |
In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products, or to a lesser extent our markets. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
General Risk Factors
If we fail to retain current members of our senior management and scientific personnel, or to attract and keep additional key personnel, our ability to conduct our business will be impaired.
Our business depends on our ability to attract, retain, and motivate highly qualified management and scientific personnel. However, competition for qualified personnel is intense. We may not be successful in attracting qualified personnel to fulfill our current or future needs and there is no guarantee that any of these individuals will join our company. In the event we are unable to fill critical open employment positions, we may need to delay our operational activities and goals, including the development of our product candidates, and may have difficulty in meeting our obligations as a public company. We currently do not maintain “key person” insurance on any of our employees.
In addition, competitors and others are likely in the future to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring such personnel, particularly senior management, and other technical personnel, could materially and adversely affect our business, financial condition and results of operations. In addition, the replacement of key personnel likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.
From time to time, our management seeks the advice and guidance of certain scientific advisors and consultants regarding clinical and regulatory approvaldevelopment programs and other customary matters. These scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to our company. In addition, our scientific advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with us.
We will need to increase the size of our organization and may not successfully manage our growth.
We are an early-stage biopharmaceutical company with a relatively small number of employees, and our management systems currently in place are not likely to be adequate to support our growth in the future. Our ability to grow and to manage that growth effectively will require us to hire, train, retain, manage, and motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise by our senior management personnel. Hiring a significant number of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we fail to expand and enhance our operational, financial and management systems, it could have a material adverse effect on our business, financial condition, and results of operations.
Our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk that our employees, independent contractors, vendors, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate the regulations of the FDA and comparable foreign regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions , including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations. We can face serious consequences for newviolations.
Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations, or, collectively, Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.
Our business is heavily regulated and therefore involves significant interaction with public officials. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We also expect our non-U.S. activities to increase in time. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”). We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities. In particular, our operations will be subject to FCPA, which prohibits, among other things, U.S. companies and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else of value to foreign government officials, employees of public international organizations and foreign government-owned or affiliated entities, candidates for foreign political office, and foreign political parties or officials thereof. Recently, the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents, suppliers, manufacturers, contractors, or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of facilities, including those of our suppliers and manufacturers, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs and prohibitions on the conduct of our business. Any such violations could also result in prohibitions on our ability to offer our products in one or more countries as well as difficulties in manufacturing or continuing to develop our products, and on anticipated revenues from product candidates, both of which may affectcould materially damage our overallreputation, our brand, our international expansion efforts, our ability to attract and retain employees and our business, prospects, operating results and financial condition.
We are a “non-accelerated filer”If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), our management is required to annually report upon the effectiveness of our internal control over financial reporting. If we lose our status as a “smaller reporting company” and reach an accelerated filer threshold, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. As we grow, we expect to hire additional personnel and may utilize external temporary resources to implement, document and modify policies and procedures to maintain effective internal controls. However, it is possible that we may identify significant deficiencies and/or material weaknesses in our internal controls. If we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.
Although we have determined that our internal control over financial reporting was effective as of December 31, 2023, we cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC filing purposesor other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
We will continue to incur increased costs as a result of being a public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, we will continue to incur significant legal, accounting and other expenses. We are subject to the reporting requirements of the Exchange Act, which will require, among other things, that we file with the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), was enacted. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have an adverse effect on our business. The increased costs will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced coverage or incur substantially higher costs to maintain sufficient coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. Moreover, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We are a smaller reporting company, and we cannot be certain if the reduced disclosurereporting requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
For soWe are a smaller reporting company and for as long as we remain a ‘non-accelerated filer”smaller reporting company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not ‘non-accelerated filers,”smaller reporting companies, including the ability to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K, not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our registration statements, if applicable, and our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors maystatements. 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 stock price may be more volatilevolatile.
We will remain a “smaller reporting company,” for so long as the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a “smaller reporting company” until (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million as of the prior June 30.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect the Company’s current and projected business operations and its financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may decline.in the future lead to market-wide liquidity problems. For example, on March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (the “FDIC”), as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. In addition, if any of our contract organizations, vendors, suppliers or other parties with whom we conduct business are unable to access funds pursuant to their own arrangements with such a financial institution, such parties’ ability to perform their obligations could be adversely affected. In this regard, counterparties to credit agreements and arrangements with distressed financial institutions, and third parties such as beneficiaries of letters of credit (among others), may experience direct impacts and uncertainty remains over liquidity concerns in the broader financial services industry. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. Additionally, there is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.
Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect our company, the financial institutions with which we have credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.
The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, the following:
| ● | Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets; |
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| ● | Impairment in the ability to enter into new credit facilities or other working capital resources; |
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| ● | Potential or actual breach of contractual obligations that require the Company to maintain letters of credit or other credit support arrangements; or |
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| ● | Termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash management arrangements. |
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.
In addition, Section 107any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our contract organizations, vendors, suppliers or other parties with whom we conduct business, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition. For example, contract organizations, vendors, suppliers or other parties with whom we conduct business could be adversely affected by any of the JOBS Act also providesliquidity or other risks that a ”smaller reporting company” can take advantageare described above as factors that could result in material adverse impacts on our company, including but not limited to delayed access or loss of an extended transition period for complying with newaccess to uninsured deposits or revised accounting standards. However, we chose to “opt out” of this extended transition period, and as a result, we intend to comply with new or revised accounting standards on the relevant dates that adoption of those standards may be required. Our decision to opt outloss of the extended transition period for complyingability to draw on existing credit facilities involving a troubled or failed financial institution. Any bankruptcy or insolvency involving our contract organizations, vendors, suppliers or other parties with newwhom we conduct business, or revised accounting standards is irrevocable.
Risks Relating to Our Financial Results and Need for Financingany breach or default by such parties, or the loss of any significant relationships with such parties, could result in a material adverse impact on our business.
Fluctuations in our quarterly operatingOur business, results of operations and cash flowsfuture growth prospects could be materially and adversely affect the price of our common stock.
Our operating results will be affected by numerous factors such as:
● materially reduced revenue we receive as a resultthe COVID-19 pandemic or the future outbreak of refocusing our business and resources to the Orion II as we discontinued the production of the Argus II systems, and eliminated our marketing and implants of the Argus II;
● the status of our preclinical and clinical development programs;
● continued clinical results from our Early Feasibility Study of six subjects currently under way at UCLA and Baylor;
● the filing and acceptance of an IDE with the FDA to initiate a larger pivotal trial for regulatory approval;
● clinical results from conducting our larger pivotal trial(s):
● three of our six patient EFS study have had the devices explanted which could cause us to have difficulty recruiting future subjects for implantation;
● our ability to obtain regulatory approval of the Orion system in the U.S. and other additional jurisdictions;
● the emergence of products that compete with our product candidates;
● our ability to leverage Argus II technology for cortical stimulation using Orion;
● the status of our preclinical and clinical development programs, variations in the level of expenses related to our existing product candidateshighly infectious or preclinical and clinical development programs;
● execution of collaborative, licensing or other arrangements, and the timing of payments received or made under those arrangements;
● any intellectual property infringement lawsuits to which we may become a party; and
● our ability to obtain reimbursement from government or private payors at levels we deem adequate to sustain our operations.
If our quarterly operating results fall below the expectations of investors or securities analysts, or if we experience delays in reaching commercialization of the Orion system the price of our common stock could decline substantially. Any quarterly fluctuations in our operating results and cash flows may cause the price of our stock to fluctuate substantially. We believe that, in the near term, quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
We need additional capital to support our operations and growth. Additional capital may be difficult to obtain restricting our operations and resulting in additional dilution to our stockholders.contagious diseases.
Our business requires additional capital for implementationcould be adversely affected by health epidemics in regions where we have concentrations of clinical trial sites or other business activities and could cause significant disruption in the operations of third-parties on which we rely. We cannot precisely determine or quantify the impact the COVID-19 pandemic, or the future outbreak of any other highly infectious our long term business plan. We currently estimate that our existing cash and cash equivalents can sustain our operations for at least 24 months. The actual amount of funds that wecontagious diseases, will need forhave on our business operations in the future, which will be determined by manydepend on a variety of factors some ofand future developments, which are beyond our control,highly uncertain and we may need funds sooner than currently anticipated. These factors include:
●cannot be predicted with confidence, including the amountultimate geographic spread of our future operating losses;
● legal, accountingthe disease, the duration, scope and severity of the pandemic, the duration and extent of travel restrictions and social distancing in the United States and other costs associated withcountries, business closures or business disruptions and the proposed merger with NPM;
● expenses relating to the Early Feasibility Studyeffectiveness of the Orion;
● ongoing commercialization planning for the Orion system;
● the amount of our research and development, including research and development for the Orion visual prosthesis, marketing and general and administrative expenses; and
● regulatory changes and technological developments in our markets.
In November 2017, we entered into an At-the-Market sales agreement (the “Sales Agreement”) with B. Riley FBR Inc. and H.C. Wainwright & Co., LLC, as agents (“Agents”) pursuant to which we may offer and sell, from time to time through either of the Agents, shares of our common stock having an aggregate offering price as set forthactions taken in the Sales AgreementUnited States and a related prospectus supplement filed withother countries to contain and the Securities and Exchange Commission. We agreed to pay the Agents a cash commission of 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. During January and February 2018, we sold approximately 278,000 shares of common stock for net proceeds of $4.0 million. During December 2019 we sold approximately 17,000 shares of common stock under this agreement for net proceeds of $0.1 million. During 2018 we also sold privately in at the market transactions an aggregate of approximately 1,966,000 shares of common stock for gross proceeds of approximately $22.0 million.
In a rights offering completed on February 22, 2019 we sold approximately 5,976,000 units, each priced at $5.792 for net cash proceeds of approximately $34.4 million. Each unit consisted of one share and one immediately exercisable warrant having an exercise price of $11.76 per share. Entities controlled by Gregg Williams, our Chairman of the Board of Directors, acquired approximately 5,180,000 units in the offering for an aggregate investment of approximately $30 million.
In May 2020, March 2021 and June 2021we sold 7.5 million shares, 4.65 million shares and 11.5 million shares for net proceeds of $6.7 million, $24.5 million and $53.3 million, respectively.On December 8, 2020 we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors and $1.2 million from two unaffiliated shareholders. These loan obligations were unsecured, bore interest at 12% per year and were repaid during 2021.pandemic.
As we require additional funds, we may seek to fund our operations through the sale of additional equity securities, debt financing and strategic collaboration agreements. We cannot be sure that additional financing from any of these sources will be available when needed or that, if available, the additional financing will be obtained on terms favorable to us or our stockholders. If we raise additional funds by selling shares of our capital stock, the ownership interest of our current stockholders will be diluted. If we are unable to obtain additional funds on a timely basis or on terms favorable to us, we may be required to cease or reduce certain research and development projects, to sell some or all of our technology or assets or business units or to merge all or a portion of our business with another entity.
Our ability to utilize and benefit fromRising inflation rates could negatively impact our net operating loss carryforwards and certain other tax attributes may be limited.expenses.
As of December 31, 2021, we had federalInflation rates, particularly in the United States, have increased recently to levels not seen in years. Increased inflation may result in increased operating costs (including our labor costs), reduced liquidity, and state of California income tax net operating loss carryforwards, which may be applied to future taxable income, of approximately $124.3 million and $76.8 million, respectively. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until these unused losses expire. However, we may be unable to use these losses to offset taxable income before our unused losses expire at various dates that range from 2035 through 2037 for federal net operating losses generated before 2018. Federal net operating losses generated for year 2018 and forward do not expire. State net operating losses expire from 2033 through 2041. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss, or NOL, carryforwards to offset its post-change taxable income may be limited. Limitations may also apply to the utilization of other pre-change tax attributes as a result of an ownership change.
We experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the second quarter of 2017. The ownership change will subject our net operating loss carryforwards to an annual limitation, which will significantly restrictlimitations on our ability to use themaccess credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to offset taxable incomeconcerns about inflation. Increases in periods followinginterest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the ownership change. In general, the annual use limitation equals the aggregate valueeffect of our stock at the time of the ownership change multiplied by a tax-exempt interest rate specified by the Internal Revenue Service. We have analyzed the available information to determine the amount of the annual limitation. Based on information available to us, the 2017 limitation is estimated to range between $1.4 millionfurther increasing economic uncertainty and $3.7 million annually. In total, we estimate that the 2017 ownership change will result in approximately $120 million and $56 million of federal and state net operating loss carryforwards expiring unused.
Risks Related to Our Business and Industryheightening these risks.
We have incurred operating losses since inceptiondepend on sophisticated information technology systems and data processing to operate our business. If we experience security or data privacy breaches or other unauthorized or improper access to, use of, or destruction of our proprietary or confidential data, employee data or personal data, we may continueface costs, significant liabilities, harm to incur losses for the foreseeable future.our brand and business disruption.
We have hadrely on information technology systems and data processing that we or our service providers, collaborators, consultants, contractors or partners operate to collect, process, transmit and store electronic information in our day-to-day operations, including a historyvariety of operating lossespersonal data, such as name, mailing address, email addresses, phone number and potentially clinical trial information. Additionally, we, expectand our service providers, collaborators, consultants, contractors or partners, do or will collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect and share personal information, health information and other information to host or otherwise process some of our anticipated future clinical data and that operating losses will continue intoof users, develop our products, to operate our business, for clinical trial purposes, for legal and marketing purposes, and for other business-related purposes. Our internal computer systems and data processing and those of our third-party vendors, consultants, collaborators, contractors or partners, including future CROs may be vulnerable to a cyber-attack (including supply chain cyber-attacks), malicious intrusion, breakdown, destruction, loss of data privacy, actions or inactions by our employees or contractors that expose security vulnerabilities, theft or destruction of intellectual property or other confidential or proprietary information, business interruption or other significant security incidents. As the near term. Although we have had salescyber-threat landscape evolves, these attacks are growing in frequency, level of persistence, sophistication and intensity, and are becoming increasingly difficult to detect. In addition to traditional computer “hackers,” threat actors, software bugs, malicious code (such as viruses and worms), employee theft or misuse, denial-of-service attacks (such as credential stuffing), phishing and ransomware attacks, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). These risks may be increased as a result of the Argus II product,COVID-19 pandemic, owing to an increase in personnel working remotely and higher reliance on internet technology. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these limited sales were insufficient to cover our operating expenses. Given the limited addressable market of Argus II, we no longer market the Argus II and have focused all of our resources on the development of Orion. Our ability to generate positive cash flow will hinge on our ability to develop the Orion visual prosthesis, correctly price our product to our markets, and obtain government and private insurance reimbursement. As of December 31, 2021 we had stockholders’ equity of $68.4 million andtechniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an accumulated deficit of $328.6 million. We cannot assure you that we will be profitable even if we successfully commercialize our products. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.extended period.
Our business is subjectThere can be no assurance that we, our service providers, collaborators, consultants, contractors or partners will be successful in efforts to international economic, political and other risksdetect, prevent or fully recover systems or data from all breakdowns, service interruptions, attacks or breaches of systems that could negativelyadversely affect our results ofbusiness and operations and/or financial position.
We anticipate that revenue from Europe and other countries outside the U.S. may be material to our future long-term success. Accordingly, our operations are subject to risks associated with doing business internationally, including:
● currency exchange variations;
● extended collection timelines for accounts receivable;
● greater working capital requirements;
● multiple legal frameworks and unexpected changes in legal and regulatory requirements;
● the need to ensure compliance with the numerous regulatory and legal requirements applicable to our business in each of these jurisdictions and to maintain an effective compliance program to ensure compliance with these requirements;
● political changesresult in the foreign governments impacting health policy and trade;
● tariffs, export restrictions, trade barriers and other regulatoryloss of critical or contractual limitations that could impactsensitive data. Any failure by us or our abilityservice providers, collaborators, consultants, contractors or partners to selldetect, prevent, respond to or develop our products in certain foreign markets;
● trade laws and business practices favoring local competition; and
● adverse economic conditions, including the stability and solvencymitigate security breaches or improper access to, use of, business financial markets, financial institutions and sovereign nations and the healthcare expenditure of domestic or foreign nations.
The realizationinappropriate disclosure of any of thesethis information or other risks associated with operatingconfidential or sensitive information, including patients’ personal data, or the perception that any such failure has occurred, could result in Europeclaims, litigation, regulatory investigations and other proceedings, significant liability under state, federal and international law, and other financial, legal or reputational harm to us. Further, such failures or perceived failures could result in liability and a material disruption of our development programs and our business operations, which could lead to significant delays or setbacks in our research, delays to commercialization of our product candidates, lost revenues or other non-U.S. countriesadverse consequences, any of which could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to stringent domestic and foreign medical device regulation and any unfavorable regulatory action may materially and adversely affect our financial condition, prospects and business operations.cashflow. For example, the loss or alteration of clinical trial data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance withAdditionally, applicable laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution,relating to privacy, data protection or cybersecurity, external contractual commitments and the safetyinternal privacy and effectiveness of our medical devices. The process of obtaining marketing approval or clearance from the FDA and comparable foreign bodies for new products, or for enhancements, expansion of the indications or modifications to existing products, could:
● take a significant, indeterminate amount of time;
● result in product shortages due to regulatory delays;
● require the expenditure of substantial resources;
● involve rigorous pre-clinical and clinical testing, and possibly post-market surveillance;
● involve modifications, repairs or replacements of our products;
● require design changes of our products;
● result in limitations on the indicated uses of our products; and
● result in our never being granted the regulatory approval we seek.
Any of these occurrences that we might experience will cause our operations to suffer, harm our competitive standing and result in further losses that adversely affect our financial condition.
We have ongoing responsibilities under FDA and international regulations, both before and after a product is commercially released. For example, we are required to comply with the FDA’s Quality System Regulation (QSR), which mandates that manufacturers of medical devices adhere to certain quality assurance requirements pertaining, among other things, to validation of manufacturing processes, controls for purchasing product components, and documentation practices. As another example, the Medical Device Reporting regulation requires us to provide information to the FDA whenever there is evidence that reasonably suggests that a devicesecurity policies may have caused or contributed to a death or serious injury, or that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize such medical devices, order a recall, repair, replacement, or refund of such devices, or require us to notify health professionalsrelevant stakeholders if there has been a security breach, including affected individuals, business partners and othersregulators. Such disclosures are costly, and the disclosures or any actual or alleged failure to comply with such requirements could lead to a materially adverse impact on the business, including negative publicity, a loss of confidence in our services or security measures by our business partners or breach of contract claims. There can be no assurance that the devices present unreasonable riskslimitations of substantial harmliability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we fail to the public health. The FDA has been increasing its scrutiny of the medical device industry and the government is expected to continue to scrutinize the industry closelycomply with inspections and possibly enforcement actions by the FDAapplicable data protection laws, privacy policies or other agencies. Additionally, the FDA may restrict manufacturing and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civil or criminal penalties against our officers, employees, or us. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material adverse effect on our financial condition and results of operations.
The number of preclinical and clinical tests that will be required for regulatory approval varies depending on the disease or condition to be treated, the jurisdiction in which we are seeking approval and the regulations applicable to that particular medical device. Regulatory agencies, including those in the U.S., Canada, Europe and other countries where medical devices are regulated, can delay, limit or deny approval of a product for many reasons. For example,
● a medical device may not be safe or effective;
● regulatory agencies may interpret data from preclinical and clinical testing differently than we do;
● regulatory agencies may not approve our manufacturing processes;
● regulatory agencies may conclude that our device does not meet quality standards for durability, long-term reliability, biocompatibility, electromagnetic compatibility, electrical safety; and
● regulatory agencies may change their approval policies or adopt new regulations.
The FDA may make requests or suggestions regarding conduct of our clinical trials, resulting in an increased risk of difficulties or delays in obtaining regulatory approval in the U.S. Any of these occurrences could prove materially harmful to our operations and business.
Any revenue from sales of Orion will be dependent upon the pricing and reimbursement guidelines adopted in each country and if pricing and reimbursement levels are inadequate to achieve profitability our operations will suffer.
Our financial success is dependent on our ability to price our products in a manner acceptable to government and private payors while still maintaining our profit margins. Numerous factors that may be beyond our control may ultimately impact our pricing of Orion and determine whether we are able to obtain reimbursement or reimbursement at adequate levels from governmental programs and private insurance. If we are unable to obtain reimbursement or our product is not adequately reimbursed, we will experience reduced sales, our revenues likely will be adversely affected, and we may not become profitable.
Obtaining reimbursement approvals is time consuming, requires substantial management attention, and is expensive. Our business will be materially adversely affected if we do not receive approval for reimbursement of Orion under government programs and from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare Administrative Contractor level or by fiscal intermediaries in the U.S., and by regional or national funding agencies in Europe. Our business could be materially adversely affected if the Medicare program, local Medicare Administrative Contractors or fiscal intermediaries were to make such a determination and deny, restrict or limit the reimbursement of Orion. Similarly in Europe, these governmental and other agencies could deny, restrict or limit the reimbursement of Orion at the hospital, regional or national level. Our business also could be adversely affected if surgeons and the facilities within which they operate are not adequately reimbursed by Medicare and other funding agencies for the cost of the procedure in which they implant the Orion on a basis satisfactory to the administering surgeons and their facilities. If the local contractors that administer the Medicare program and other funding agencies are slow to reimburse surgeons or provider facilities for the Orion system, the surgeons and facilities may delay their payments to us, which would adversely affect our working capital requirements. Also, if the funding agencies delay reimbursement payments to the hospitals, any increase to their working capital requirements could reduce their willingness to treat blind patients who wish to have our Orion devices implanted. If reimbursement for our products is unavailable, limited in scope or amount, or if pricing is set at unsatisfactory levels, our business will be materially harmed.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
In order to obtain marketing approval for Orion we must demonstrate the safety and efficacy of Orion through clinical trials as well as additional supporting data. If Orion is associated with undesirable side effects in clinical trials or have characteristics that are unexpected, we may need to interrupt, delay or abandon Orion’s development, cause it to have reduced functionality, or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. We are conducting an initial feasibility clinical study of Orion at UCLA and Baylor, but we cannot guarantee that any positive results in this limited trial will successfully translate to a pivotal clinical trial. It is not uncommon to observe results in human clinical trials that are unexpected based on limited trials testing, and many product candidates fail in large clinical trials despite promising limited clinical trial results. Moreover, clinical data is often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain marketing approval for their products. No assurance can be given that we will not encounter similar results in our Orion trials.
Human subjects in our clinical trials may suffer significant adverse events, tolerability issues or other side effects associated with the surgical implantation, chronic implantation, and chronic use of the Orion device. These events include, but are not limited to, the following (events that are also anticipated during or following explanation of the Orion device are identified with an asterisk (*)): intracranial hemorrhage*; subcutaneous hematoma*; vascular injury causing stroke or hemorrhage (e.g. injury to the superior sagittal sinus or posterior cerebral artery perforators)*; hydrocephalus*; intracranial hypotension or cerebrospinal fluid (CSF) leak*; headache or pain in the head, including deep pain*; tingling at the implant site*; brain edema*; infection*; meningitis*; implant site pain, swelling, discharge or effusion*; suture-related complications or stitch abscess*; skin erosion on and/or around the implant site; adverse tissue reaction to the implant; tissue damage at the implant/explant site*; cranial defect/bone damage*; decline in residual vision*; dizziness/syncope*; foreign body sensation at the implant site*; activation of motor or sensory neurons (e.g., muscle twitch); clinically symptomatic seizure*; development of epilepsy; coma*; death*; psychiatric events, including but not limited to mood changes, depression, suicidality, and psychosis*; neurological deficit, including but not limited to language (dysphemia), dysesthesias, paresis, paresthesia, visual field, motor deficit (including apraxia), and memory impairment*; drug hypersensitivity, adverse drug reaction, or therapeutic agent toxicity*; eventsprotection obligations related to any surgery and general anesthesia including cardiac risks, including stroke/transient ischemic attack, arrhythmia, cardiac arrest, and myocardial infarction*, venous thromboembolic (VTE) disease*; pneumonia*, urinary tract infection*, post-operative delirium*, postoperative constipation*, post-operative vomitinginformation security or nausea*, or post-operative fever*; injuries due to falls or bumps; skin irritation or burns; Orion system failure or malfunction; array migration; damage to the Orion electronics case; device interaction including the Orion device may interfere with the proper functioning of other electronic devices and emissions from other electronic equipment may interfere with the proper functioning of the Orion device; and (explant only) inability to remove all or part of the Orion device due to fibrosis or other reason.security breaches.
No assurance can be given that we will not encounter adverse events in our Orion trials. The observed efficacy and extent of light perception and vision restoration for subjects implanted with Orion in our feasibility study may not be maintained over the long term, or may not be observed in a larger pivotal clinical trial. If general clinical trials of Orion fail to demonstrate efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of Orion.
For example, in June 2018, one subject in our Early Feasibility Study for Orion (“EFS”) experienced a seizure while in the clinic when we were evaluating a specific video stimulation algorithm. The seizure resolved quickly with medication and the subject was released from the clinic without need for hospitalization or further treatment. The subject was allowed to continue using the Orion device after the serious adverse event was reviewed by a safety committee for the study and clinicians at the implanting institution.
In addition, in January 2019 we observed higher impedance levels on 11 of 60 electrodes with the first EFS subject implanted with the Orion device in January 2018. As a result, some of these electrodes no longer generated a phosphene, or observable spot of light, for the subject. Mechanical and software safeguards are built into the device to avoid excessive electrical stimulation and, as a result, the higher impedance levels do not pose any known safety risks to the subject. Given the pattern of high impedances, we took the precaution of disabling half of the electrodes on the array to ensure that other potentially affected electrodes were not used. The subject continued to use the device and participate in the clinical study. This subject was explanted (electively, to be able to undergo an MRI for an unrelated issue) after having been implanted for 42 months. Analysis of the explanted device indicated that it was still functional, and there were no signs of corrosion or material damage to the electrodes. There was visible damage to the cable, likely due to stresses in silicone attributable to the manufacturing process of the first batch of implants. The manufacturing process was changed for later implants. We currently have no indication that the issue exists with any of the Orion devices implanted in each of the other three current EFS subjects, each of whom has been implanted about 4 years. Prior to initiation of EFS, we subjected six Orion implants to accelerated aging tests and had no failures for what was the equivalent of up to 6.5 years.
In October 2019, we also observed changes to impedances (higher and lower) on most electrodes with the sixth EFS subject implanted with the device in January 2019. These impedance changes were coincident with a loss of most perception from the device, though there is no indication of a medical adverse event or a device defect. When examined again in November 2019, this sixth EFS subject showed improved perception and more normal impedances including performance on the 12-month visual function and functional vision assessments that was similar to pre-incident performance. We are currently investigating the possible root cause(s) for these changes, which may or may not be device related (that is, the possible root causes may be subject related). This subject was explanted (also electively) after having been implanted for 36 months. Analysis of this explanted device has not been completed.
In March 2022, a third EFS subject underwent elective explant after having been implanted for 46 months. Analysis of this explanted device has not been completed.
We cannot provide any assurance that we will not experience similar or other issues with any of the implanted Orion devices, be able to determine the root cause of the issue or to ascertain whether the issue is isolated or systemic in nature. Additional testing, investigation, design changes or mitigation activities may delay our plans to conduct additional clinical studies for Orion and/or our marketing approval and may have a material adverse effect on our business.
If device defects, significant adverse events or other side effects are observed in any of our future clinical trials, we may have difficulty recruiting subjects to the clinical trial, subjects may drop out of our trial, or we may be required to abandon the trial or our development efforts of that product candidate altogether. We, the FDA or other applicable regulatory authorities may suspend clinical trials of Orion at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks. Devices developed in the prosthesis industry that initially showed promise in early-stage studies have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude Orion from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its actual or perceived safety and tolerability profile. Any of these developments could materially harm our business, financial condition and prospects.
Should Orion obtain marketing approval, adverse effects associated with it may also develop after such approval and could lead to requirements for conducting additional clinical safety trials, placing additional warnings in the labeling, imposing significant restrictions on Orion, or withdrawing the Orion from the market while further incurring attendant costs of explants and exposure to litigation. We cannot predict whether Orion will cause significant adverse effects in humans that would preclude or lead to the revocation of regulatory approval. However, any such event, were it to occur, would cause substantial harm to our business and financial condition and would result in the diversion of our management’s attention.
We are also subject to stringent government regulation in European and other foreign countries, which could delay or prevent ourThe recent furloughing of certain Cortigent employees may adversely impact its ability to sell our productsachieve its business objectives and result in those jurisdictions.the incurrence of additional expenses by us or Cortigent.
We intendWhile Cortigent continues to pursue market authorizations for the Orion system and other product candidatesits efforts towards its initial public offering, in additional jurisdictions and undergo additional audits. For us to market our products in Europe and some other international jurisdictions, we and our distributors and agents must obtain required regulatory registrations or approvals. The approval procedure varies among countries and jurisdictions and can involve additional testing, and the time and costs required to obtain approval may differ from that required to obtainOctober 2023, certain of its employees have been furloughed as an approval by the FDA. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA. Violations of foreign laws governing use of medical devices may lead to actions against us by the FDAexpense reduction measure. This action, as well as by foreign authorities. We must also comply with extensive regulations regarding safety, efficacy and quality in those jurisdictions. We may not be able to obtain all the required regulatory registrations or approvals, or weother measures that may be required to incur significant costs in obtaining or maintaining any regulatory registrations or approvals we receive. Delays in obtaining any registrations or approvals required for marketing our products, failure to receive these registrations or approvals, or future loss of previously obtained registrations or approvals would limit our ability to sell our products internationally. For example, international regulatory bodies have adopted various regulations governing product standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. These regulations vary from country to country. In order to sell our products in Europe, we must reestablish our ISO 13485:2016 certification and CE mark certification that have lapsed, which is an international symbol of quality and compliance with applicable European medical device directives. Failure to maintain the ISO 13485:2016 certification or CE mark certification or other international regulatory approvals would prevent us from selling in some countries in Europe and elsewhere. The failure to obtain these approvals could harm our business materially
Even if we obtain clearance or approval to sell our products, we are subject to ongoing requirements and inspections that could lead to the restriction, suspension or revocation of our clearance.
We, as well as any potential collaborative partners such as distributors, will be required to adhere to applicable FDA regulations regarding good manufacturing practice, which include testing, control, and documentation requirements. We are subject to similar regulations in foreign countries. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Ongoing compliance with good manufacturing practice and other applicable regulatory requirements is strictly enforced in the United States through periodic inspections by state and federal agencies, including the FDA, and in international jurisdictions by comparable agencies. Failure to comply with these regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure to obtain premarket clearance or premarket approval for devices, withdrawal of approvals previously obtained, and criminal prosecution. The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory requirements would limit our ability to operate and could increase our costs.
We have no large-scale manufacturing experience, which could limit our growth.
Our limited manufacturing experience may not enable us or any outside suppliers to make our products in the volumes that would be necessary for us to achieve a significant amount of commercial sales. Our product involves new and technologically complex materials and processes. As we move from making product for clinical trials to larger quantities for greater commercial distribution, we must develop new internal or external manufacturing techniques and processes that allow us to scale production. We may not be able to establish and maintain reliable, efficient, full scale manufacturing at commercially reasonable costs in a timely fashion. Difficulties we encounter in manufacturing scale-up, or our failure to implement and maintain our or outside manufacturing facilities in accordance with good manufacturing practice regulations, international quality standards or other regulatory requirements, could result in a delay or termination of production. To date, our manufacturing activities have largely been to provide units for clinical testing and commercial sales of the now discontinued Argus II system. We may face substantial difficulties in reestablishing and maintaining manufacturing and obtaining the manufacturing from outside suppliers for our products at a larger commercial scale and those difficulties may impact the quality of our products and adversely affect our ability to increase sales.
To establish our sales and marketing infrastructure, we will need to grow the size of our organization, and we may experience delays or other difficulties in managing this growth.
As our development and commercialization plans and strategies evolve, we will need to expand the size of our employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Our management team may have to use a substantial amount of time to manage these growth activities. Our future financial performance and our ability to commercialize the Orion system and our other product candidates and compete effectively will depend, in part, on our ability to timely and effectively manage any future growth and related costs. We may not be able to effectively manage a rapid pace of growth and timely implement improvements to our management infrastructure and control systems.
We may acquire additional businesses or form strategic alliancestaken in the future, and we may not realizeadversely affect the benefitsoperations of such acquisitions or alliances.
We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our proposed Orion development activity and business. If we acquire businesses with promising markets or technologies, we may not be ableCortigent, including its ability to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may have difficulty in developing, manufacturing and marketing the products of a newly acquired company that enhances the performanceconduct its initial public offering, particularly since some of our combined businessesfurloughed employees decided to seek employment elsewhere. In addition, certain such employees have asserted and others in the future may assert their entitlement to payments or product linesother benefits in connection with their furlough or, if applicable, termination, which may cause the Company or Cortigent to realize value from expected synergies.incur additional expenses if the Company determines to, or is required to, satisfy such asserted entitlements. We cannot assure that, following an acquisition, we will achieveor Cortigent may also lose the revenuesservices of these employees even if the furlough were ended, if they determine not to remain with us or specific net income that justifiesCortigent in the acquisition.
Risks Related to the Securities Market, and Ownership of Our Common Stock
Although we believe that our strategy to (i) leverage proven Argus II technology to develop the Orion visual cortical prosthesis and (ii) significantly expand our addressable market to include a portion of the almost six million patients who are blind from eye trauma, optic nerve disease and injury, diabetic retinopathy, glaucoma and other untreatable causes is more likely to address a better and faster way to treat many causes of blindness, we will incur material near term losses, market uncertainty and our stock may experience significant fluctuations as we continue to focus exclusively on Orion.
Based on assessments of the development of our Orion technology and the positive results in our Early Feasibility Study of the six subjects implanted with the Orion at UCLA Medical Center and at Baylor College of Medicine, in May 2019 our Board approved an acceleration of our transition from the Argus II to the Orion platform so we may more rapidly implement our strategy of treating blindness domestically and worldwide.long term. As a result, we will or have:
● accelerated the changeover to, and upgrades of, our supply chain, manufacturing and quality assurance processes, as well as our facilities and talent pool to the Orion program and suspended production of Argus II system;
● manufacture Orion devices that we will require to support FDA approval of the Orion commercial product;
● seek to conduct a larger feasibility study or a pivotal clinical trial with the intent of seeking regulatory approval for marketing Orion in the U.S.;
● terminated our commercial activities and other costs associated with expanding or maintaining Argus II sales;
● incurred non-cash impairment charges of approximately $1.2 million of which $0.5 million related to Argus II inventory and $0.7 million to write-down our fixed assets that were not directly related to the development of Orion in the year ended December 31, 2020;
● incurred cash severance and related expenses of approximately $800,000 in the year ended December 31, 2020 affecting employees primarily associated with Argus II operations and $0.2 million in material and overhead costs associated with Argus II; and
● reduce and assess our current level of support of the Argus II patient population.
As a result of this transition from Argus II, our future success will depend on the further development, regulatory approval and commercialization of the Orion product. Although we believe this more rapid changeover and implementation of our long-term strategy for treating blindness by Orion will provide us a sizable, commercially sustainable domestic and worldwide market for our products, in the near term we will incur significant losses, market volatility and regulatory uncertainty, including uncertainty associated with pricing and reimbursement coverage with no current assurance of market acceptance. No assurance can be given that this strategy will achieve domestic and regulatory approvals or result in commercial viability of our products or our company.
If we are unable to obtain sufficient funding, we may be unable to execute our business plan and fund operations. We may not be able to obtain additional financing on commercially reasonable terms, or at all.
We have experienced operating losses, and we may continue to incur operating losses for the next several years as we implement our business plan. Currently, we have no revenue and do not have arrangements in place for all the anticipated financing that would be required to fully implement our business plan. Our prior losses combined with expected future losses, have had and will continue to have, for the foreseeable future, an adverse effect on our stockholders’ equity and working capital.
We will need to raise additional capital in order to continue to execute our business plan in the future however there is no assurance that we will be successful, or that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to us. If we are unable to raise sufficient additional funds, we will need to further scale back our operations. The ongoing COVID-19 pandemic and resulting negative impact on the global macroeconomic environment and capital markets may make it more difficult for us to raise additional funds.
We cannot give any assurance that we will be able to obtain all the necessary funding that we may need. In addition, we believe that we will require additional capital in the future to fully develop our technologies and planned products to the stage of FDA approvals and a commercial launch. We have pursued and may pursue additional funding through various financing sources, including the private sale of our equity and debt securities, licensing fees for our technology and joint ventures with capital partners and project type financing. If we raise funds by issuing equity or equity-linked securities, dilution to some or all our stockholders will result. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings could impose significant restrictions on our operations. We also may seek government-based financing, such as development and research grants. There can be no assurance that funds will be availableCortigent can complete its initial public offering on commercially reasonablefavorable terms, ifin a timely manner or at all.
The incurrence of indebtedness In addition, certain such employees have asserted and others in the future may assert their entitlement to payments or the issuance of certain equity securities could resultother benefits in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our abilityconnection with their furlough or, if applicable, termination, which may cause us or Cortigent to incur additional debtexpenses if we determine to, or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. In the event that we enter into collaborations or licensing arrangements to raise capital, we may beare required to, accept unfavorable terms. These agreements may require that we relinquish, or license to a third party on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves, or reserve certain opportunities for future potential arrangements when we might otherwise be able to achieve more favorable terms. In addition, we may be forced to work with a partner on one or more of our products or market development programs, which could lower the economic value of those programs to us.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate or delay the development of one or more of our Orion features updated products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products. If this were to occur, our ability to grow and support our business and to respond to market challenges could be significantly limited or we may be unable to continue operations, in which case you could lose your entire investment.
If our development activity, regulatory efforts and substantial investments related to Orion do not result in a commercial product or if our company never achieves profitability or positive free cash flow, our stock price will decline, we will not be able to sustain operations and our stockholders may incur a complete loss of their investment in our company. The price of our common stock has been and may continue to be volatile and the value of your investment could decline.
Medical technology stocks have historically experienced high levels of volatility. The trading prices of our common stock have fluctuated and may continue to fluctuate substantially. The market price of our common stock may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose substantially all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include:
● announcements of new offerings, products, services, therapies, treatments or technologies, commercial relationships, acquisitions or other events by us or our competitors;
● challenges to our patents and the patents and intellectual property that we license;
● United States and European approvals or denials of our products;
● price and volume fluctuations in the overall stock market from time to time;
● significant volatility in the market price and trading volume of medical device or technology companies in general;
● fluctuations in the trading volume of our shares or the size of our public float;
● actual or anticipated changes or fluctuations in our results of operations;
● whether our results of operations meet the expectations of securities analysts or investors;
● actual or anticipated changes in the expectations of investors or securities analysts;
● litigation involving us, our industry, or both;
● regulatory developments in the United States, foreign countries, or both;
● general economic conditions and trends;
● major catastrophic events;
● sales of large blocks of our common stock;
● departures of key employees; and
● an adverse impact on our business from any of the other risks cited herein.
In addition, if the market for medical technology stocks or the stock market, in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, results of operations and financial condition.
If shares of our common stock cease to be listed on a national exchange we will not be subject to compliance with rules requiring the adoption of certain corporate governance measures and as a result our stockholders may experience reduced protections.
Each of the New York Stock Exchange and the Nasdaq Stock Market LLC require the implementation of various measures relating to corporate governance for listed companies. These quantitative and qualitative measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those stock exchanges. While we have adopted these measures, we will not be required to comply with many of the corporate governance provisions if our common stock is not listed on a national securities exchange. As a result, if we cease to be listed on national exchange and elect to cease compliance with any of the corporate governance measures required by national exchanges, our stockholders may lose protections afforded to listed companies.
If shares of our common stock cease to be listed on a national exchange they could become subject to the “penny stock” rules of the SEC and the trading market in our securities may become limited, which will make transactions in our stock cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that is no longer trading on a national exchange and has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
If shares of our common stock cease to be listed on a national exchange our securities will not be eligible for federal preemption rights and be subject to state “blue sky” laws which may affect our capabilities of raising capital.
Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether securities will be registered or exempt from registration under the laws of any state. If our securities cease to be listed on the national exchange, a determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our common stock. Registering or qualifying shares with states can be time consuming. Compliance and regulatory costs may vary from state to state and may adversely affect future financings and our ability to raise capital.
If our common stock is delisted from national exchange some institutional investors may not be allowed to purchase our shares and may be required to liquidate their current positions in our stock which could negatively affect the price and volatility of our shares.
Institutional investors may be restricted by their investment policies from investing in shares of companies that are not listed on a national exchange and may be required to liquidate their positions if our securities are delisted from a national exchange. Liquidations, should they occur, may increase volatility and cause wide fluctuations and further declines in the prices of our securities.
Delisting of our common stock from a national exchange can cause material dilution of our stock in future financings which can erode shareholder value.
If we are not able to maintain listing of our securities on Nasdaq the trading prices of our securities may decline and we may need to sell larger amounts of our securities to obtain needed operating capital, possibly at prices which are at further discounts to the market or upon other terms that are less favorable to us, subjecting our shareholders to material dilution and losses to their investment.
Sales of substantial amounts of our common stock in the public or private markets could reduce the price of our common stock and may dilute your voting power and ownership interest in us.
Sales of a substantial number of shares of our common stock in the public or private markets, or the perception that these sales could occur, as well as sales of shares by directors or officers, which have occurred or which may occur from time to time, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate.
Entities controlled by Gregg Williams, our Chairman of the Board, have the ability to influence or materially affect the outcome of matters submitted for stockholder approval, may limit your ability to influence outcomes of director elections and may have interests that differ from those of our other stockholders.
As of March 1, 2022, entities controlled and beneficially owned by Gregg Williams, our Chairman of the Board, own of record an aggregate of approximately 25.1% of the outstanding shares of our common stock (or 35.1% after giving effect to Mr. Williams’ right to acquire beneficial ownership of 6,055,532 shares of common stock upon exercise of options or warrants). As a result, Mr. Williams is able to exercise substantial influence over all matters requiring stockholder approval, including
● electing or defeating the election of our directors;
● amending or preventing amendment of our articles of incorporation or bylaws;
● effecting or preventing a merger, sale of assets or other corporate transaction; and
● materially affecting the outcome of any other matter submitted to our stockholders for vote.
Mr. Williams may also have interests that differ from other stockholders and he may vote in a manner that is or could be deemed as adverse to interests of other stockholders. His significant stock ownership could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price. This concentration of voting power may have the effect of deterring, delaying or impeding actions that could be beneficial to other stockholders. See also “Risk Relating to the Proposed Merger” below.
We do not intend to pay dividends for the foreseeable future and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
Future sales and issuances of our equity securities or rights to purchase our equity securities, including pursuant to our equity incentive plans, would result in dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
To the extent we raise additional capital by issuing equity securities; our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to existing stockholders.satisfy such asserted entitlements.
The public market for our common stock has been volatile since completion of ourproposed initial public offering in November 2014. This volatilityof Cortigent may affectnot be completed on the ability of our investorscurrently contemplated timeline, or at all, may cause us to sell their shares as well asincur more expenses than anticipated and may not achieve the price at which they sell their shares.intended benefits.
We completed ourThe proposed initial public offering in November 2014. Since that time, our per shareof common stock of Cortigent is subject to the effectiveness of the registration statement filed by Cortigent with the SEC. There can be no assurance as to when the initial public offering of Cortigent will occur or be completed. We expect the process of completing the proposed initial public offering of Cortigent will be time-consuming and day-to-day trading prices have often been volatile. This volatilityinvolve significant costs and expenses, which may continue orbe significantly higher than what we currently anticipate, may increase in the future. The market price forevent that the shares may be significantly affected by factors such as progress in the development of our technology, progress in our pre-clinical and clinical trials, agreements with research facilities or co-development partners, commercialization of our technology, coverage by third-party payors, variations in quarterly and yearly operating results, general trends in the medical device industry, and changes in FDA and foreign regulations affecting us and our industry. Furthermore, in recent years the stock market has experienced extreme price and volume fluctuations that are unrelated or disproportionate to the operating performancetiming of the affected companies. Those broad market fluctuationsinitial public offering of Cortigent is delayed and may adversely affectnot yield intended benefits. Completing the market priceproposed initial public offering of Cortigent, as well as performing our common stock.
Substantial future sales of shares of our common stock inobligations under the public market could cause our stock price to fall.
If our common stockholdersTransition, Funding, Support and Services Agreement with Cortigent (including those persons who may become common stockholders upon exercise of our options or warrants or upon completion of our acquisition of Nano Precision Medical Inc. as noted below) sell substantial amounts of our common stock, or the public market perceives that stockholders might sell substantial amounts of our common stock, the market price of our common stock could decline significantly. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at aany amendment thereto) will require significant time and price thatattention from our management deems appropriate.
We have the right to issue shares of preferred stock. If we were to issue preferred stock, it is likely to have rights, preferences and privileges that may adversely affect the common stock.
We are authorized to issue 10 million shares of “blank check” preferred stock, with such rights, preferences and privileges as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to issue preferred stock in one or more series, and to fix for any series the dividend rights, dissolution or liquidation preferences, redemption prices, conversion rights, voting rights, and other rights, preferences and privileges for the preferred stock. No shares of preferred stock are presently issued and outstanding and we have no immediate plans to issue shares of preferred stock. The issuance of shares of preferred stock, depending on the rights, preferences and privileges attributable to the preferred stock,employees, which could adversely reduce the voting rights and powers of the common stock and the portion of our assets allocated for distribution to common stockholders in a liquidation event, and could also result in dilution in the book value per share of our common stock. The preferred stock could also be utilized, under certain circumstances, as a method for raising additional capital or discouraging, delaying or preventing a change in control of our Company, to the detriment of the holders of our common stock. We cannot assure you that we will not, under certain circumstances, issue shares of our preferred stock.
We may be assessed penalties and fines under California’s board gender diversity statutes which require all publicly held companies based in California to meet the minimum requirements for female directors and directors from underrepresented communities on their boards of directors as of January 1, 2021.
As of January 1, 2021, all publicly held domestic or foreign corporations whose principal executive offices are located in California must meet the minimum requirements for female directors and for directors from underrepresented communities on their boards as required respectively by Women on Boards (SB 826) and Underrepresented Communities on Boards (AB 979). California law authorizes the California Secretary of State to impose fines to enforce compliance of SB 826 including a $100,000 fine for "failure to timely file board member information with the Secretary of State"; a $100,000 fine for a first violation, defined as "each director seat required by this section to be held by a female, which is not held by a female during at least a portion of a calendar year"; and a $300,000 fine for subsequent violations. We currently have one female director and under California’s staggered compliance schedule as of December 31, 2021 we are required to have to have a minimum of three female directors. To date we have not filed board information with the Secretary of State. To our knowledge the Secretary of State has not to date imposed any fines. California has also instituted a parallel Board diversity compliance and reporting framework focused on directors "from an underrepresented community," which is defined to mean "an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender." Under the law’s staggered compliance schedule a publicly held corporation whose principal executive offices are located in California must have at least one director from an underrepresented community on its board as of December 31, 2021. Companies that fail to timely comply with AB 979 will be fined $100,000 for the first violation and $300,000 for subsequent violations. We are not in compliance with these provisions.
A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, a novel strain of coronavirus, may materially and adversely affect our business, financial results and our financial results.
Public health epidemicsresults of operations. Moreover, we may not realize some or widespread outbreaks of contagious diseases could adversely impact our business. Any outbreak of contagious diseases, and other adverse public health developments, such as the recent novel strain of coronavirus (COVID-19), initially limited to a region in China and now affecting the global community, could impact our operations depending on future developments, which are highly uncertain, largely beyond our control and cannot be predicted with certainty. These uncertain factors include the durationall of the outbreak, potential impact to our employees who may contract the diseaseanticipated strategic, financial, operational, marketing or be subject to quarantine, new information which may emerge concerning the severityother benefits from of the diseaseinitial public offering of Cortigent, which could materially and the actions to contain or treat its impact, such as the temporary closure of facilities or diversion of healthcare resources, including clinical trial sites, the flow of goods in our supply chains and the ability for third-party service providers to fulfill their contractual obligations to us. These factors may disrupt our ability to conduct our existing and future clinical trials in the U.S., cause disruptions or restrictions on our employees’ ability to work and have a material adverse effect on our overall productivity.
We may also experience a more challenging fundraising environment that may restrict our access to capital both publicly and privately amid the recent escalated volatility of the U.S. and global financial markets, increases in travel restrictions, quarantines, business shutdowns or warnings and from potential disruptions or delays of trade, scientific, and investor conferences. Should we experience any of these or other currently unforeseen consequences of a health epidemic, pandemic or other outbreak, including the current COVID-19 outbreak,adversely affect our business, financial condition and results of operations could be materially and adversely affected.lead to increased volatility in the price of our common share.
Risks Relating to the Proposed Merger.
The Proposed Merger is subject to the approval of our shareholders and certain other conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete, or unexpected delays in completing the proposed Merger could have material adverse effects on us.
Completionimpact of the proposed MergerRussian invasion of Ukraine and the Israel-Hamas war on the global economy, energy supplies and raw materials is subjectuncertain, but may prove to a number of closing conditions, including obtaining approval of our shareholders. We can provide no assurance that all required consents and approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, even if all required consents and approvals can be obtained and all closing conditions are satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions, and timing of such consents and approvals or the timing of the completion of the proposed Merger. Many of the conditions to completion of the proposed Merger are not within our control, and we cannot predict when or if these conditions will be satisfied (or waived, if applicable).
Each party’s obligation to consummate the proposed Merger is also subject to the accuracy of the representations and warranties of the other party (subject to customary materiality qualifications) and compliance in all material respects with the covenants and agreements contained in the Merger Agreement as of the closing of the proposed Merger, including, with respect to us, covenants regarding conductingnegatively impact our business inand operations.
The short and long-term implications of Russia’s invasion of Ukraine and the ordinary course andIsrael-Hamas war are difficult to not engage in certain kinds of material transactions priorpredict at this time. We continue to closing. In addition, the Merger Agreement may be terminated under certain specified circumstances. As a result, we cannot assure youmonitor any adverse impact that the proposed Merger will be completed, even if our shareholders approveoutbreak of war in Ukraine, the proposed Merger, or that, if completed, it will be exactlysubsequent institution of sanctions against Russia by the United States and several European and Asian countries, and the Israel-Hamas war may have on the terms set forthglobal economy in the Merger Agreement or within the expected time frame.
We may not complete the proposed Merger within the time frame we anticipate or at all, which could have an adverse effectgeneral, on our business financial results, or operations.
Ifand operations and on the proposed merger is not completed for any reason, including as a resultbusinesses and operations of our shareholders or NPM shareholders failing to approve the proposed Merger, there may be various adverse consequencessuppliers and Second Sight may experience negative reactions from the financial markets and from its customers and employees.other third parties with which we conduct business. For example, Second Sight’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the proposed Merger, without realizing any of the anticipated benefits of completing the proposed Merger. Further, if the Merger Agreement is terminated, the market price of Second Sight’s common stock could decline to the extent that current market prices reflect a market assumption that the proposed Merger will be beneficial and will be completed.
Additionally, Second Sight has incurred and will incur substantial expensesprolonged conflict in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of preparing, filing, printing and mailing of a proxy statement/prospectus in connection with the proposed Merger, and all filing and other fees paid in connection with the preparation of the pertinent registration statement.
Many of these fees and costs will be payable by us even if the proposed Merger is not completed and may relate to activities that we would not have undertaken other than to complete the proposed Merger. If the proposed Merger is not completed, Second Sight would have to pay these expenses without realizing the expected benefits of the proposed Merger.
In certain instances, the Merger Agreement requires us to pay a termination fee, which could affect the decisions of a third party considering making an alternative acquisition proposal.
If the Merger Agreement is terminated under certain circumstances, Second Sight may be required to pay a termination fee of $1 millionUkraine or $5 million to NPM, depending on the reason for the termination. These liquidated damages limit our ability to consider alternative proposals and could affect the structure, pricing, and terms proposed by a third party seeking to acquire or merge with us and could discourage a third party from making a competing acquisition proposal, including a proposal that would be more favorable to our shareholders than the proposed Merger.
In the event the proposed Merger does not occur, the Company may not achieve the expected effects of the SAFE and could incur losses.
On February 4, 2022, the Company and NPM entered into an agreement (“SAFE”) whereby we provided NPM pending closing of the proposed Merger an investment advance of $8 million. The SAFE provides that effective upon the termination date of the Merger Agreement, without completion of the proposed Merger, NPM will be required to issue the Company that number of shares of NPM capital stock which following that issuance will equal not less than 2.133% of the issued and outstanding shares of NPM Capital Stock on a fully diluted basis. In the event NPM completes an equity financing at a lower valuation, the Company may be eligible to receive additional shares of NPM Capital Stock as set forth in the SAFE. If the proposed Merger is completed, the SAFE will terminate.
The SAFE was entered pending closing of the proposed Merger and based on the expectation of the Company that the proposed Merger is more likely to occur than not. In the event the proposed Merger is not consummated, the Company may end up with illiquid assets in the form of future equity rights in NPM, a private, pre-revenue company. Future equity financings of NPM are beyond the Company’s control and may never take place in the future. In the event the proposed Merger is not consummated, no assurance can be given that the Company will recover its investment or that or that the SAFE will not result in significant losses for the Company. A copy of the SAFE is attached as Exhibit 10.1 to our Form 8-K filed with the SEC on February 8, 2002 and is incorporated herein by this reference.
Certain of our directors have material interests in NPM. There is no assurance that the efforts of our Board, and of the special committee of our Board, to evaluate the fairness and effects of the proposed Merger were sufficient.
Three of our directors, Gregg Williams, Dean Baker, and Aaron Mendelsohn, are also directors of NPM and as to Gregg Williams and Aaron Mendelsohn have substantial investments and financial interests in NPM. Additionally, NPM was founded by Adam Mendelsohn, the son of Aaron Mendelsohn, a member of the Board. As a result, a special committee of the Board, consisting of members having no affiliation with NPM, was created for the purpose of evaluating the proposed Merger and determining whether the Merger Agreement and the proposed Merger are in the best interests of the Company. Following multiple consultations with financial and legal advisers, the special committee issued its recommendation for the Board to approve the proposed Merger on the terms of the Merger Agreement and the concurrently entered SAFE agreement. Notwithstanding the foregoing, there can be no assurance that the efforts of the special committee in connection with the proposed Merger were sufficient, nor can there be an assurance that the special committee was aware of and considered all the relevant facts and circumstances surrounding the proposed Merger. The opinion of the special committee was based on then-available information as the case may be, as of the date of each such opinion and does not reflect any subsequent events. Therefore, there can be no assurance that the terms of the proposed Merger are fair and in the best interest of the Company despite the opinion of the special committee.
Litigation challenging the Merger Agreement may prevent the proposed Merger from being consummated at all or within the expected timeframe.
Second Sight could be subject to litigation related to the proposed Merger or any failure to complete the proposed Merger or to proceedings commenced against Second Sight to perform its obligations under the proposed Merger Agreement. One of the conditions to the consummation of the proposed Merger is that the consummation of the proposed Merger is not restrained, made illegal, enjoined or prohibited by any order or legal or regulatory restraint or prohibition of a court of competent jurisdiction or any governmental entity. As such, if the plaintiffs in such potential lawsuits are successful in obtaining an injunction prohibiting the defendants from completing the proposed Merger on the agreed upon terms, then such injunction may prevent the proposed Merger from becoming effective, or from becoming effective within the expected timeframe.
We will be subject to various uncertainties while the proposed Merger is pending that may cause disruption and may make it more difficult to maintain relationships with business partners and continue our operations.
We are a relatively small company with limited personnel. Our efforts to complete the proposed Merger could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the proposed Merger and, thus, is being diverted from our day-to-day operations. These adverse effects of the pendency of the proposed Merger could be exacerbated by any delays in completion of the proposed Merger or termination of the Merger Agreement.
The Merger Agreement subjects us to restrictions on our business activities prior to the consummation of the proposed Merger.
The Merger Agreement subjects us to restrictions on our business activities. It obligates us to generally conduct our businesses in the ordinary course (as more particularly defined in the Merger Agreement) until the proposed Merger is consummated or the Merger Agreement is terminated and to generally use our reasonable best efforts to (i) preserve our assets and business organization, (ii) maintain our existing relationships and goodwill with material customers, suppliers, distributors, governmental authorities and business partners, and (iii) to keep available the services of our officers and key employees. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the consummation of the proposed Merger or the termination of the Merger Agreement .
We expect to incur substantial expenses related to the completion of the proposed Merger and the integration of our business with that of NPM.
We expect to incur substantial expenses in connection with the completion of the merger and the integration of a large number of processes, policies, procedures, operations, technologies and systems of NPM and Second Sight in connection with the proposed Merger. The management of the combined company may face significant challenges in implementing such integration, many of which may be beyond the control of management and whichIsrael may result in increased inflation, escalating energy prices and constrained availability, and thus increasing costs, and diversion of management’s time and energy,raw materials. To the extent the wars in Ukraine or Israel may adversely affect our business as well as materially adversely impactdiscussed above, it may also have the anticipated synergieseffect of heightening many of the mergerother risks described herein. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation; disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and the business, financial conditionrelations; disruptions in global supply chains; and results of operations of the combined company. The integration process and other disruptions resulting from the proposed Merger may also adversely affect the combined company’s relationships with employees, suppliers, and others with whom Second Sight and NPM have businessconstraints, volatility, or other dealings, and difficulties in integrating the businesses of Second Sight and NPM could harm the reputation of the combined company.
The combined company will continue to be subject to multiple risks and uncertainties.
Even if consummated, the proposed Merger entails significant risks for the combined company. The success of the proposed Merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by Second Sight and NPM and integrate the businesses. We will list the material risk factors associated with the operations of the combined company following the proposed Mergerdisruption in the pertinent registration statement of the Company filed in connection with the proposed Merger, if and whencapital markets, any of such registration statement is filed with the Securitieswhich could negatively affect our business and Exchange Commission.financial condition.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity.
Cybersecurity Risk Management and Strategy
We rely on information technology systems and data processing that we or our service providers, collaborators, consultants, contractors or partners operate to collect, process, transmit and store electronic information in our day-to-day operations. Our internal computer systems and data processing and those of our third-party vendors, consultants, collaborators, contractors or partners, including future CROs, may be vulnerable to risks from cybersecurity threats. To help manage these risks, we engage and rely on external experts, including an information technology managed services provider. We are also in the process of developing additional cybersecurity policies and procedures, as we continually work to enhance and evolve our program in light of the constantly evolving threat landscape.
Our managed services provider assists us with our technology, infrastructure and risk management through the deployment of a number of security controls and tools, including, but not limited to, endpoint protection tools, phishing protection and access controls. We also take steps to limit third-party vendors’ access to our systems, and we are in the process of developing additional vendor risk management procedures.
We have not identified any cybersecurity incidents or threats that have materially affected us or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition; however, like other companies in our industry, we and our third-party vendors may, from time to time, experience threats and security incidents that could affect our information or systems. For more information, please see the section entitled “Risk Factors.”
Governance Related to Cybersecurity Risks
We engage a managed services provider, which includes virtual chief information officer (vCIO) services, to assist us with the identification, monitoring and management of risks from cybersecurity threats. Our managed services provider reports on our cybersecurity posture periodically to our management team and audit committee. We have also formed an IT Steering Committee, whose members include cross functional representatives from our management team as well as our managed services provider, to review our cybersecurity program initiatives and related program metrics. The Committee is also charged with identifying and implementing improvements that strengthen our risk mitigation systems.
The Audit Committee of our Board of Directors oversees our policies and procedures with respect to risk management, including our management of risks from cybersecurity threats. The Audit Committee administers this cybersecurity risk oversight function through the receipt and review of reports from the management team and the vCIO on the Company’s information technology systems and the status of the cybersecurity risk management tools.
Item 2. Properties
Our principal officeoffices and facilities are located at 13170 Telfair Avenue Sylmar, California 91342, which consists of approximately 17,290 rentable square feet at a base rent of approximately $17,000 per month. The sub-lease expires in March 2023. We believe that these premises are adequate for our foreseeable needs.1350 South Loop Road, Alameda, CA 94502 and 27200 Tourney Road, Suite 315, Valencia, CA 91355.
Item 3. Legal Proceedings
Three oppositions filed by Pixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned by us.Cortigent. The outcomes of the challenges are not certain, however, if successful, they may affect our ability to block competitors from utilizing ourCortigent’s neuromodulation patented technology. We believe a successful challenge will not have a material effect on our ability to manufacture and sell our products, or otherwise have a material effect on ourCortigent’s neuromodulation operations.
As described in the Company’s Form 10-K for the year ended December 31, 2020, the Company had entered into a Memorandum of Understanding (“MOU”) for a proposed business combination with Pixium Vision SA (“Pixium”). In response to a press release by Pixium dated March 24, 2021, and subsequent communications between us and Pixium, our Board of Directors determined that the business combination with Pixium was not in the best interest of our shareholders. On April 1, 2021, we gave notice to Pixium that we were terminating the MOU between the parties and seeking an amicable resolution of termination amounts that may be due, however no assurance can be given that an amicable resolution will be reached. We accrued $1,000,000 of liquidated damages as contemplated by the MOU in accounts payable as of March 31, 2021 and remitted that amount to Pixium in April 2021. Pixium indicated that it considered this termination wrongful, rejected the Company’s offers, but retained the $1,000,000 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, and currently claimsclaim damages of approximately €5.1 million or about $5.6 million. We believe we have fulfilled our obligations to Pixium with the liquidated damages payment of $1,000,000.
On December 8, 2022, the Company received notice that the Paris Commercial Court has rendered its judgement, including finding that the Company’s termination of the MOU was not valid. In November 2020, we andthe judgment, the Company was ordered to pay to Pixium retained Oppenheimer & Co. Inc. as placement agentthe amount of €2,500,000 minus a €947,780 credit for the $1,000,000 already paid for, a proposed private placementnet amount payable of securitiesapproximately €1,552,220. On May 24, 2023, the Company filed an appeal against the judgment from the Paris Commercial Court except in connectionso far as such prior judgment dismissed (i) Pixium’s claim for the Company to pay it a sum of €480,693 relating to the alleged time spent by its teams, (ii) Pixium’s application to order the Company to pay it a sum of €1,500,000 in respect to alleged loss of opportunity and (iii) deducted the sum of $1,000,000 that we already paid Pixium and which Pixium retained. Thereafter Pixium filed its brief with the Business Combination. On April 1, 2021, we received an invoice from Oppenheimer for more than $1.86 million. This amount includes a requested commissionParis Court of 6.5% on $27.9 million raised in our March 2021 private placement. We believe that claims for payment presented by this invoice are without merit.
On or about July 19, 2021, Martin SumichrastAppeal and filed a complaint with the Superior Court of the State of California, County of Los Angeles—Central District, claiming that he is entitled to compensation for services, as well as exemplary and other damages in an amount to be determined at trial but not less than $2 million, which arise from his allegedly arranging and securing financing that the Company obtained in May 2020 via a registered underwritten public offering of common stock. The complaint was dismissed by the courtcross-appeal on January 18, 2022. Mr. Sumichrast appealed2024. Meanwhile, the dismissal,Company received notice that the Paris Commercial Court in its judgment dated January 31, 2024 converted Pixium’s receivership proceedings to liquidation proceedings and that Pixium’s liquidator is due to intervene in the pending proceedings before the Paris Court of Appeal. The Company recorded a charge of $1,675,000 for the year ended December 31, 2022 related to this matter but plans to continue its appeal against the appeal was abandoned March 1, 2022.preliminary judgment.
We are party to litigation arising in the ordinary course of business. It is our opinion that the outcome of such matters will not have a material effect on our financial statements, however the results of litigation and claims are inherently unpredictable. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factorsfactors.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
(a) Market Price, Dividends and Related MattersInformation
Second Sight’sVivani’s common stock par value $0.0001 per share, is traded on the Nasdaq Capital Market under the symbol “EYES.“VANI.”
| | | High | | | Low | |
| Fiscal Year Ended December 31, 2021 | | | | | | |
| First quarter | | $ | 15.48 | | | $ | 1.43 | |
| Second quarter | | $ | 9.43 | | | $ | 4.94 | |
| Third quarter | | $ | 4.75 | | | $ | 3.11 | |
| Fourth quarter | | $ | 3.41 | | | $ | 1.69 | |
| | | | | | | | | |
| Fiscal Year Ended December 31, 2020 | | | | | | | | |
| First quarter | | $ | 6.05 | | | $ | 0.99 | |
| Second quarter | | $ | 2.10 | | | $ | 0.81 | |
| Third quarter | | $ | 1.04 | | | $ | 0.73 | |
| Fourth quarter | | $ | 3.22 | | | $ | 0.73 | |
Holders
On March 17, 202222, 2024 there were approximately 77110 shareholders of record.
Dividends
We have never declared or paid cash dividends on our common stock and do not anticipate paying any dividends in the foreseeable future.
Use of Proceeds from FinancingsSecurities Authorized for Issuance Under Equity Compensation Plans
On June 25, 2021, we closed an underwritten public offeringThe information required by Item 5 of 11,500,000 sharesForm 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of common stock at a pricePart III of $5.00 per share for aggregate net proceeds of $53.3 million. We applied proceeds to further develop and enhance our products, support operations and for general corporate purposes.this Annual Report.
On March 23, 2021, we closed our private placement to seven institutional investorsRecent Sales of 4,650,000 sharesUnregistered Securities
None.
Purchases of common stock at a price of $6.00 per share for aggregate net proceeds of approximately $24.5 million. We applied proceeds to further developEquity Securities by the Issuer and enhance our products, support operations and for general corporate purposes.Affiliated Purchasers
None.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. The consolidated results of operations for the years ended December 31, 20212023 and 20202022 are not necessarily indicative of the results that may be expected for any future period. The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part IV, Item 15 of this Form 10-K and in conjunction with the “Risk Factors” included in Part I, Item 1A of this Form 10-K.
Business Overview
Vivani Medical, Inc. (“Vivani,” the “Company,” “we,” “us,” “our” or similar terms) is a preclinical stage biopharmaceutical company which develops miniaturized, subdermal implants utilizing its proprietary NanoPortal™ technology to enable long-term, near constant-rate delivery of a broad range of medicines to treat chronic diseases. Vivani uses this platform technology to develop and potentially commercialize drug implant candidates, alone or in collaboration with pharmaceutical company partners to address a leading cause of poor clinical outcomes in the treatment of chronic disease, medication non-adherence. For example, approximately 50% of patients treated for type 2 diabetes are non-adherent to their medicines, which can lead to poor clinical outcomes. We are developing a portfolio of miniature, sub-dermal drug implant candidates that, unlike most oral and injectable medicines, are designed with the goal of guaranteeing adherence by delivering therapeutic drug levels for up to 6 months or longer. In addition, our aim is to minimize fluctuations in patients’ drug levels through the use of our NanoPortal technology, which may improve the tolerability profiles for medicines that produce side effects associated with fluctuating drug levels in the blood.
Vivani resulted from the business combination of Second Sight Medical Products, Inc. (NASDAQ: EYES) has developed, manufactured(“Second Sight”) and marketed implantable visual prosthetics thatNano Precision Medical, Inc. (“NPM”). Vivani’s main priority is the further development of the company’s lead programs NPM-115 and NPM-119, which are intended to deliver useful artificial vision to blind individuals. We are a recognized global leader in neuromodulation devicesminiature, 6-month, GLP-1 implant candidates for blindnessthe treatment of chronic weight management and arepatients with type 2 diabetes, respectively. In parallel, Vivani’s management team remained committed to developing new technologies to treatidentifying and exploring strategic options for the broadest populationNeuromodulation Division (formerly Second Sight) that will enable further development of sight-impaired individuals.its pioneering neurostimulation systems from legacy company Second Sight aimed at helping patients recover critical body functions.
Leveraging our 20 years of experience in neuromodulation for vision, we are developing the Orion® Visual Cortical Prosthesis System (“Orion”), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due to a wide range of causes, including glaucoma, diabetic retinopathy, optic nerve injury or disease and eye injury. Orion is intended to convert images captured by a miniature video camera mounted on glasses into a series of small electrical pulses. The device is designed to bypass diseased or injured eye anatomy and to transmit these electrical pulses wirelessly to an array of electrodes implantedMoving forward, Vivani’s focus will be on the surfacefurther development of the brain’s visual cortex, where it is intendedNPM-115, NPM-119, and its emerging pipeline of innovative miniature, long-term drug implants to provide the perceptiontreat patients with chronic diseases and high unmet medical need. The origins of patternsthis business started while its current Vivani CEO and NPM co-founder Adam Mendelsohn and two of light. We are conducting an Early Feasibility Study of the Orion devicehis graduate school colleagues, Kathleen Fischer and Lily Peng, at the Ronald Reagan UCLA Medical Center in Los AngelesUniversity of California, San Francisco (“UCLA”UCSF”) and Baylor Collegethe University of MedicineCalifornia, Berkeley (“UCB”), entered business school competitions leveraging their growing knowledge of chemistry, drug delivery, and nanoscale technology to propose the development of new miniature, biocompatible, drug implant prototypes capable of releasing therapeutic drug levels over an extended period of time. Based on their success and encouragement from professors and others, including medical device/pharmaceutical icon Alfred E. Mann, Dr. Mendelsohn and colleagues started NPM in Houston (“Baylor”). Regularly scheduled visits at both sites were paused2009 and operations began in mid-March 2020 due2011 in an incubator on the UCB campus. Today, the Company has grown to the coronavirus outbreak, however visits at UCLA resumed mid-September 202037 full-time employees and Baylor resumed in December 2020. Our 36 month results, all of which were measured after the study resumed, indicate to us that:
● | We have a good safety profile. Five subjects experienced a total of fourteen adverse events (AEs) related to the device or to the surgery, through February 2022. One was considered a serious adverse event (SAE), and all of the adverse events were in the expected category. The one SAE occurred at about three months post-implant, was resolved quickly, and did not require a hospital stay. There have been no serious adverse events due to the device or surgery since June 2018. |
| |
● | The efficacy data is encouraging. We measure efficacy by looking at three measures of visual function: The first is square localization, where Orion subjects sit in front of a touch screen and are asked to touch within the boundaries of a square when it appears. The second is direction of motion, where subjects are asked to identify the direction and motion of lines on a screen. The third is grating visual acuity, a measure of visual acuity that is adapted for very low vision. Five subjects have completed these tests at 36-months. For these 36-month results, on square localization, five of five subjects tested in our feasibility study performed significantly better with the system on than off. On direction of motion, five of five performed better with the system on than off. On grating visual acuity, two of five tested had measurable visual acuity on the scale of this test (versus none who can do it with the device off). Another efficacy measurement of day-to-day functionality and benefit is FLORA, an acronym for Functional Low-Vision Observer Rated Assessment. FLORA is an assessment performed by an independent, third-party low vision orientation and mobility specialist who spends time with each of the subjects in their homes. The specialist asks each of the subjects a series of questions and also observes them performing 15 or more daily living tasks, such as finding light sources, following a sidewalk, or sorting laundry. The specialist then determines if the system is providing a benefit, if it is neutral, or if it is actually hurting the abilities of subjects to perform these tasks. FLORA results to date show that 4 out of 4 completing the FLORA at 36 months had positive or mild positive results indicating the Orion system is providing benefit. We reached agreement with the FDA in the fourth quarter of 2019 to utilize a revised version of FLORA as our primary efficacy endpoint in our pivotal trial for Orion, pending successful validation of the instrument. |
No peer-reviewed data is available yet for the Orion system. We are currently negotiating the clinicalits current headquarters and regulatory pathway to commercialization with the FDA as part of the Breakthrough Devices Program.
Our principal officesoperations are located in Los Angeles,at 1350 South Loop Road, Alameda, California.
Our first commercially approved product, the Argus® II Retinal Prosthesis System (“Argus II”), treats outer retinal degenerations, such as retinitis pigmentosa, also referred
Vivani’s implant technology, which we refer to as RP.NanoPortal, utilizes a space-efficient design that allows a miniaturized implant to provide many months of therapeutic delivery of potent molecules. The Argus II wastechnology has no moving parts, which is intended to minimize fluctuating drug delivery over the duration of the implant and is also tunable. Vivani has primarily been developing implant candidates around peptide therapeutics, but the technology has potential application across a wide range of molecular types. The key innovative component of the technology is a biocompatible titanium-oxide nano-porous membrane which consists of millions of precisely sized nanotubes whose inner diameters represent the only retinal prosthesispath for drug molecules to exit the reservoir once the implant is fully assembled.
In February 2022, we announced the signing of a definitive merger agreement between NPM and Second Sight, pursuant to which NPM became a wholly-owned subsidiary of Second Sight. On August 30, 2022, the two companies completed the merger, concurrent with which Second Sight changed its name to Vivani Medical, Inc. and now conducts the present business of the Company. In September 2022, we announced the formation of the Company’s Biopharm Division to advance the assets of the former NPM which includes the further development of the Company’s lead programs, NPM-115 and NPM-119, a miniature, 6-month, GLP-1 implant candidates for the treatment of chronic weight management and patients with type 2 diabetes, respectively. Vivani’s management team remains committed to identifying and exploring strategic options for the Neuromodulation Division (formerly Second Sight) that will enable further development of its pioneering neurostimulation systems from Second Sight to help patients recover critical body functions. On December 28, 2022, the assets and liabilities of this segment were contributed to Cortigent, Inc. a newly formed wholly owned subsidiary of Vivani, in exchange for 20,000,000 shares of common stock of Cortigent. As of December 31, 2023, after giving effect to a 1-for-4 reverse stock split that we implemented, Cortigent had 5,000,000 shares of common stock outstanding, all owned by Vivani.
In March 2023, Vivani announced the filing of a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) for the proposed initial public offering of Cortigent. Cortigent, currently a wholly-owned subsidiary of Vivani, was formed for the purpose of advancing the Company’s pioneering neurostimulation technology. The Registration Statement on Form S-1 was recently amended and filed with the SEC in February 2024 to refresh the financial information and provide minor updates to the business.
On July 6, 2023, Vivani changed its state of incorporation from the State of California to the State of Delaware by means of a plan of conversion, effective July 5, 2023. The reincorporation, including the principal terms of the plan of conversion, was submitted to a vote of, and approved inby, Vivani’s stockholders at its 2023 Annual Meeting of Stockholders held on June 15, 2023. As part of this change of incorporation the United States byCompany established a par value of $0.0001 per share and all periods have been retroactively adjusted to reflect this change.
An Investigational New Drug Application (“IND”) for NPM-119 (GLP-1 implant) was filed with the U.S. Food and Drug Administration (“FDA”), on July 14, 2023, to support the initiation of the first-in-human study of NPM-119 in patients with type 2 diabetes, also named LIBERATE-1™. On August 18, 2023, FDA provided written notification that the LIBERATE-1 study was on full clinical hold, primarily due to insufficient Chemistry, Manufacturing, and wasControls (“CMC”) information to assess the risk to human subjects. Vivani remains actively engaged in discussions with FDA as part of its efforts to lift the clinical hold and plans to submit a Complete Response to the FDA during the first approved retinal prosthesis in the world. RP is a hereditary disease, affecting an estimated 1.5 million people worldwide including about 100,000 people in the United States, that causes a progressive degenerationhalf of the light-sensitive cells of the retina, leading to significant visual impairment and ultimately blindness. A subset of these patients would be eligible for the Argus II since the approved baseline vision for the Argus II is worse than legally blind (20/200). We commissioned 3rd party market research to estimate the size of the RP market that resulted in an estimate of approximately 1,500 patients in the US with advanced RP that could be treated with the Argus II given the eligibility criteria of our label.2024.
We conducted a qualitative patient preference information (PPI) studyOn August 25, 2023, Vivani and Cortigent entered into an Amendment No. 1 (the “Amendment”) to the Transition Funding, Support and Services Agreement dated March 19, 2023 (the “TFSSA”). Pursuant to the TFSSA, Vivani has agreed to advance funds and provide or cause to be provided to Cortigent the services and funding intended to cover salaries and related costs, rent and other overhead in 2021. Inorder to permit Cortigent to operate in substantially the study,same manner in which business operations of Cortigent were previously operated by Second Sight, prior to the formation of Cortigent, which obligations will continue, in the case of the funding obligations, until the earlier of December 31, 2024 or the closing of an independent third party conducted guided interviews with 30 people who would potentially qualify for an implant such asinitial public offering of Cortigent (the “Funding Support Term”). Under the Orion System. Subjects were 18 – 74 with acquired bare light or no light perception bilaterally. They included balanced subsamples of sex, age, sudden vs. gradual vision loss, and time since vision loss. The one-hour semi-structured interviews were centered on a hypothetical device similarAmendment, Cortigent has agreed to Orion. The performance description was based on feedback from our Early Feasibility Study (EFS) participants implanted with Orion. The interviews also included a description of known risks for Orion, including the serious adverse event rate from the EFS. Throughout the interview, participants were asked for feedback on all aspects the hypothetical system; they also rated their interest in being implanted multiple times after each presentation of new information. These results created a valuable dataset for future device design and marketing. When askedrepay $1,500,000 to Vivani at the endconclusion of the interview if they would be interested in being implanted with the hypothetical device, 33.3% replied with a strong yes, 10.0% a weak yes, 23.3% a weak no, and 33.3% a strong no.
Our prior market research found that there are 50,000 to 80,000 individuals in the United States with no light perception or bare light perception due to currently untreatable causes. Calculating 30% of 50,000 yields a minimum US market for Orion of 15,000 individuals, which does not include new cases each year.
We began selling the Argus II System in EuropeFunding Support Term. In addition, at the endconclusion of 2011, Saudi Arabiathe Funding Support Term, Cortigent will enter into a five-year promissory note at 5% interest for $2,000,000 in 2012,favor of Vivani. Consequently, Vivani will forgive any remaining amounts due by Cortigent to it under the United StatesTFSSA. In October 2023, Vivani implemented a reduction-in-force to conserve cash that decreased Cortigent’s employees from 14 to 7 while continuing the ongoing Orion® clinical study and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we no longer market the Argus II and have focused all of our resources on the development of Orion.
We are also researching multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with 3rd party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we believe will be complimentary to our products include: eye tracking, object recognition and localization, thermal imaging and depth-based decluttering.basic operations.
In March 2020, we were severely adversely impacted by the unprecedented economic shock caused by the COVID-19 pandemicfourth quarter of 2023, Vivani Medical Australia Pty Ltd., a wholly-owned subsidiary in Australia was established to support studies of our products and its related effects on our ability to secure financing for our planned activities. As a result, we significantly reduced our staff and expenses and conserved liquidity as we continued operations and explored our strategic options. These options included securing additional funding and exploring business alternatives that included partnering, acquiring, investing in or combining with businesses that may or may not be in a related industry. We were actively seeking opportunities to develop partnerships or collaborations with others to advance further Orion development, conduct pivotal trials and bring the product to market for the treatment of blindness. No assurances can be given that any of these initiatives will occur.candidates.
In early March 2020, we commenced clinical validation activities forFebruary 2024, Vivani announced positive NPM-115 preclinical weight loss data comparable to semaglutide, the FLORA-20 instrument, the primary efficacy endpoint we have selected for our future pivotal clinical trial of Orion. In mid-March 2020, our validation activities were suspendedactive ingredient in Ozempic®/Wegovy®, and disclosed NPM-139 as a resultsemaglutide implant as our strategy shifted to prioritize our obesity portfolio. In a study in high-fat diet-induced obese mice, NPM-115 generated weight loss of public health concerns and related social distancing dueapproximately 20% compared to COVID-19. We area sham implant control after a 28-day treatment duration, comparable to weight loss observed in mice treated with semaglutide injections (Ozempic®/Wegovy®) in the processsame study. The Company also disclosed that semaglutide is the active pharmaceutical ingredient in NPM-139, a miniature, subdermal GLP-1 implant in development for chronic weight management, with the added potential benefit of evaluating when activities related to the validation study can be resumed.once-yearly administration.
On March 27, 2020,1, 2024, the BoardCompany announced that it had entered into a securities purchase agreement with an institutional investor to purchase 3,947,368 shares of Directors appointed Matthew Pfeffer, a membercommon stock and warrants to purchase up to an aggregate of our Board and Chairman of the Audit Committee of the Board, as acting Chief Executive Officer. On March 26, 2021, Scott Dunbar replaced Matthew Pfeffer, as acting Chief Executive Officer. Mr. Pfeffer resumed his role as director at such date.
In furtherance of our decision to withdraw Argus II from the market, we have terminated two post-market studies for Argus II in Germany and the U.S., terminated an extended non-significant risk study in the U.S. for Argus 2s, and suspended our technical support of Argus II worldwide.
In May 2020, we completed an underwritten public offering of 7,500,0003,947,368 shares of common stock at an offeringa purchase price of $1.00$3.80 per share for aggregate gross proceedsand accompanying warrant in a registered direct offering. The warrants have an exercise price of $7.5 million,$3.80 per share, are exercisable immediately upon issuance, and net proceedswill expire three years following the date of approximately $6.7 million after deducting underwriting discounts, commissionsissuance.
On March 6, 2024, the Company announced the appointment of Daniel Bradbury to its Board of Directors. Under Bradbury’s leadership as CEO, Amylin Pharmaceuticals, with partner Alkermes, secured the 2012 approval of Bydureon® (exenatide injection), the world’s first GLP-1 receptor agonist, a class of drugs that now includes blockbusters Ozempic®, Trulicity® and other offering expenses. Based on our current plans, existing cash and cash equivalents can sustain our operations into June 2021.Wegovy®.
In May 2020, we entered into a Letter Agreement with Sylmar Biomedical Park, LLC (the “Landlord”) to terminate our facility leases in which we agreed to vacate the premises by June 18, 2020Funding and pay $210,730 to bring our leases current and pay a one-time early termination fee of $150,000. Prior to the early termination, we were obligated to pay aggregate base rent of approximately $0.9 million and common area maintenance expenses for the respective remaining terms of our leases in February 2022 and April 2023.
We completed our offer to rescind certain purchases of shares under our ESPP plan on May 27, 2020. We voluntarily offered to rescind the sale of shares of our common stock to employees who purchased those shares under the ESPP and to reimburse any losses upon the sale of our shares of our common stock for certain purchase periods because these shares may not have been exempt from registration under the Securities Act of 1933. The rescission of these share purchases resulted in the repurchase and cancelation of 39,467 shares of our common stock. The total cost for the repurchase of these shares and the reimbursement of any losses from the sale of such shares totaled approximately $270,000.
In June 2020, we commenced a process to dissolve our Swiss subsidiary which is ongoing.
On July 7, 2020, we entered into a lease with Sylmar Biomedical Park, LLC, to lease a smaller portion of our present facility. The new lease allowed us to significantly reduce our rent while maintaining operations and the current address. The term of the lease was from June 16, 2020 until December 31, 2020. We have terminated this lease and moved effective February 1, 2021.
On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. Each promissory note was unsecured and accrued interest at a rate of twelve percent (12%) per annum beginning on receipt of the loan amounts. We repaid the principal and accrued interest of $135,000 during the quarter ended June 30, 2021.
Effective February 1, 2021, we entered into a sub-lease to replace our existing headquarters and leased 17,290 square feet of office space at 13170 Telfair Avenue, Sylmar California 91342. Rent paid was $17,000 per month, until February 1, 2022 when it increased to $17,500 per month, plus operating expenses. We received full rent abatement for March 2021, and half rent abatement for March 2022. The sub-lease is for two years and two months. Neither we nor any affiliates are related to, or otherwise have any other relationship with, the other parties, other than the lease.
By letter dated February 26, 2021, the Center for Devices and Radiological Health (CDRH) of the U.S. Food and Drug Administration (FDA) approved the Argus 2s Retinal Prosthesis System developed by Second Sight Medical Products, Inc. Argus 2s is a redesigned set of external hardware (glasses and video processing unit) to be used in combination with previously implanted Argus II systems for the treatment of retinitis pigmentosa (RP). We issued a press release on March 5, 2021 entitled Second Sight Medical Products, Inc. Receives FDA Approval for the Argus 2s Retinal Prosthesis System. Argus II, and now Argus 2s, are approved under a humanitarian device exemption (HDE). The approval is contingent upon the Company filing periodic reports with CDRH, use only under prescription, under the supervision of an institutional review board (IRB), and taking all other required actions under FDA rules. We expect that the Argus 2s will be adapted to be the external system for the next generation Orion Visual Cortical Prosthesis System currently under development
We are researching multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with third-party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we are currently researching include: eye tracking, object recognition and localization, thermal imaging and depth-based image decluttering.
We are subject to the risks and uncertainties associated with a business without revenues, including limitations on our operating capital resources and uncertain future demand for our product. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future. Based on our current plans, we do not have sufficient funds to continue operating our business at current levels for at least twelve months from the date of issuance of this report. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity offerings, debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs, or we may be unable to expand our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Capital FundingLiquidity
Capital Funding
From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated from the sale of our Argus II product. We have funded our business since 2019 has been primarily through the following transactions:warrants.
| ● | On June 25, 2021, we closed an underwritten public offering of 11,500,000 shares of common stock at a price of $5.00 per share for aggregate net proceeds of $53.3 million |
Non-Capital Funding
| ● | On March 23, 2021, we closed our private placement to seven institutional investors of 4,650,000 shares of common stock at a price of $6.00 per share for aggregate net proceeds of approximately $24.5 million |
● | On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. Each promissory note was unsecured and accrued interest at a rate of twelve percent (12%) per annum beginning on receipt of the loan amounts. We repaid the principal and accrued interest of $135,000 during the quarter ended June 30, 2021 |
| ● | On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.7 million |
We were awarded a $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and approval) from the National Institutes of Health (NIH)(the “NIH”) to fund the “Early Feasibility Clinical Trial of a Visual Cortical Prosthesis” that commenced in January 2018. Our secondThe final year of the grant of $1.4 million was approved on April 6, 2021 and our third year grant of $1.4 million was approved on May 12, 2021. As of December 31, 2021 we recorded $0.3 million of grant costs receivable, includedends in prepaid expenses and other current assets.March 2024.
On September 17, 2019, we received a $2.4 million, four-year grant from the National Institutes of Health (NIH) to develop spatial localization and mapping technology (“SLAM”). This grant involves a joint collaboration with the Johns Hopkins University Applied Physics Laboratory and is intended to speed the integration of SLAM into future generations of Orion. The goal is to give Orion users the ability to localize objects and navigate landmarks in unfamiliar surroundings in real time. APL is the primary recipient of the grant. We have suspended our activities on the project until we clarify our future plans.Liquidity
We have experienced recurring operating losses and negative operating cash flows since inception and have financed our working capital requirements through the recurring sale of our equity securities in both public and private offerings.
securities. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
On March 1, 2024, the Company entered into a Securities Purchase Agreement with an institutional investor relating to the issuance of 3,947,368 shares of the Company’s common stock, par value of $0.0001 per share and warrants to purchase up to an aggregate of 3,947,368 shares of Common Stock (the “Warrant”), to such investor at a purchase price of $3.80 per share and accompanying warrant in a registered direct offering (the “Offering”). The Warrant has an exercise price of $3.80 per share, is exercisable immediately upon issuance and will expire three years following the date of issuance. The Company also entered into a Placement Agency Agreement with Maxim Group LLC, who acted as the sole placement agent for the Offering. The gross proceeds of approximately $15.0 million from the Offering, before paying the placement agent fees and other estimated offering expenses, was received on March 5, 2024. For additional information, refer to Note 13. Subsequent Event of the Notes to Consolidated Financial Statements.
We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations for at least twenty-four months.into the second half of 2025. Our ability to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our business initiatives and/or raise additional capital, however, there can be no assurances that we will be able to do so.
Insurance Reimbursement
Obtaining reimbursement from governmental and private insurance companies is critical to our commercial success. Due to the price of the Orion system, our future sales would be limited without the availability of third-party reimbursement. In the U.S., coding, coverage, and payment are necessary for the surgical procedure and Orion system to be reimbursed by payors. Coding will need to be established for the device and the surgical procedure. Coverage and payment vary by payor. The majority of Argus II were patients are eligible for Medicare, and coverage is primarily provided through traditional Medicare, sometimes referred to as Medicare Fee-for-Service (“FFS”) or Medicare Advantage. A small percentage of patients are covered by commercial insurers.
| ● | Medicare FFS patients – Coverage is determined by Medicare Administrative Contractors (MACs) that administer various geographic regions of the U.S. |
| ● | Medicare Advantage patients – Medicare Advantage plans are required to cover the same benefits as those covered by the MAC in that jurisdiction. For example, if a MAC in a jurisdiction has favorable coverage for Orion, then typically Medicare Advantage plans in that MAC jurisdiction offer the same coverage. Individual hospitals and ASCs may negotiate contracts specific to that individual facility. In addition, procedural payment is variable and can be based on a percentage of billed charges, payment groupings or other individually negotiated payment methodologies. Medicare Advantage plans also allow providers to confirm coverage and payment for the procedure in advance of implantation. |
| ● | Commercial insurer patients – Commercial insurance plans make coverage and payment rate decisions independent of Medicare, and contracts are individually negotiated with facility and physician providers. |
Currently, we are in the process of evaluating potential reimbursement pathways for Orion in the U.S. market. Compared to Argus II, which was largely catering to the Medicare patient population, Orion is expected to address a patient population with a more diverse and balanced payor mix due to our potential indications profile and expected younger patient population, on average. As Orion is a part of the FDA’s Breakthrough Devices Program, we are closely evaluating a variety of fast-track reimbursement programs, including recent encouraging announcements from CMS proposing modernization of payment policies for medical devices that meet FDA’s Breakthrough Devices designation. We have also approached some commercial payors and CMS to get their feedback to ensure our overall reimbursement strategy for Orion therapy will cater to their key data requirements.
Product and Clinical Development Plans
Orion. By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The principle notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable (including RP) or age-related macular degeneration (“AMD”). We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligible for the Orion based on our clinical trials and the associated results.
Our objective in designing and developing the Orion visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. An Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor. Regularly scheduled visits at both sites were placed on hold in mid-March due to Covid-19, however visits at UCLA resumed mid-September 2020 and Baylor resumed in December 2020. Our 36 month results for the five subjects indicate a good safety profile with encouraging efficacy data and benefits in helping subjects perform their daily living tasks. We believe these data are encouraging and support advancement of Orion into a larger pivotal clinical study. Early promising results are not necessarily indicative of results which may be obtained in large clinical trials. No assurance can be given that we will achieve similar results in our larger Orion clinical trials. No peer-reviewed data is available yet for the Orion system.
In November 2017, the FDA granted Breakthrough Devices Program designation for the Orion. This designation is given to a few select medical devices in order to provide more effective treatment of life-threatening or irreversibly debilitating diseases or conditions. This program is intended to help patients have more timely access to these medical devices by expediting their development, assessment, and review.
COVID-19 Pandemic
In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to wear masks in the office and use their best judgement to work remotely or work in the office. While many of our employees are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.
In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. Also, some of our suppliers of certain materials used in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets and may result in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 or its variants could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. See the Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business.
Recently Adopted Accounting Standards
We believe that recently issued, but not yet effective, authoritative guidance, if currently adopted, would not have a material impact on our financial statement presentation or disclosures.
Critical Accounting Policies and Estimates
The following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. See Note 2 of notes to our consolidated financial statements for a more complete description of our significant accounting policies.
Stock-Based Compensation. Pursuant to Financial Accounting Standards Board ASC 718, Share-Based PaymentPayment (“ASC 718”), we record stock-based compensation expense for all stock-based awards. Under ASC 718, we estimate the fair value of stock options granted using the Black-Scholes option pricing model.models. The fair value for awards that are expected to vest is then amortized on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. The Company accounts for forfeitures as they occur.
| ● | The grant price of the issuances is determined based on the fair value of the shares at the date of grant. |
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| ● | The risk free interest rate for periods within the contractual life of the option is based on the U.S. treasury yield in effect at the time of grant. | | | |
| ● | We calculate the expected term of options using a weighted average of option vesting periods and an estimate of one-half of the period between vesting and expiration of the option. | | | |
| ● | Volatility is determined based on our average historical volatilities since our trading history, began in November 2014 and supplemented with average historical volatilities of comparable companies in our similar industry. | | | |
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| ● | Expected dividend yield is based on current yield at the grant date or the average dividend yield over the historical period. We have never declared or paid dividends and have no plans to do so in the foreseeable future. |
Patent Costs. We have over 300 domestic and foreign patents. Due to
For stock options or restricted stock units with market vesting conditions, the uncertainty associated withawards were valued using the successful development of one or more commercially viable products based on our research efforts and any related patent applications, all patent costs, including patent-related legal, filing fees and other costs, including internally generated costs, are expensed as incurred. Patent costs are included in general and administrative expenses in the consolidated statements of operations.Monte-Carlo Simulation model.
Results of Operations Cost of sales. Cost of sales includes adjustments related to prior sales of our Argus II system. Our product involves technologically complex materials and processes.
Operating Expenses. We generally recognize our operating expenses as incurred in fourtwo general operational categories: research and development clinical and regulatory, sales and marketing, and general and administrative. Our operating expenses also include a non-cash component related to the amortization of stock-based compensation for research and development clinical and regulatory, sales and marketing and general and administrative personnel. From time-to-time we have received grants from institutions or agencies, such as the National Institutes of Health, to help fund the some of the cost of our development efforts. We have recorded these grants as reductions to operating expenses. | ● | Research and development expenses consist primarily of employee compensation and consulting costs related to the design, development, and enhancements of our current and potential future products, as well as internal and external costs associated with conducting clinical trials and maintaining relationships with regulatory agencies, as well as facilities costs, which include expenses for rent, maintenance of facilities and depreciation of equipment, offset by grant revenue received in support of specific research projects. We expense our research and development costs as they are incurred. We expect research and development expenses to increase in the future as we pursue further enhancements of our existing product and develop technology for our potential future products, such as the Orion Visual Cortical Prosthesis.products. We also expect to receive additional grants in the future that will beprimarily offset primarily against research and development costs. |
| ● | Clinical and regulatory expenses consist primarily of salaries, travel and related expenses for personnel engaged in clinical and regulatory functions, as well as internal and external costs associated with conducting clinical trials and maintaining relationships with regulatory agencies. We expect clinical and regulatory expenses to increase as we conduct clinical studies of potential future products such as the Orion Visual Cortical Prosthesis. |
| ● | Sales and marketing expenses consist primarily of salaries, commissions, travel and related expenses for personnel engaged in sales, marketing and business development functions, as well as costs associated with promotional and other marketing activities, including the cost of units consumed as demos or samples. We have suspended sales activities until such time as we are ready to market Orion. |
| ● | General and administrative expenses consist primarily of salaries and related expenses for executive, legal, finance, human resources, information technology and administrative personnel, as well as recruiting and professional fees, patent filing and annuity costs, insurance costs and other general corporate expenses, including rent.rent and other facility related costs. We expect general and administrative expenses to increase as we add personnel and incur additional costs related to the growth of our business and operate as a public company. |
Comparison of the Years Ended December 31, 20212023 and 20202022 Cost of sales. Cost of sales were a negative $0.1 million in 2021 and a negative $0.5 million in 2020. In 2020, we ceased sales of Argus II, thus a significant portion of our manufacturing activity related to Orion prototypes were reported in our research and development expenses. In addition, we revised our expected warranty expenses due to our cessation of Argus II production and the related peripherals which resulted in a reduction of our warranty liability of $0.5 million in 2020 and $0.1 million in 2021.
Research and development expense. Research and development expense decreased from $4.8during the year ended December 31, 2023 was $17.0 million, in 2020compared to $2.4$14.2 million in 2021, a decreaseduring the year ended December 31, 2022. The increase of $2.4$2.8 million, or 51%. The decrease from the prior year20%, was primarily dueattributable to decreased headcountincreased payroll and outside services.
Clinical and regulatory expense. Clinical and regulatory expense decreased from $1.7 million in 2020 to $0.4 million in 2021, a decrease of $1.3 million, or 78%. The decrease primarily related topersonnel-related costs, associated with the Orion feasibility study which were reducedincreased rent due to the pandemic restrictinglease agreement in Alameda, California and related facilities expense and the inclusion of the neuromodulation division of our patient access. We expect clinical and regulatory costs to increase inacquired company, Second Sight, since the future as we conduct additional clinical trials, such as the future pivotal study with Orion and if we enroll additional subjects.
Selling and marketing expense. Selling and marketing expense decreased from $0.7 million in 2020 to zero in 2021. Thismerger acquisition date of August 30, 2022, partially offset by a decrease in spending is the result of our cancelation of our commercial activities associated with the Argus II until such time as we produce a commercial product from our Orion platform.drug implants development costs.
General and administrative expense. General and administrative expense increased from $5.9during the year ended December 31, 2023 was $10.0 million, in 2020compared to $6.3$7.1 million in 2021, anduring the year ended December 31, 2022. The increase of $0.4$2.9 million, or 6%. The increase is41%, was primarily relatedattributable to increased payroll and personnel-related expenses, increased rent and related facilities expense due to the lease agreement in Alameda, California, insurance costs, professional service expense, and the inclusion of the neuromodulation division of our acquired company, Second Sight, since the merger acquisition date of August 30, 2022, partially offset by a provision for a legal costs and termination costs related to our terminated merger.claim of $1.7 million recorded in 2022. Restructuring charges. Other income (expense), netWe recorded non-cash restructuring charges of $1.2 million in 2020 comprised of $0.5 million to fully reserve our inventory in connection with our decision to no longer market Argus II and $0.7 million to write-down our fixed assets that are not directly involved in. Other income (expense), net during the development of Orion. We recorded a cash charge of $0.2 million in material and overhead costs associated with Argus II and a $0.8 million for severance compensation and other associated costs all of which was substantially settled byyear ended December 31, 2020.2023 was $1.3 million, compared to $7.4 million during the year ended December 31, 2022. Other income consisted of interest income of $1.5 million during the year ended December 31, 2023. Other income during the year ended December 31, 2022 included $6.9 million related to the gain on bargain purchase from the acquisition of Second Sight.
Net loss. The net loss during the year ended December 31, 2023 was $8.9$25.7 million, in 2021, as compared to $14.9$13.9 million in 2020.during the year ended December 31, 2022. The $6.0 million decreaseincrease in net loss from 2020 to 2021of $11.8 million was primarily attributable to a $6.4 million decreasean increase in operating expenses of $5.7 million and the prior year gain on the bargain purchase from the acquisition of Second Sight of $6.9 million, partially offset by increased interest income due to cessation of Argus II commercial activities.higher average investments and rate increases on cash investments. Liquidity and Capital Resources We have experienced recurring operating losses and negative operating cash flows since inception and have financed our working capital requirements through the recurring sale of our equity securities in both public and private offerings.
securities. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
On March 1, 2024, the Company entered into a Securities Purchase Agreement with an institutional investor relating to the issuance of 3,947,368 shares of the Company’s common stock, par value of $0.0001 per share and warrants to purchase up to an aggregate of 3,947,368 shares of Common Stock (the “Warrant”), to such investor at a purchase price of $3.80 per share and accompanying warrant in a registered direct offering (the “Offering”). The Warrant has an exercise price of $3.80 per share, is exercisable immediately upon issuance and will expire three years following the date of issuance. The Company also entered into a Placement Agency Agreement with Maxim Group LLC, who acted as the sole placement agent for the Offering. The gross proceeds of approximately $15.0 million from the Offering, before paying the placement agent fees and other estimated offering expenses, was received on March 5, 2024. For additional information, refer to Note 13. Subsequent Event of the Notes to Consolidated Financial Statements.
We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations for at least twenty-four months.into the second half of 2025. Our ability to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our business initiatives and/or raise additional capital, however, there can be no assurances that we will be able to do so.
On June 25, 2021, we closed an underwritten public offering of 11,500,000 shares of common stock at a price of $5.00 per share for aggregate net proceeds of $53.3 million.
On March 23, 2021, we closed our private placement to seven institutional investors of 4,650,000 shares of common stock at a price of $6.00 per share for aggregate net proceeds of approximatelyCash, cash equivalents and restricted cash decreased by $24.5 million
On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman$46.4 million as of the BoardDecember 31, 2022 to $22.0 million as of Directors of the Company and $1.2 million from two unaffiliated shareholders. Each promissory note was unsecured and accrued interest at a rate of twelve percent (12%) per annum beginning on receipt of the loan amounts. We repaid the principal and accrued interest of $135,000 during the quarter ended June 30, 2021.
On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.7 million.
December 31, 2023. Working capital was $68.0$17.3 million atas of December 31, 2021,2023, as compared to a negative $0.9$40.7 million atas of December 31, 2020.2022. Cash Flows from Operating Activities During 2021,2023, we used $9.2$23.7 million of cash in operating activities, consisting primarily of a net loss of $8.9$25.7 million and $0.5$1.3 million used from a net change in operating assets and liabilities, partially offset by non-cash items totaling $3.2 million for depreciation and amortization of property and equipment, stock-based compensation, loss on disposal of fixed assets and lease expense.
During 2022, we used $18.8 million of cash in operating activities, consisting primarily of a net loss of $13.9 million, offset by $0.4 million from a net change in operating assets and liabilities offset byand non-cash charges of $0.2items including $5.3 million for gain on bargain purchase, depreciation and amortization of property and equipment and stock-based compensation. During 2020, we used $16.8 million of cash in operating activities, consisting primarily of a net loss of $14.9 million, and $3.7 million from a net change in operating assets and liabilities, offset by non-cash charges of $1.8 million for depreciation and amortization of property and equipment, stock-based compensation and restructuring charges for inventory impairment.
Cash Flows from Investing Activities InvestingNet cash used in investing activities in 2021during 2023 and 2020 used $14,0002022 was $0.9 million and $0.3 million, respectively, of cash for the purchase of equipment. In 2020 the sale of assets held for sale provided cash of $0.4 million.
Cash Flows from Financing Activities FinancingIn 2023, financing activities provided $75.6$0.1 million of cash in 2021, including $77.8 millionprimarily from the net proceeds from the issuance of common stock and warrants exercises reduced by the repayment of debt of $2.2 million.option exercises.
FinancingIn 2022, financing activities provided $8.6$63.4 million of cash, in 2020, including $6.7$55.4 million from the netcash acquired in merger for stock consideration and $8.0 million proceeds from the issuance of common stock and warrants and $2.2 million from the issuance of debt offset by the repurchase of ESPP shares and fractional shares of $0.3 million.SAFE note.
Off-Balance Sheet Arrangements At December 31, 2021,2023, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Sensitivity The primary objective of our investment activities is to maintain the safety of principal and preserve liquidity without incurring significant risk. We invest cash in excess of our current needs in money market funds. In general, money market funds are not considered to be subject to interest rate risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of December 31, 20212023 and 2020,2022, our cash equivalents consisted solely of money market funds.funds deposited at Merrill Lynch and restricted cash as collateral for our lease. Exchange Rate Sensitivity In 20212023 and 2020,2022, the majority of our operating expenses were denominated in U.S. dollars. We have not entered into foreign currency forward contracts to hedge our operating expense exposure to foreign currencies, but we may do so in the future. Item 8. Financial Statements and Supplementary Data Our financial statements and supplementary data required by this Item are provided in the consolidated financial statements included in this Form 10-K as listed in Item 15(a) of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow for timely decisions regarding required disclosure. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, 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 degree of compliance with the policies and procedures may deteriorate. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. As of December 31, 2021,2023, management has concluded that our disclosure controls and procedures were effective based upon testing of our key internal controls. Our management, including our CEO and CAO,CFO, has concluded that the consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in this Annual Report on Form 10-K in conformity with GAAP. This annual reportForm 10-K does not include an attestation report from our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to our non-accelerated filer status.
Management’s 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. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: 1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; 2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and 3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. As of December 31, 2021,2023, based on the criteria established in “Internal Control — Integrated Framework” (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management has completed written documentation of its internal control policies, procedures and controls and has completed its testing of its key controls. Based upon the results of this testing we have concluded that our internal control over financial reporting was effective as of the end of the period covered by this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting that occurred during or subsequent to our fourth quarter of the year ended December 31, 20212023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls The design of any system of control is based upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Item 9B. Other Information None.No Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by officers or directors of the Company, nor were there any material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors, during the quarter ended December 31, 2023.
Item 9C. Disclosure regarding foreign jurisdictions that prevent inspections
Not Applicable.
PART III
PART III Certain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated by reference from our definitive proxy statement relating to our 20222024 annual meeting of stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, also referred to in this Annual Report on Form 10-K as our 20212024 Proxy Statement, which we will file with the SEC not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our directors, including the audit committee and audit committee financial experts, and executive officers, and compliance with Section 16(a) of the Exchange Act will be included in an amendment to this Form 10-K or in our 20212024 Proxy Statement and is incorporated herein by reference. We have adopted a Code of Business Conduct that applies to all officers, directors and employees in connection with their work for us. The full text of our Code of Business Conduct is posted on the investors page of our website at https://investors.vivani.com/investors/corporate-governance/governance-documents. We intend to satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Business Conduct by posting such information on our website, at the Internet address and location specified above.
Item 11. Executive Compensation
The information required by this item regarding executive compensation will be included in an amendment to this Form 10-K or in our 20212024 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item regarding security ownership of certain beneficial owners and management will be included in an amendment to this Form 10-K or in our 20212024 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item regarding certain relationships and related transactions and director independence will be included in an amendment to this Form 10-K or in our 20212024 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item regarding principal accounting fees and services will be included in an amendment to this Form 10-K or in our 20212024 Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
| (a) | The following documents are included in this Annual Report on Form 10-K: |
| 1. | The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are filed as part of this report. |
| 2. | All financial schedules have been omitted because the required information is either presented in the consolidated financial statements or the notes thereto or is not applicable or required. |
| 3. | The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the exhibits and are incorporated herein. We have identified in the Exhibit Index each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response to Item 15(a)(3) of Form 10-K. |
EXHIBIT INDEX EXHIBIT INDEX | | | Exhibit No. | | Exhibit Description | 1.12.1 | | FormAgreement and Plan of Underwriting AgreementMerger by and among Second Sight Medical Products, Inc. and Nano Precision Medical, Inc., dated February 4, 2022 (incorporated by reference to Exhibit 2.1 in the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended) | 1.2 | | Form of Underwriting Agreement, dated June 22, 2021, between Registrant and ThinkEquity LLC (incorporated by reference to the registrant’sRegistrant’s Current Report on Form 8-K originally filed with the Securities and Exchange CommissionSEC on June 28, 2021)February 8, 2022). | 3.1(a)2.2 | | Restated ArticlesWaiver of Incorporation ofAvailable Cash Requirement to the Registrant as amendedMerger Agreement dated June 15, 2022 (incorporated by reference to Exhibit 2.1 in the registrant’s registration statementRegistrant’s Current Report on Form S-1, file no. 333-198073, originally8-K filed with the SecuritiesSEC on June 21, 2022). | | 2.3 | | Plan of Conversion of Vivani Medical, Inc. (a California corporation) to Vivani Medical, Inc. (a Delaware corporation), dated July 5, 2023 and Exchange Commissioneffective July 5, 2023 (incorporated by reference to Appendix A in the Registrant’s revised definitive proxy statement filed with the SEC on August 12, 2014, as amended)May 1, 2023). | | 3.1 | | Certificate of Incorporation of Vivani Medical, Inc., filed with the Secretary of State of Delaware and effective, July 6, 2023 (incorporated by reference to Exhibit 3.1 in the Registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2023). | | 3.2 | | Amended and Restated Bylaws of the Registrant, as currently in effectVivani Medical, Inc. (a Delaware Corporation) effective July 6, 2023 (incorporated by reference to Exhibit 3.2 in the registrant’s registration statementRegistrant’s Current Report on Form S-1, file no. 333-198073, originally8-K filed with the Securities and Exchange CommissionSEC on August 12, 2014, as amended.)July 10, 2023). | 4.14.1* | | | Form of the Registrant’s common stock certificate (incorporated by reference to the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended)Common Stock Certificate. | | 4.2 | | Form of Underwriter’s Warrant (incorporated by reference to Exhibit 4.2 in the registrant’s registration statementRegistrant’s Registration Statement on Form S-1, fileFile no. 333-198073, originally filed with the Securities and Exchange CommissionSEC on August 12, 2014, as amended). | | 4.3 | | Form of Warrant Agreement and Form of Warrant Certificate (incorporated by reference to Exhibit 4.4 in the registrant’s registration statementRegistrant’s Registration Statement on Form S-1, fileFile no. 333-215463, originally filed with the Securities and Exchange CommissionSEC on January 9, 2017, as amended). | | 4.4 | | Form of Amendment No.1No. 1 to Warrant Agreement (incorporated by reference to registrant’s current reportExhibit 99.2 in the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange CommissionSEC on February 22, 2019). | 4.54.5* | | Description of Capital Stock (incorporated by reference to the registrant’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on April 14, 2021)Stock. | | 10.1 | | Form of IndemnificationLock-Up Agreement between Registrant and each of its directors and officers ( incorporated(incorporated by reference to Exhibit 10.15 in the registrant’s registration statementRegistrant’s Proxy Statement/Prospectus on Form S-1, fileS-4, (File no. 333-198073,333-264959), originally filed with the SecuritiesSEC on May 13, 2022). | | 10.2 | | Registrant’s Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.2 in the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2022) | | 10.3 | | Transition Funding, Support and Exchange CommissionServices Agreement by and between the Registrant and Cortigent, Inc., dated March 19, 2023 (incorporated by reference to Exhibit 10.1 in the Registrant’s Current Report on Form 8-K filed with the SEC on March 21, 2023). | | 10.4* | | Offer Letter by and between Jonathan Adams and Cortigent, Inc., dated March 11, 2023. | | 10.5 | | Lease Agreement Between 1350 South Loop LLC and the Registrant, dated November 21, 2022 (incorporated by reference to Exhibit 10.1 in the Registrant’s Current Report on Form 8-K filed with the SEC on November 28, 2022). | | 10.6 | | Cost Reimbursement Consortium Research Agreement, by and between Registrant and Doheny Eye Institute, dated as of June 1, 2006 (incorporated by reference to Exhibit 10.12 in the Registrant’s Registration Statement on Form S-1 (File No. 333-198073) originally filed with the SEC on August 12, 2014, as amended)+. | 10.210.7 | | 2003 Equity Incentive PlanSAFE Agreement, by and between Second Sight Medical Products, Inc. and Nano Precision Medical, Inc., dated February 4, 2022 (incorporated by reference to Exhibit 10.1 in the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended)+ | 10.3 | | 2003 Form of Employee Option Agreement (incorporated by reference to the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended)+ | 10.4 | | 2011 Equity Incentive Plan, as amended (incorporated by reference to registrant’s definitive proxy statement on Schedule 14A, filed with the Securities and Exchange Commission on April 15, 2016)+ | 10.5 | | 2011 Form of Employee Option Agreement (incorporated by reference to the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended)+ | 10.6 | | Sub-Sublease for Multiple Tenants, dated January 7, 2021, between Registrant and Triscenic Production Services, Inc. (incorporated by reference to theRegistrant’s Current Report on Form 8-K originally filed with the Securities and Exchange CommissionSEC on January 27, 2021) | 10.7 | | Cost Reimbursement Consortium Research Agreement between Registrant and Doheny Eye Institute (incorporated by reference to the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended)February 8, 2022). | | 10.8 | | Second Sight Medical Product,Amendment 1 to the Transition Funding, Support and Services Agreement, by and between the Registrant and Cortigent, Inc. 2015 Employee Stock Purchase Plan, dated August 28, 2023 (incorporated by reference to registrant’s definitive proxy statement on Schedule 14A, filed withExhibit 10.1 in the Securities and Exchange Commission on April 16, 2015)+ | 10.9 | | Executive Employment Agreement between Registrant and Will McGuire (incorporated by reference to registrant’s current reportRegistrant’s Current Report on Form 8-K filed with the Securities and Exchange CommissionSEC on June 25, 2015)+August 28, 2023). | 10.10 | | Executive Employment Agreement between Registrant and John Blake (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on March 27, 2018)(+) | 10.11 | | Securities Purchase Agreement among Registrant, Gregg G. Williams 2006 Trust and Sam B. William 1995 Generation-Skipping Trust dated May 3, 2018 (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on May 8, 2018) | 10.12 | | Securities Purchase Agreement among Registrant, Gregg G. Williams 2006 Trust and Sam B. William 1995 Generation-Skipping Trust dated August 14, 2018 (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2018) | 10.13 | | Executive Employment Agreement between Registrant and William Patrick Ryan(incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2018)(+) | 10.14 | | Securities Purchase Agreement among Registrant, Gregg G. Williams 2006 Trust and Sam B. William 1995 Generation-Skipping Trust dated October 18, 2018 (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on October 22, 2018) | 10.15 | | Securities Purchase Agreement among Registrant, Gregg G. Williams 2006 Trust and Sam B. William 1995 Generation-Skipping Trust dated December 12, 2018 (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on December 14, 2018) |
10.1621.1* | | FormList of Securities Purchase Agreement, dated March 23, 2021, between Registrant and purchasers (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on March 26, 2021) | 10.17Registrant’s Subsidiaries | | Registration Rights Agreement, dated March 23, 2021, between Registrant and purchasers(incorporated by reference to registrant’s current report on Form 8-K filed with the(incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on March 26, 2021) | 10.18 | | Placement Agency Agreement, dated March 23, 2021, between Registrant and ThinkEquity LLC (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on March 26, 2021) | 10.19 | | Termination Agreement, dated March 23, 2021, between Registrant and Hudson Bay Capital Management (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on March 26, 2021) | 10.20 | | Form of Lock Up Agreement (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on June 28, 2021) | 10.21 | | Merger Agreement, dated February 4, 2022, between Registrant and Nano Precision Medical, Inc. (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2022) | 10.2223.1* | | SAFE Agreement, dated February 4, 2022, between Registrant and Nano Precision Medical, Inc. (incorporated by reference to registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on February 8, 2022) | 21.1 | | List of subsidiaries of the Registrant.(incorporated by reference to the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended) | 23.1* | | Consent of BPM LLP, Independent Registered Public Accounting Firm | 23.2*24.1 | | Consent of Gumbiner Savett Inc., Independent Registered Public Accounting Firm | 24.1 | | Power of Attorney (included in the signature page to this report) | | 31.1* | | Certification of Principal Executive Officer of Second SightVivani Medical, Products, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2* | | Certification of Principal Financial and Accounting Officer of Second SightVivani Medical, Products, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1** | | | Certifications of Principal Executive Officer and Principal Financial and Accounting Officer of Second SightVivani Medical, Products, Inc. | | | pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 97.1* | | Compensation Recovery Policy |
* | Filed or furnished herein, as applicable. |
+ | Indicates management contract or compensatory plan. |
| 101.INS | | XBRL Instance Document | | 101.SCH | | XBRL Taxonomy Extension Schema Document | | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| * | Filed herein. | | ** | This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing. | | + | Indicates management contract or compensatory plan. |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 202226, 2024 | Second SightVivani Medical, Products, Inc. | | | | /s/ Scott DunbarAdam Mendelsohn | | Scott DunbarAdam Mendelsohn | | Acting Chief Executive Officer |
POWER OF ATTORNEY AND SIGNATURES
The undersigned officers and directors of Second SightVivani Medical, Products, Inc., each hereby severally constitutes and appoints Scott DunbarAdam Mendelsohn and Brigid Makes as histheir true and lawful attorney-in-fact and agent, with full power of substitution to sign and execute on behalf of the undersigned any and all amendments to this Annual Report on Form 10-K, and to perform any acts necessary in order to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requested and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or their or his or her substitutes, shall do or cause to be done by virtue hereof.
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.
| Name | | Title | | Date | | | | | | | /s/ Scott DunbarAdam Mendelsohn | | Acting Chief Executive Officer and Director | | March 28, 202226, 2024 | Scott DunbarAdam Mendelsohn | | (Principal Executive Officer) | | | | | | | | | /s/ Edward SedoBrigid Makes | | Acting Chief AccountingFinancial Officer | | March 28, 202226, 2024 | Edward SedoBrigid Makes | | (Principal Financial and Accounting Officer) | | | | | | | | | | /s/ Gregg Williams | | Chairman of the Board | | March 28, 202226, 2024 | | Gregg Williams | | | | | | | | | | | /s/ Matthew Pfeffer | | Director | | March 28, 2022 | Matthew Pfeffer | | | | | | | | | | /s/ Jonathan Will McGuire | | Director | | March 28, 2022 | Jonathan Will McGuire | | | | | | | | | | | | /s/ Aaron Mendelsohn | | Director | | March 28, 202226, 2024 | | Aaron Mendelsohn | | | | | | | | | | | | /s/ Dean Baker | | Director | | March 28, 202226, 2024 | | Dean Baker | | | | | | | | | | | /s/ Alexandra Larson | | Director | | March 26, 2024 | | Alexandra Larson | | | | | | | | | | | /s/ Alexandra LarsonDaniel Bradbury | | Director | | March 28, 202226, 2024 | Alexandra LarsonDaniel Bradbury | | | | | | | | | |
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM BPM LLP To the Board of Directors and Stockholders of Second SightVivani Medical, Products, Inc. and Subsidiary
Walnut Creek, California Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Second SightVivani Medical, Products, Inc. and Subsidiarysubsidiaries (the “Company”) as of December 31, 2021,2023 and 2022 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, (deficit), and cash flows, for each of the yeartwo years in the period ended December 31, 2021,2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021,2023 and 2022, and the results of their operations and their cash flows for each of the yeartwo years in the period ended December 31, 2021,2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit 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 consolidated 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ BPM LLP
We have served as the Company’s auditor since 2014. Santa Monica, California
March 28, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Second Sight Medical Products, Inc. and Subsidiary
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Second Sight Medical Products, Inc. and Subsidiary (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows, for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit 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 consolidated 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Going Concern
The consolidated financial statements as of and for the year ended December 31, 2020 have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 1 to the financial statements included in the Form 10-K filed on March 16, 2021, the Company is subject to the risks and uncertainties associated with a business with one product line and limited revenues. The Company has incurred significant operating losses and negative operating cash flows from operations since inception. The Company’s continued operations are dependent upon its ability to raise additional funds through equity or debt financing. There can be no assurances that the Company will be able to secure any such additional financing on acceptable terms and conditions, or at all. These conditions raised substantial doubt about the Company’s ability to continue as a going concern as of December 31, 2020. Management’s plans in regard to these matters are also described in Note 1 to the financial statements included in the Form 10-K filed on March 16, 2021. The consolidated financial statements as of and for the year ended December 31, 2020 do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Gumbiner Savett Inc.
We have served as the Company’s auditor since 2014
Santa Monica, California
March 16, 2021
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Consolidated Balance SheetsWalnut Creek, California
(In thousands)March 26, 2024
| | | | | | | | | | | | | December 31, | | | | | 2021 | | | 2020 | | | ASSETS | | | | | | | | | | Current assets: | | | | | | | | | | Cash and cash equivalents | | $ | 69,593 | | | $ | 3,177 | | | Prepaid expenses and other current assets | | | 914 | | | | 1,092 | | | Total current assets | | | 70,507 | | | | 4,269 | | | | | | | | | | | | | Property and equipment, net | | | 117 | | | | 174 | | | Right-of-use asset | | | 228 | | | | — | | | Deposits and other assets | | | 27 | | | | 17 | | | | | | | | | | | | | Total assets | | $ | 70,879 | | | $ | 4,460 | | | LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | | Current liabilities: | | | | | | | | | | Accounts payable | | $ | 519 | | | $ | 486 | | | Accrued expenses | | | 548 | | | | 1,210 | | | Accrued compensation expense | | | 748 | | | | 173 | | | Accrued clinical trial and grant expenses | | | 462 | | | | 1,063 | | | Current operating lease liabilities | | | 185 | | | | — | | | Current debt | | | — | | | | 2,200 | | | Total current liabilities | | | 2,462 | | | | 5,132 | | | | | | | | | | | | | Long term operating lease liabilities | | | 52 | | | | — | | | Total liabilities | | | 2,514 | | | | 5,132 | | | | | | | | | | | | | Commitments and contingencies (Note 13) | | | | | | | | | | | | | | | | | | | | Stockholders’ equity (deficit): | | | | | | | | | | Preferred stock, 0 par value, 10,000 shares authorized; NaN outstanding | | | — | | | | — | | | Common stock, 0 par value; 300,000 shares authorized; shares issued and outstanding: 39,409 and 23,214 at December 31, 2021 and December 31, 2020, respectively | | | 347,940 | | | | 270,126 | | | Additional paid-in capital | | | 49,389 | | | | 49,314 | | | Accumulated other comprehensive loss | | | (379 | ) | | | (448 | ) | | Accumulated deficit | | | (328,585 | ) | | | (319,664 | ) | | Total stockholders’ equity (deficit) | | | 68,365 | | | | (672 | ) | | | | | | | | | | | | Total liabilities and stockholders’ equity (deficit) | | $ | 70,879 | | | $ | 4,460 | |
See accompanying notes to consolidated financial statements.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES Consolidated Statements of OperationsBalance Sheets (In thousands, except per share data) | | | | | | | | | | | | | Years Ended December 31, | | | | | 2021 | | | 2020 | | | Net sales | | $ | — | | | $ | — | | | Cost of sales | | | (130) | | | | (500) | | | Gross profit | | | 130 | | | | 500 | | | Operating expenses: | | | | | | | | | | Research and development, net of grants | | | 2,370 | | | | 4,836 | | | Clinical and regulatory, net of grants | | | 378 | | | | 1,687 | | | Selling and marketing | | | — | | | | 701 | | | General and administrative | | | 6,315 | | | | 5,943 | | | Restructuring charges | | | — | | | | 2,229 | | | Total operating expenses | | | 9,063 | | | | 15,396 | | | Loss from operations | | | (8,933 | ) | | | (14,896 | ) | | Interest income | | | 12 | | | | 16 | | | Net loss | | $ | (8,921 | ) | | $ | (14,880 | ) | | Net loss per common share – basic and diluted | | $ | (0.27 | ) | | $ | (0.72 | ) | | Weighted average shares outstanding – basic and diluted | | | 32,817 | | | | 20,575 | |
| | | | | | | | | | | | December 31, | | | | | 2023 | | | 2022 | | | ASSETS | | | | | | | | Current assets: | | | | | | | | | | Cash and cash equivalents | | $ | 20,654 | | | $ | 45,076 | | | Prepaid expenses and other current assets | | | 2,408 | | | | 2,452 | | | Total current assets | | | 23,062 | | | | 47,528 | | | Property and equipment, net | | | 1,729 | | | | 1,182 | | | Right-of-use assets | | | 19,616 | | | | 779 | | | Restricted cash | | | 1,338 | | | | 1,366 | | | Deposits and other assets | | | 52 | | | | 275 | | | Total assets | | $ | 45,797 | | | $ | 51,130 | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | Current liabilities: | | | | | | | | | | Accounts payable | | $ | 542 | | | $ | 1,177 | | | Accrued expenses | | | 1,727 | | | | 2,358 | | | Litigation accrual | | | 1,675 | | | | 1,675 | | | Accrued compensation expense | | | 396 | | | | 657 | | | Current operating lease liabilities | | | 1,383 | | | | 955 | | | Total current liabilities | | | 5,723 | | | | 6,822 | | | Long-term operating lease liabilities | | | 19,313 | | | | — | | | Total liabilities | | | 25,036 | | | | 6,822 | | | Commitments and contingencies (Note 12) | | | | | | | | | | Stockholders’ equity: | | | | | | | | | | Preferred stock, par value $0.0001 per share; 10,000 shares authorized; none outstanding | | | — | | | | — | | | Common stock, par value $0.0001 per share; 300,000 shares authorized; shares issued and outstanding: 51,031 and 50,736 as of December 31, 2023 and December 31, 2022, respectively | | | 5 | | | | 5 | | | Additional paid-in capital | | | 119,054 | | | | 117,054 | | | Accumulated other comprehensive gain | | | 140 | | | | 35 | | | Accumulated deficit | | | (98,438 | ) | | | (72,786 | ) | | Total stockholders’ equity | | | 20,761 | | | | 44,308 | | | Total liabilities and stockholders’ equity | | $ | 45,797 | | | $ | 51,130 | |
See accompanying notes to consolidated financial statements. VIVANI MEDICAL, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share data) | | | | | | | | | | | | Year Ended December 31, | | | | | 2023 | | | 2022 | | | Operating expenses: | | | | | | | | | | Research and development, net of grants | | $ | 16,968 | | | $ | 14,169 | | | General and administrative, net of grants | | | 9,997 | | | | 7,072 | | | Total operating expenses | | | 26,965 | | | | 21,241 | | | Loss from operations | | | (26,965 | ) | | | (21,241 | ) | | Other income (expense), net | | | 1,313 | | | | 7,352 | | | Net loss | | $ | (25,652 | ) | | $ | (13,889 | ) | | Net loss per common share - basic and diluted | | $ | (0.50 | ) | | $ | (0.36 | ) | | Weighted average shares outstanding - basic and diluted | | | 50,853 | | | | 38,241 | |
See accompanying notes to consolidated financial statements. VIVANI MEDICAL, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Loss (In thousands) | | | | | | | | | | | | Year Ended December 31, | | | | | 2023 | | | 2022 | | | Net loss | | $ | (25,652 | ) | | $ | (13,889 | ) | | Other comprehensive income: | | | | | | | | | | Foreign currency translation adjustments | | | 105 | | | | 35 | | | Comprehensive loss | | $ | (25,547 | ) | | $ | (13,854 | ) |
See accompanying notes to consolidated financial statements. VIVANI MEDICAL, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (in thousands) | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | Additional | | | Other | | | | | | Total | | | | | Common Stock | | | Paid-in | | | Comprehensive | | | Accumulated | | | Stockholders’ | | | | | Shares | | | Amount | | | Capital | | | Gain | | | Deficit | | | Equity | | | Balance, January 1, 2022 | | | 36,803 | | | $ | 4 | | | $ | 61,358 | | | $ | — | | | $ | (58,897 | ) | | $ | 2,465 | | | Options and warrants exercised, net of partial shares adjustment | | | 797 | | | | — | | | | 16 | | | | — | | | | — | | | | 16 | | | Shares issued for SSMP net assets | | | 13,136 | | | | 1 | | | | 54,384 | | | | — | | | | — | | | | 54,385 | | | Stock-based compensation expense | | | — | | | | — | | | | 1,296 | | | | — | | | | — | | | | 1,296 | | | Foreign currency translation adjustments | | | — | | | | — | | | | — | | | | 35 | | | | — | | | | 35 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | (13,889 | ) | | | (13,889 | ) | | Balance, December 31, 2022 | | | 50,736 | | | $ | 5 | | | $ | 117,054 | | | $ | 35 | | | $ | (72,786 | ) | | $ | 44,308 | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | Additional | | | Other | | | | | | Total | | | | | Common Stock | | | Paid-in | | | Comprehensive | | | Accumulated | | | Stockholders’ | | | | | Shares | | | Amount | | | Capital | | | Gain | | | Deficit | | | Equity | | | Balance, January 1, 2023 | | | 50,736 | | | $ | 5 | | | $ | 117,054 | | | $ | 35 | | | $ | (72,786 | ) | | $ | 44,308 | | | Option exercises | | | 295 | | | | — | | | | 136 | | | | — | | | | — | | | | 136 | | | Stock-based compensation expense | | | — | | | | — | | | | 1,864 | | | | — | | | | — | | | | 1,864 | | | Foreign currency translation adjustments | | | — | | | | — | | | | — | | | | 105 | | | | — | | | | 105 | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | (25,652 | ) | | | (25,652 | ) | | Balance, December 31, 2023 | | | 51,031 | | | $ | 5 | | | $ | 119,054 | | | $ | 140 | | | $ | (98,438 | ) | | $ | 20,761 | |
See accompanying notes to consolidated financial statements.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES Consolidated Statements of Comprehensive LossCash Flows (In thousands)
| | | | | | | | | | | | Years Ended December 31, | | | | | 2021 | | | 2020 | | | Net loss | | $ | (8,921 | ) | | $ | (14,880 | ) | | Other comprehensive income: | | | | | | | | | | Foreign currency translation adjustments | | | 69 | | | | 114 | | | Comprehensive loss | | $ | (8,852 | ) | | $ | (14,766 | ) |
See accompanying notes to consolidated financial statements.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands) | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | Additional | | | Other | | | | | | Total | | | | | Common Stock | | | Paid-in | | | Comprehensive | | | Accumulated | | | Stockholders’ | | | | | Shares | | | Amount | | | Capital | | | Loss | | | Deficit | | | Equity(Deficit) | | | Balance, December 31, 2019 | | | 15,643 | | | $ | 264,008 | | | $ | 48,613 | | | $ | (562 | ) | | $ | (304,784 | ) | | $ | 7,275 | | | Repurchase of fractional shares in connection with reverse stock split | | | (2 | ) | | | (11 | ) | | | — | | | | — | | | | — | | | | (11 | ) | | Issuance of common stock and warrants in connection with rights offering, net of issuance costs | | | 7,500 | | | | 6,393 | | | | 280 | | | | — | | | | — | | | | 6,673 | | | Issuance of common stock in connection with ATM | | | 1 | | | | 6 | | | | — | | | | — | | | | — | | | | 6 | | | Stock-based compensation expense | | | — | | | | — | | | | 421 | | | | — | | | | — | | | | 421 | | | Repurchase of ESPP shares as part of a rescission offer | | | (39 | ) | | | (270 | ) | | | — | | | | — | | | | — | | | | (270 | ) | | Cash-less exercise of underwriter’s warrants | | | 96 | | | | — | | | | — | | | | — | | | | — | | | | — | | | Release of restricted stock units | | | 15 | | | | — | | | | — | | | | — | | | | — | | | | — | | | Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | (14,880 | ) | | | (14,880 | ) | | Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | 114 | | | | — | | | | 114 | | | Comprehensive loss | | | — | | | | — | | | | — | | | | 114 | | | | (14,880 | ) | | | (14,766 | ) | | Balance, December 31, 2020 | | | 23,214 | | | | 270,126 | | | | 49,314 | | | | (448 | ) | | | (319,664 | ) | | | (672 | ) | | Issuance of common stock, net of issuance costs | | | 16,150 | | | | 77,789 | | | | — | | | | — | | | | — | | | | 77,789 | | | Stock-based compensation expense | | | — | | | | — | | | | 75 | | | | — | | | | — | | | | 75 | | | Exercise of underwriter’s warrants | | | 45 | | | | 25 | | | | — | | | | — | | | | — | | | | 25 | | | Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | — | | | | — | | | | — | | | | — | | | | (8,921 | ) | | | (8,921 | ) | | Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | 69 | | | | — | | | | 69 | | | Comprehensive loss | | | — | | | | — | | | | — | | | | 69 | | | | (8,921 | ) | | | (8,852 | ) | | Balance, December 31, 2021 | | | 39,409 | | | $ | 347,940 | | | $ | 49,389 | | | $ | (379 | ) | | $ | (328,585 | ) | | $ | 68,365 | |
| | | | | | | | | | | | Year Ended December 31, | | | | | 2023 | | | 2022 | | | Cash flows from operating activities: | | | | | | | | | | Net loss | | $ | (25,652 | ) | | $ | (13,889 | ) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | Depreciation and amortization of property and equipment | | | 357 | | | | 381 | | | Stock-based compensation | | | 1,864 | | | | 1,296 | | | Loss on disposal of fixed assets | | | 121 | | | | — | | | Non-cash lease expense | | | 904 | | | | (36 | ) | | Gain on bargain purchase | | | — | | | | (6,877 | ) | | Changes in operating assets and liabilities: | | | | | | | | | | Prepaid expenses and other assets | | | 264 | | | | (476 | ) | | Accounts payable | | | (602 | ) | | | (1,941 | ) | | Accrued compensation expenses | | | (261 | ) | | | 204 | | | Accrued expenses | | | (694 | ) | | | 2,551 | | | Net cash used in operating activities | | | (23,699 | ) | | | (18,787 | ) | | Cash flows from investing activities: | | | | | | | | | | Purchases of property and equipment | | | (887 | ) | | | (338 | ) | | Net cash used in investing activities | | | (887 | ) | | | (338 | ) | | Cash flows from financing activities: | | | | | | | | | | Cash acquired in merger for stock consideration | | | — | | | | 55,374 | | | Proceeds from SAFE note | | | — | | | | 8,000 | | | Proceeds from sale of common stock and exercise of options | | | 133 | | | | 16 | | | Net cash provided by financing activities | | | 133 | | | | 63,390 | | | Effect of exchange rate changes on cash and cash equivalents | | | 3 | | | | (1 | ) | | Cash, cash equivalents and restricted cash: | | | | | | | | | | Net (decrease) increase | | | (24,450 | ) | | | 44,264 | | | Balance at beginning of year | | | 46,442 | | | | 2,178 | | | Balance at end of year | | $ | 21,992 | | | $ | 46,442 | | | | | | | | | | | | | Supplemental disclosure of cash flow information: | | | | | | | | | | Cash paid during the period for: | | | | | | | | | | Income taxes | | $ | 1 | | | $ | — | | | Non-cash investing and financing activities: | | | | | | | | | | Establishment of operating right-of-use assets through operating lease obligations | | $ | 20,755 | | | $ | — | | | Cancellation of SAFE indebtedness in merger | | $ | — | | | $ | 8,000 | | | Net liabilities acquired in merger for stock consideration | | $ | — | | | $ | 2,112 | | | Receivables for cash in-transit on exercise of common stock under equity incentive plan | | $ | 3 | | | $ | — | | | Purchase of property and equipment in accrued expenses | | $ | 132 | | | $ | — | |
See accompanying notes to consolidated financial statements.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES Consolidated Statements of Cash Flows
(In thousands)
| | | | | | | | | | | | | Years Ended December 31, | | | | | 2021 | | | 2020 | | | Cash flows from operating activities: | | | | | | | | | | Net loss | | $ | (8,921 | ) | | $ | (14,880 | ) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | Depreciation and amortization of property and equipment | | | 70 | | | | 164 | | | Stock-based compensation | | | 75 | | | | 421 | | | Non-cash lease expense | | | 9 | | | | 3 | | | Restructuring charges-inventory impairment | | | — | | | | 1,214 | | | Changes in operating assets and liabilities: | | | | | | | | | | Accounts receivable | | | — | | | | 461 | | | Inventories | | | — | | | | 529 | | | Prepaid expenses and other assets | | | 168 | | | | (785 | ) | | Accounts payable | | | 63 | | | | (1,051 | ) | | Accrued expenses | | | (625 | ) | | | (731 | ) | | Accrued compensation expenses | | | 574 | | | | (2,524 | ) | | Accrued clinical trial and grant expenses | | | (601 | ) | | | 357 | | | Net cash used in operating activities | | | (9,188 | ) | | | (16,822 | ) | | Cash flows from investing activities: | | | | | | | | | | Purchases of property and equipment | | | (14 | ) | | | (330 | ) | | Sale of assets held for sale | | | — | | | | 398 | | | Net cash provided by (used) in investing activities | | | (14 | ) | | | 68 | | | Cash flows from financing activities: | | | | | | | | | | Net proceeds from sale of common stock | | | 77,789 | | | | 6,679 | | | Repurchase of ESPP shares and fractional shares in connection with reverse stock split | | | — | | | | (281 | ) | | Debt financing (repayment) | | | (2,200 | ) | | | 2,200 | | | Proceeds from exercise of options, warrants and employee stock purchase plan options | | | 25 | | | | — | | | Net cash provided by financing activities | | | 75,616 | | | | 8,598 | | | Effect of exchange rate changes on cash and cash equivalents | | | 2 | | | | 6 | | | Cash and cash equivalents: | | | | | | | | | | Net Increase (decrease) | | | 66,416 | | | | (8,150 | ) | | Balance at beginning of year | | | 3,177 | | | | 11,327 | | | Balance at end of year | | $ | 69,593 | | | $ | 3,177 | | | | | | | | | | | | | Supplemental disclosure of cash flow information; | | | | | | | | | | Cash paid during the period for: | | | | | | | | | | Interest | | $ | 135 | | | $ | - | | | Non-cash financing activities: | | | | | | | | | | Fair value of warrants issued in connection with issuance of common stock | | $ | - | | | $ | 280 | |
See accompanying notes to consolidated financial statements.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Organization and Business Operations
Second SightVivani Medical, Products, Inc. (“Second Sight,Vivani,” the “Company,” “we,” “us,” “our” or similar terms) is a preclinical stage biopharmaceutical company which develops miniaturized, subdermal implants utilizing its proprietary NanoPortal™ technology to enable long-term, near constant-rate delivery of a broad range of medicines to treat chronic diseases. Vivani uses this platform technology to develop and potentially commercialize drug implant candidates, alone or in collaboration with pharmaceutical company partners to address a leading cause of poor clinical outcomes in the treatment of chronic disease, medication non-adherence. According to the US Centers for Disease Control and Prevention (“CDC”), adherence is defined as the extent to which an individual’s behavior, including taking medications, corresponds to recommendations from a health care provider. For example, approximately 50% of patients treated for type 2 diabetes are medication non-adherent, which can lead to poor clinical outcomes. We are developing a portfolio of miniature, sub-dermal drug implant candidates that, unlike most oral and injectable medicines, are designed with the goal of guaranteeing medication adherence by delivering therapeutic drug levels for up to 6 months or longer. In addition, our aim is to minimize fluctuations in patients’ drug levels through the use of our NanoPortal technology, which may improve the tolerability profiles for medicines that produce side effects associated with fluctuating drug levels in the blood.
In February 2022, we announced the signing of a definitive merger agreement between Nano Precision Medical, Inc. (“NPM”) and Second Sight Medical Products, Inc. (“Second Sight” or “SSMP”), pursuant to which NPM became a wholly-owned subsidiary of Second Sight. On August 30, 2022, the merger closed and the combined company of NPM and Second Sight was incorporatedrenamed Vivani Medical, Inc. In December 2022, we contributed our neuromodulation assets and certain liabilities to Cortigent, Inc. (“Cortigent”) a newly formed corporation in Delaware, and wholly-owned subsidiary of Vivani, in exchange for 20,000,000 shares of common stock of Cortigent. As of December 31, 2023, after giving effect to a 1-for-4 reverse stock split that we implemented, Cortigent had 5,000,000 shares of common stock outstanding, all owned by Vivani. While the primary focus of Vivani is to develop and ultimately commercialize our drug implant business from legacy company NPM, Vivani’s management team remains committed to identifying and exploring strategic options for the further advancement of the neuromodulation business of Cortigent which includes the development of its pioneering neurostimulation systems to help patients recover critical body functions. In March 2023, Vivani announced the filing of a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) for the proposed initial public offering of Cortigent. Cortigent, currently a wholly-owned subsidiary of Vivani, was formed for the purpose of advancing the Company’s pioneering neurostimulation technology. The Registration Statement on Form S-1 was recently amended and filed with the SEC in February 2024 to refresh the financial information and provide minor updates to the business. On July 6, 2023, Vivani changed its state of incorporation from the State of California in 2003. We develop, manufactureto the State of Delaware by means of a plan of conversion, effective July 5, 2023. The reincorporation, including the principal terms of the plan of conversion, was submitted to a vote of, and market implantable visual prosthetics that are intended to deliver useful artificial vision to blind individuals. We areapproved by, Vivani’s stockholders at its 2023 Annual Meeting of Stockholders held on June 15, 2023. As part of this change of incorporation the Company established a recognized global leader in neuromodulation devices for blindnesspar value of $0.0001 per share and are committed to developing new technologies to treat the broadest population of sight-impaired individuals.
In 2007, Second Sight formed Second Sight (Switzerland) Sàrl, initially to manage clinical trials for its products in Europe, and later to manage sales and marketing in Europe, the Middle East and Asia Pacific. As the laws of Switzerland require at least two corporate stockholders, Second Sight (Switzerland) Sàrl is 99.5% owned directly by us and 0.5% owned by an executive of Second Sight, who is acting as our nominee. Accordingly, Second Sight (Switzerland) Sàrl, is considered 100% owned for financial statement purposes and is consolidated with Second Sight for all periods presented.have been retroactively adjusted to reflect this change.
We are currently developingAn Investigational New Drug Application (“IND”) for NPM-119 (GLP-1 implant) was filed with the Orion® Visual Cortical Prosthesis System (“Orion”), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due to a wide range of causes, including glaucoma, diabetic retinopathy, optic nerve injury or disease, or forms of cancer and trauma. A feasibility study of the Orion device is currently underway at the Ronald Reagan UCLA Medical Center in Los Angeles (“UCLA”) and Baylor College of Medicine in Houston (“Baylor”).
Our commercially approved product, the Argus® II retinal prosthesis system (“Argus II”), entered clinical trials in 2006, received CE Mark approval for marketing and sales in the European Union (“EU”) in 2011, and received approval by the United StatesU.S. Food and Drug Administration (“FDA”) on July 14, 2023, to support the initiation of the first-in-human study of NPM-119 in patients with type 2 diabetes, also named LIBERATE-1™. On August 18, 2023, FDA provided written notification that the LIBERATE-1 study was on full clinical hold, primarily due to insufficient Chemistry, Manufacturing, and Controls (“CMC”) information to assess the risk to human subjects. Vivani remains actively engaged in discussions with FDA as part of its efforts to lift the clinical hold and plans to submit a Complete Response to the FDA during the first half of 2024.
On August 25, 2023, the Company and Cortigent entered into an Amendment 1 (the “Amendment”) to the Transition Funding, Support and Services Agreement dated March 19, 2023 (the “TFSSA”). Pursuant to the TFSSA, the Company has agreed to advance funds and provide or cause to be provided to Cortigent the services and funding intended to cover salaries and related costs, rent and other overhead in order to permit Cortigent to operate in substantially the same manner in which business operations of Cortigent were previously operated by Second Sight Medical Products, Inc., prior to the formation of Cortigent, which obligations will continue, in the case of the funding obligations, until the earlier of December 31, 2024 or the closing of an initial public offering of Cortigent (the “Funding Support Term”). Under the Amendment, Cortigent has agreed to repay $1,500,000 to the Company at the conclusion of the Funding Support Term. In addition, at the conclusion of the Funding Support Term, Cortigent will enter into a five-year promissory note at 5% interest for marketing$2,000,000 in favor of the Company. The Company will forgive any remaining amounts due by Cortigent to the Company under the TFSSA. In October 2023, Vivani implemented a reduction-in-force to conserve cash that decreased Cortigent’s employees from 14 to 7 while continuing the ongoing Orion® clinical study and salesbasic operations.
In the fourth quarter of 2023, Vivani Medical Australia Pty Ltd., a wholly-owned subsidiary in Australia was established to support studies of our products and product candidates. In February 2024, Vivani announced positive NPM-115 preclinical weight loss data comparable to semaglutide, the active ingredient in Ozempic®/Wegovy®, and disclosed NPM-139 as a semaglutide implant as our strategy shifted to prioritize our obesity portfolio. In a study in high-fat diet-induced obese mice, NPM-115 generated weight loss of approximately 20% compared to a sham implant control after a 28-day treatment duration, comparable to weight loss observed in mice treated with semaglutide injections (Ozempic®/Wegovy®) in the same study. The Company also disclosed that semaglutide is the active pharmaceutical ingredient in NPM-139, a miniature, subdermal GLP-1 implant in development for chronic weight management, with the added potential benefit of once-yearly administration. Agreement and Plan of Merger with Nano Precision Medical, Inc. On February 4, 2022, Second Sight entered into an agreement and plan of merger (the “Merger Agreement”) with NPM. The Merger was approved by the shareholders of Second Sight on July 27, 2022 and closed on August 30, 2022. Upon consummation of the Merger, NPM became a wholly-owned subsidiary of Second Sight. Concurrent with to the Merger, Second Sight changed its name to Vivani Medical, Inc. and changed its trading symbol from EYES to VANI, and trades under the ticker VANI on the NASDAQ market. Certain investors and members of the NPM board of directors are also investors and members of the board of directors of Second Sight. Under the terms and conditions of the Merger Agreement, the securities of NPM converted into the right to receive shares of Second Sight’s common stock representing 77.32% of the total issued and outstanding shares of common stock of Second Sight on a fully converted basis, including, without limitation, giving effect to the conversion of all options, warrants, and any and all other convertible securities assuming net settlement. Second Sight filed a Registration Statement on Form S-4 on May 13, 2022, in connection with the Merger to register the merger shares effective June 24, 2022.
On February 4, 2022, in connection with the Merger, Second Sight and NPM also entered into a Simple Agreement for Future Equity (“SAFE”) whereby Second Sight provided to NPM an investment advance of $8 million. The Merger Agreement provided that the SAFE would terminate if the Merger were to be successfully completed. Under the terms of the SAFE, upon successfully completion of the Merger on August 30, 2022, the investment advance was eliminated. Under the accounting for a business combination, the $8 million adjusted the purchase consideration. The Merger involved a change of control and was accounted for as a reverse merger in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method of accounting, Second Sight was treated as the “acquired” company for financial reporting purposes with NPM as the acquirer. The assets acquired and liabilities assumed by NPM were recorded at fair value under Accounting Codification Standard (“ASC”) 805, Business Combinations. Accordingly, on August 30, 2022 (the “Acquisition Date”), NPM (a calendar year-end entity) was deemed to have acquired 100% of the outstanding common shares and voting interest of Second Sight. The results of Second Sight’s operations have been included in 2013. We began selling the Argus II in Europeconsolidated financial statements since that date. The acquisition-date fair value of consideration transferred totaled $54.4 million, which consisted of the fair value of the 13,136,000 shares of common stock deemed issued to Second Sight shareholders, valued at the endclosing price per share on the acquisition date of 2011, Saudi Arabia$4.14. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands): | At August 30, 2022 | | | | | | | | | | Cash | | $ | 55,374 | | | Property and equipment | | | 99 | | | Prepaid expenses | | | 1,657 | | | Right of use assets | | | 140 | | | Other assets | | | 56 | | | Total identifiable assets acquired | | | 57,326 | | | Current liabilities | | | (3,913 | ) | | Right of use liabilities | | | (151 | ) | | Total liabilities assumed | | | 4,064 | | | Net identifiable assets acquired | | $ | 53,262 | |
The SAFE loan of $8.0 million was cancelled in 2012, the United States and CanadaMerger which adjusted the fair value of net assets acquired. The following table summarizes the calculation of the gain on bargain purchase (in thousands) recorded in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we have made the decision to maximize capital efficiency by ceasing the production and sales of our Argus commercial and clinical activities and increase our investment of resources with our Orion clinical and R&D programs.year ended December 31, 2022:
| | | | | | | Total consideration | | $ | 54,385 | | | SAFE loan forgiven | | | (8,000 | ) | | Less net identifiable assets acquired | | | (53,262 | ) | | Gain on bargain purchase | | $ | 6,877 | |
Because NPM purchased 100% of Second Sight and the fair value of identifiable assets acquired and liabilities assumed exceeded the fair value of the consideration, we reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that all acquired assets and assumed liabilities were properly recognized and that the valuation procedures and resulting measures were appropriate. As a result, we recognized a gain of $6.9 million in the year ended December 31, 2022.
We recognized $0.7 million of acquisition related costs that were expensed in the twelve months ended December 31, 2022. These costs are included in the consolidated income statement in the line item entitled “General and administrative.” Operating expenses of Second Sight included in the consolidated statements of operations from the acquisition date August 30, 2022 to the period ending December 30, 2022 were $2.1 million. Pro forma consolidated net loss as if Second Sight had been included in the consolidated results was $28.3 million for the year ended December 31, 2022. SAFE On February 4, 2022, in connection with the Merger, Second Sight and NPM also entered into a Simple Agreement for Future Equity (“SAFE”) whereby Second Sight provided to NPM an investment advance of $8 million. The agreement provided that the SAFE would terminate if the Merger were to be successfully completed. Under the terms of the SAFE, upon successfully completion of the Merger on August 30, 2022, the investment advance was eliminated. Under the accounting for a business combination, the $8.0 million adjusted the purchase consideration. Liquidity and Capital Resources
From inception, our operations have been funded primarily through the sales of our common stock as well as from research and clinical grants. Funding of our business since 2020 has been primarily provided by:warrants.
| ● | On June 25, 2021, we closed an underwritten public offering of 11,500,000 shares of common stock at a price of $5.00 per share for aggregate net proceeds of $53.3 million |
| ● | On March 23, 2021, we closed our private placement to seven institutional investors of 4,650,000 shares of common stock at a price of $6.00 per share for aggregate net proceeds of approximately $24.5 million |
| ● | On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.7 million |
| ● | On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. Each promissory note was unsecured and accrued interest at a rate of twelve percent (12%) per annum beginning on receipt of the loan amounts. We repaid the principal and accrued interest during the quarter ended June 30, 2021. |
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We are subject to the risks and uncertainties associated with a business with no revenue that is developing novel medical devices, including limitations on our operating capital resources. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future.
On March 1, 2024, the Company entered into a Securities Purchase Agreement with an institutional investor relating to the issuance of 3,947,368 shares of the Company’s common stock, par value of $0.0001 per share and warrants to purchase up to an aggregate of 3,947,368 shares of Common Stock (the “Warrant”), to such investor at a purchase price of $3.80 per share and accompanying warrant in a registered direct offering (the “Offering”). The Warrant has an exercise price of $3.80 per share, is exercisable immediately upon issuance and will expire three years following the date of issuance. The Company also entered into a Placement Agency Agreement with Maxim Group LLC, who acted as the sole placement agent for the Offering. The gross proceeds of approximately $15.0 million from the Offering, before paying the placement agent fees and other estimated offering expenses, was received on March 5, 2024. For additional information, refer to Note 13. Subsequent Event of the Notes to Consolidated Financial Statements.
We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations for at least twenty-four months.into the second half of 2025. Our ability to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our business initiatives and/or raise additional capital, however, there can be no assurances that we will be able to do so.
2. Summary of Significant Accounting
Policies Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and include the financial statements of the Biopharm Division (formerly NPM) and the Neuromodulation Division (operated as Cortigent, Inc. and formerly Second Sight andincluding Second Sight Switzerland. Switzerland) each of which is a reporting segment. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. We base our estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in accruals for potential liabilities, valuing equity instruments and stock-based compensation, and the realization of deferred tax assets. Actual results could differ from those estimatesestimates.
Reclassifications
Certain items in prior period financial statements have been reclassified to conform to the presentation in the current period financial statements. Such reclassification did not impact our previously reported net loss on financial position.
Cash, and Cash Equivalents and Restricted Cash
We consider all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash is carried at cost, which approximates fair value, and cash equivalents are carried at fair value. We generally invest funds that are in excess of current needs in high credit quality instruments such as money market funds. As of December 31, 2023 and 2022 restricted cash of $1.3 million and $1.4 million, respectively, relates to a letter of credit as a condition of our facilities lease guarantee requirements and is classified as long-term restricted cash on the consolidated balance sheets.
PPropertyroperty and Equipment
Property and equipment are recorded at historical cost less accumulated depreciation and amortization. Improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation. The resulting gains and losses are reflected in the consolidated statements of operations.
Depreciation is provided for using the straight-line method in amounts sufficient to relate the cost of assets to operations over their estimated service lives. Leasehold improvements are amortized over the shorter of the life of the asset or the related lease term. Estimated useful lives of the principal classes of assets are as follows:
Schedule of Estimated Useful Livesestimated useful lives of Principal Classesprincipal classes of Assets assets | Lab equipment | 5 | – 7 years | | Computer hardware and software |
3 | – 7years | | Leasehold improvements | 2 | – 5 years or the term of the lease, if shorter | | Furniture, fixtures and equipment | 5 | – 10 years |
We review our property and equipment for impairment annually or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. As a result of our decision to cease marketing of Argus II we recorded an impairment of $0.7 million related to our property and equipment used primarily for Argus activities. We sold a substantial number of our property and equipment for net proceeds of $0.4 million in July 2020.
Depreciation and amortization of property and equipment amounted to $0.10.4 million and $0.20.4 million for the years ended December 31, 20212023 and 2020,2022, respectively. Leases Leases are accounted for under FASB ASC 842, Leases (“ASC 842”). Under ASC 842, the Company determines if an arrangement contains a lease at inception. Right of use assets (“ROU assets”) represent the right to use an underlying asset for the lease term while lease liabilities represent the obligation to make lease payments for the lease term. Leases are then classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations and comprehensive loss. All leases greater than 12 months result in the recognition of a ROU asset and liability at the lease commencement date based on the present value of the lease payments over the lease term. The present value of the lease payments is calculated using the applicable weighted-average discount rate. The weighted-average discount rate is based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, the applicable incremental borrowing rate is estimated. The incremental borrowing rate is estimated using the currency denomination of the lease, the contractual lease term and the Company’s applicable borrowing rate. To determine the incremental borrowing rate, reference is made to interest rates that would be available to finance assets similar to the assets under lease in their related geographical location.
The Company has elected not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with a lease as a single lease component. It also elected to exempt from capitalization all leases with an initial term of 12 months or less.
Certain leases include one or more options to renew with renewal terms that can extend the lease term. The exercise of the lease renewal options is at the Company’s discretion and are included in the determination of the ROU asset and lease liability when the option is reasonably certain of being exercised. Research and Development
Research and development costs are charged to operations in the period incurred and amounted to $2.417.0 million, and $4.814.2 million, net of grant revenue, for the years ended December 31, 20212023 and 2020,2022, respectively.
Patent Costs
Due to the uncertainty associated with the successful development of one or more commercially viable products based on our research efforts and any related patent applications, all patent costs, including patent-related legal, filing fees and other costs, including internally generated costs, are expensed as incurred. Patent costs were $0.40.3 million and $0.20.4 million for the years ended December 31, 20212023 and 2020,2022, respectively, and are included in general and administrative expenses in the consolidated statements of operations.
NIH Grant
From time to time, we receive grants that help fund specific development programs. Any amounts received pursuant to grants are offset against the related operating expenses as the costs are incurred. During the yearsyear ended December 31, 2021 and 20202023 grants offset against operating expenses were $1.40.5 million, of which $0.4 million were offset against research and development expenses, and $1.30.1 million were offset against general and administrative expenses. During the year ended December 31, 2022 grants offset against operating expenses were $0.5 million, respectively.of which $0.4 million were offset against research and development expenses, and $0.1 million were offset against general and administrative expenses.
Concentration of Credit Risk
Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of cash and money market funds. We maintain cash and money market funds with financial institutions that management deems credit worthy, and at times, cash balances may be in excess of FDIC and SIPC insurance limits of $250,000 and $500,000 (including cash of $250,000), respectively.
We also maintain cash at a bank in Switzerland. Accounts at said bank are insured up to an amount specified by the deposit insurance agency of Switzerland.
Foreign Operations
The accompanying consolidated financial statements as of December 31, 20212023 and 20202022 include assets amounting to approximately $30,00049,000 and $18,00040,000, respectively, relating to our operations in Switzerland. Unanticipated events in foreign countries could disrupt our operations and impair the value of these assets.
F Fairair Value of Financial Instruments
The authoritative guidance with respect to fair value establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.
Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that we have the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.
Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange basednon-exchange-based derivatives, mutual funds, and fair-value hedges.
Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-tradedinfrequently traded non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.
We determine the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, we perform an analysis of the assets and liabilities at each reporting period end.
Cash equivalents, which include money market funds, are the only financial instrument measured and recorded at fair value in assets or liabilities on our consolidated balance sheet, and they are valued using Level 1 inputs.
Stock-Based Compensation
Pursuant to FASB ASC 718 Share-Based Payment (“ASC 718”), we record stock-based compensation expense for all stock-based awards.
Under ASC 718, we estimate the fair value of stock options granted using the Black-Scholes option pricing model.models. The fair value for awards that are expected to vest is then amortized on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. The Company accounts for forfeitures as they occur.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. The assumptions used in the Black-Scholes valuation model are as follows:
| ● | The grant price of the issuances is determined based on the fair value of the shares at the date of grant. |
| ● | The risk freerisk-free interest rate for periods within the contractual life of the option is based on the U.S. treasury yield in effect at the time of grant. |
| ● | We calculate the expected term of options using a weighted average of option vesting periods and an estimate of one-half of the period between vesting and expiration of the option. |
| ● | Volatility is determined based on our average historical volatilities since our trading history, began in November 2014, supplemented with average historical volatilities of comparable companies in our similar industry. |
| ● | Expected dividend yield is based on current yield at the grant date or the average dividend yield over the historical period. We have never declared or paid dividends and have no plans to do so in the foreseeable future. |
For stock options or restricted stock units (“RSUs”) with market vesting conditions, the awards were valued using the Monte-Carlo Simulation model. Comprehensive Income or Loss
We comply with provisions of FASB ASC 220, Comprehensive Income, which requires companies to report all changes in equity during a period, except those resulting from investment by owners and distributions to owners, for the period in which they are recognized. Comprehensive income is defined as the change in equity during a period from transactions and other events from non-owner sources.
Comprehensive and other comprehensive income (loss)loss is reported on the face of the financial statements. For the yearsyear ended December 31, 20212023 and 20202022, comprehensive income (loss)loss is the total of net income (loss)loss and other comprehensive income (loss) which, for us, consists entirely of foreign currency translation adjustments and there were no material reclassifications from other comprehensive loss to net loss during the yearsyear ended December 31, 20212023 and 2020.2022.
Foreign Currency Translation and TransactionsTransaction Gains and Losses
The financial statements and transactions of the subsidiary’s operations are reported in the local (functional) currency of Swiss francs (CHF) and translated into U.S. dollars in accordance with U.S. GAAP. Assets and liabilities of those operations are translated at exchange rates in effect at the balance sheet date. The resulting gains and losses from translating foreign currency financial statements are recorded as other comprehensive income (loss).income. Revenues and expenses are translated at the average exchange rate for the reporting period. Foreign currency transaction gains (losses) resulting from exchange rate fluctuations on transactions denominated in a currency other than the foreign operations’ functional currencies are included in expenses in the consolidated statements of operations.
IIncomencome Taxes
We account for income taxes under an asset and liability approach for financial accounting and reporting for income taxes. Accordingly, we recognize deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made. We have incurred losses for tax purposes since inception and have significant tax losses and tax credit carryforwards.carry-forwards.
As of December 31, 2021, we had federal and state of California income tax net operating loss carryforwards, which may be applied to future taxable income, of approximately $124.3 million and $76.8 million, respectively. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until these unused losses expire. However, we may be unable to use these losses to offset taxable income before our unused losses expire at various dates that range from 2035 through 2037 for federal net operating losses generated before 2018. Federal net operating losses generated for year 2018 and forward do not expire. State net operating losses expire from 2033 through 2041. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss, or NOL, carryforwards to offset its post-change taxable income may be limited. Limitations may also apply to the utilization of other pre-change tax attributes as a result of an ownership change.
We experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the second quarter of 2017. The ownership change will subject our net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a tax-exempt interest rate specified by the Internal Revenue Service. We have analyzed the available information to determine the amount of the annual limitation. Based on information available us, the 2017 limitation is estimated to range between be $1.4 million and $3.7 million annually. In total, we estimate that the 2017 ownership change will result in approximately $120 million and $56 million of federal and state net operating loss carryforwards expiring unused.
Product Warranties
Our policy is to warrant all shipped products against defects in materials and workmanship for up to two years by replacing failed parts. We also provide a three-year manufacturer’s warranty covering implant failure by providing a functionally-equivalentfunctionally equivalent replacement implant. Accruals for product warranties are estimated based on historical warranty experience and current product performance trends and are recorded at the time revenue is recognized as a component of cost of sales. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. During 2021 and 2020, we reduced our warranty expense by $0.1 million and $0.5 million, respectively due to the discontinued sales of Argus II and the resultant end of the product warranty periods. The warranty liabilities are included in accrued expenses in the consolidated balance sheets.sheets was $0 as of December 31, 2023 and $50,000 as of December 31, 2022, respectively.
Net Loss per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to common shareholders divided by the weighted average number of shares of common sharesstock outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible notes payable, convertible preferred stock, common stock warrants and stock options) as if they had been converted at the beginning of the periods presented, or the issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
LossNet loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted loss per common share is the same for all periods presented because all common stock warrants and common stock options outstanding were anti-dilutive.
Schedule
As of Net Loss Per Share At December 31, 2021,2023 and 2020,2022, we excluded the outstanding securities summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from our calculation of earnings per share, as their effect would have been anti-dilutive (in thousands).
Schedule of net loss per share
| | | 2021 | | | 2020 | | | Underwriter’s warrants | | | 10 | | | | 77 | | | Warrants issued with rights offerings | | | 7,681 | | | | 7,682 | | | Common stock options | | | 182 | | | | 196 | | | Total | | | 7,873 | | | | 7,955 | |
| | | | | | | | | | | | | December 31, | | | | | 2023 | | | 2022 | | | Shares underlying warrants outstanding | | | 9,733 | | | | 10,311 | | | Shares underlying stock options outstanding | | | 6,091 | | | | 5,272 | | | Shares underlying restricted stock units outstanding | | | 403 | | | | — | | | Total | | | 16,227 | | | | 15,583 | |
Operating Segments
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 in making decisions regarding resource allocation and assessing performance. Our chief operating decision-maker, our CEO, reviews financial information presented on a consolidated basis. Accordingly, we consider ourselves to be in a singlefor each of our segments. We have two reporting segment,segments, specifically the discovery, developmentBiopharm Division and commercialization of visual prosthetics for profoundly blind individuals. We historically managed our Argus II and Orion programs on a consolidated basis within this single operating segment and do not assess the performance of our product lines or geographic regions on other measures of income or expense, such as program expense, operating income or net income. Our underlying technology consists of hardware components (implanted and wearable) and software. A vast majority of this underlying technologyNeuromodulation Division. Neither division is shared between our Argus II and Orion branded systems. While we have ceased production and marketing the Argus II product indicated for individuals with retinitis pigmentosa, we are developing Orion as a next generation product with potential to treat a broader market of blind individuals, including the retinitis pigmentosa market.revenue producing.
Restructuring Charge
On MarchDuring the year ended December 31, 2020, due to2023, the COVID-19 pandemicNeuromodulation Division and related inability to secure additional funding, we laid off the majority of our employees and reduced ourBiopharm Division incurred operating expenses significantly to allow for our continuing business operations. Due to our focus on Orion and wind down of selling and marketing activities related to Argus II, we recorded further impairment charges to our inventory of $0.55.4 million and $0.721.6 million to our fixed assets used primarily for Argus activities. We also incurred $1.0 million in severance payments and other costs associated with, respectively. During the wind down, all of which were substantially paid byyear ended December 31, 2020.2023, consolidated net loss for the Neuromodulation Division was $5.4 million and for the Biopharm Division was $20.3 million. As of December 31, 2023, total assets for the Neuromodulation Division and the Biopharm Division was $1.4 million and $44.4 million, respectively.
The Company’s long-term assets are located in the United States. Recently Adopted Accounting Standards
We believe that any recently issued, but not yet effective, authoritative guidance, if currently adopted, would not have a material impact on our financial statement presentation or disclosures.
3. Money Market FundsFair Value Measurements
MoneyCash equivalents, which includes money market funds, included in cash equivalentsare the only financial instrument measured and recorded at December 31, 2021 were $69.5 million. Money market funds included in cash equivalents at December 31, 2020 totaled $3.1 million.fair value on our consolidated balance sheet, and they are valued using Level 1 inputs.
The following table presents money market funds at their level within the fair value hierarchy atas of December 31, 20202023 and 20192022 (in thousands). Schedule of Money Market Funds at their Level within the Fair Value Hierarchy | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | December 31, 2021: | | | | | | | | | | | | | | | | | | Money market funds | | $ | 69,487 | | | $ | 69,487 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | December 31, 2020: | | | | | | | | | | | | | | | | | | Money market funds | | $ | 3,122 | | | $ | 3,122 | | | $ | — | | | $ | — | |
| | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | December 31, 2023: | | | | | | | | | | | | | | | | | | Money market funds | | $ | 18,629 | | | $ | 18,629 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | December 31, 2022: | | | | | | | | | | | | | | | | | | Money market funds | | $ | 44,417 | | | $ | 44,417 | | | $ | — | | | $ | — | |
4. Selected Balance Sheet Detail
Property and equipment, net of accumulated depreciation and amortization
Property and equipment consisted of the following atas of December 31, 20212023 and 20202022 (in thousands): Schedule of Property and Equipment | | | 2021 | | | 2020 | | | Laboratory equipment | | $ | 584 | | | $ | 584 | | | Computer hardware and software | | | 82 | | | | 69 | | | | | | 666 | | | | 653 | | | Accumulated depreciation and amortization | | | (549) | | | | (479) | | | Property and equipment, net | | $ | 117 | | | $ | 174 | |
| | | December 31, | | | | | 2023 | | | 2022 | | | Equipment | | $ | 3,511 | | | $ | 3,520 | | | Furniture and fixtures | | | 354 | | | | 10 | | | Leasehold improvements | | | — | | | | 12 | | | Computer software | | | 7 | | | | 51 | | | Construction in progress | | | 299 | | | | — | | | Total property and equipment | | | 4,171 | | | | 3,593 | | | Accumulated depreciation and amortization | | | (2,442 | ) | | | (2,411 | ) | | Property and equipment, net | | $ | 1,729 | | | $ | 1,182 | |
As a result of our decision to cease marketing of Argus II we recorded an impairment of $0.7 million in 2020 related to our fixed assets used primarily for Argus activities which is recorded in restructuring charges in the consolidated statements of operations. We sold a substantial number of our fixed assets for net proceeds of $0.4 million in July 2020.
Debt
On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. Each promissory note was unsecured and accrued interest at a rate of twelve percent (12%) per annum beginning on receipt of the loan amounts. We repaid the principal and accrued interest of $135,000 during the quarter ended June 30, 2021.
Contract Liabilities
Contract liabilities amounted to $335,000 and $335,000 at as of December 31, 20212023 and 20202022, respectively, and are included in accrued expenses on the balance sheet.
5. Grants
We received an award for $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and approval) from the National Institutes of Health (NIH)(“NIH”) to fund the “Early Feasibility Clinical Trial of a Visual Cortical Prosthesis” that commenced in January 2018. The final year of the grant ends in March 2024. The NIH grant funds ongoing and planned clinical activities and are being used to conduct and support clinical testing of six subjects implanted with the Orion™ Cortical Visual Prosthesis (Orion)(“Orion”), submit and obtain Investigational Device Exemption approval from the U.S. Food and Drug Administration (FDA)(“FDA”). Accrued expenses related to grants amounted to $0.5 million and $0.6 million forDuring the yearsyear ended December 31, 2021 and 2020, respectively, and are included in accrued clinical trial and grant expenses on the consolidated balance sheets. During the years ended December 31, 2021 and 2020,2023 grants offset against operating expenses were $0.5 million, of which $1.40.4 million millionwere offset against research and development expenses, and $1.30.1 million were offset against general and administrative expenses. During the year ended December 31, 2022 grants offset against operating expenses were $0.5 million respectively., of which $0.4 million were offset against research and development expenses, and $0.1 million were offset against general and administrative expenses.
6. Equity Securities We are authorized to issue 300,000,000 shares of common stock with 51,031,000 issued as of December 31, 2023. In addition, we are authorized to issue 10,000,000 shares of preferred stock with none issued. On August 19, 2022, the Company initiated a reverse stock split of one share for every three shares. All share numbers have been retroactively adjusted for the split. On August 30, 2022, 13,136,362 shares were deemed issued for the merger acquisition. 7. Warrants
Underwriter’s Warrant IssuedNPM, prior to the Merger, issued common stock and warrants (collectively, the “unit” or “units”) in Public Offering2019, 2020 and 2021 for $3.15 per unit. Outstanding warrants to purchase common stock are shown in the table below and generally expire 5 years from the date of issuance at $3.15 per share exercise price, split adjusted, are transferable into one share of common stock and may be exercised on a cashless basis. The warrants qualified for an exception to derivative accounting and, accordingly, their value was not bifurcated from the total purchase price.
Second Sight warrants of As a component7,691,063 were outstanding and are convertible into 2,563,688 shares in the table below and converted as part of the funding underwriting fee of our May 5, 2020 public underwriting offer, we issued 375,000Merger for Vivani warrants at anon a like-for-like basis. The weighted average exercise price of these warrants is $1.25 which expire on May 5, 202535.24. At December 31, 2021,Of this total 10,1257,680,938 warrants are convertible into 2,560,313 shares and are tradeable on the open market. Under accounting standards in a business combination, these warrants were measured at fair value as of the Merger date; however, the warrants are still outstanding. Warrants of 67,125were substantially out-of-the-money and 297,750were exercised on a cash-less basis in 2021 and 2020 respectively, resulting in the issuance of 44,482 and 95,434 shares, respectively, of common stock.assigned no value.
Warrants Issued in Rights Offerings
On February 22, 2019, we completed a registered rights offering to existing stockholders in which we sold approximately 5,976,000 units at $5.792 per unit, which was the adjusted closing price of our common stock on that date. Each Unit consisted of a share of our common stock and a warrant to purchase an additional share of our stock for $11.76. The warrants have a five-year life and trade on Nasdaq under the symbol EYESW.
On March 6, 2017, we completed a registered rights offering to existing stockholders in which we sold approximately 1,706,000 units at $11.76 per unit, which was the adjusted closing price of our common stock on that date. Each unit consisted of a share of our comm11.76 on stock and a warrant to purchase an additional share of our stock for $11.76. The warrants had a five-year life but were extended to expire in February, 2024 to coincide with the February 22, 2019 warrants.
A summary of warrant activity for the yearsyear ended December 31, 20212023 and 20202022 is presented below (in thousands, except per share and contractual life data):. Summary of Warrant Activity | | | | | | | | | Weighted Average | | | | | | | | | | | Remaining | | | | | | | | Weighted Average | | | Contractual Life | | | | | Number of Shares | | | Exercise Price | | | (in Years) | | | Warrants outstanding at December 31, 2019 | | | 7,682 | | | | 11.76 | | | | | | Granted | | | 375 | | | | 1.25 | | | | | | Exercised | | | (298 | ) | | | 1.25 | | | | | | Forfeited or expired | | | 0 | | | | 0 | | | | | | Warrants outstanding at December 31, 2020 | | | 7,759 | | | | 11.66 | | | | | | Granted | | | — | | | | 0 | | | | | | Exercised | | | (68 | ) | | | 1.25 | | | | | | Forfeited or expired | | | — | | | | 0 | | | | | | Warrants outstanding at December 31, 2021 | | | 7,691 | | | | 11.75 | | | 2.21 | | Warrants exercisable at December 31, 2021 | | | 7,691 | | | | 11.75 | | | 2.21 | |
| | | | | | Weighted | | | Weighted | | | | | | | | Average | | | Average | | | | | | | | Exercise | | | Remaining | | | | | Number of | | | Price | | | Contractual | | | | | Shares | | | Per Share | | | Life (in Years) | | | Warrants outstanding as of December 31, 2021 | | | 9,074 | | | $ | 3.15 | | | | | | | Issued | | | — | | | | | | | | | | | Exercised | | | (1,327 | ) | | $ | 3.15 | | | | | | | Forfeited or expired | | | — | | | | | | | | | | | Other adjustment | | | 2,564 | | | $ | 35.24 | | | | | | | Warrants outstanding as of December 31, 2022 | | | 10,311 | | | $ | 11.13 | | | | 2.3 | | | Issued | | | — | | | | | | | | | | | Exercised | | | — | | | | | | | | | | | Forfeited or expired | | | (578 | ) | | $ | 3.15 | | | | | | | Warrants outstanding as of December 31, 2023 | | | 9,733 | | | $ | 11.60 | | | | 1.4 | | | Warrants exercisable as of December 31, 2023 | | | 9,733 | | | $ | 11.60 | | | | 1.4 | |
Warrants exercisable atThe warrants outstanding as of December 31, 2021 had $2023 have 4,000no in intrinsic value.
7.8. Employee Benefit Plans
We have a 401(k) Savings Retirement Plan (the “Plan”) that covers substantially all full-time employees who meet the Plan’s eligibility requirements and provides for an employee elective contribution. The Plan provides for employer matching contributions. Employer contributions are discretionary and determined annually by the Board of Directors. ForDuring the years ended December 31, 20212023 and 2020,2022, employer contributions to the Plan totaled $0.10.3 million and $0.10.2 million, respectively.
8. Equity Securities
On June 4, 2019, our shareholders approved an amendment to our articles of incorporation increasing our authorized no par value common shares from 200,000,000 to 300,000,000. The Board of Directors has the authority to establish the rights, preferences, privileges and restrictions granted to and imposed upon the holders of preferred stock and common stock.
Common Stock Issuable
For the twelve months ended December 31, 2020 our non-employee members of our Board were compensated $0.1 million and $0.1 million was accrued for future stock option grants at December 31, 2020. Stock option grants were suspended in 2021.
9. Stock-Based Compensation
Stock OptionsEquity Incentive Plans
Under the 2003 Plan, as restated in June 2011, we were authorized to issue options covering up to 437,500 shares of common stock. Effective June 1, 2011, we adopted the 2011 EquityThe Vivani Medical, Inc. 2022 Omnibus Incentive Plan (the “2011“2022 Plan”). was initiated at the time of the Merger and the 2022 Plan became effective on August 30, 2022. Under the 2022 Plan, 10,033,333 shares were authorized for issuance at its effective date. The maximum number of shares with respect to which optionsstock awards could be granted under the 2011 Plan was 937,500 shares, which is offset and reduced by optionsstock awards previously granted under the 2003 Plan. TheAs of December 31, 2023, the 2022 Plan provided for the issuance of a maximum of 3,540,216 shares of common stock were available for future issuance pursuant to stock awards that had not previously been granted.
For stock option grants, the option price is determined by the Board of Directors but cannot be less than the fair value of the shares at the grant date. Generally, the options vest ratably over either four or five years and expire ten years from the grant date. Both plans providedate. The plan provides for accelerated vesting if there is a change of control, as defined in the plans.Plan. Stock Options A summary of stock option activity is presented below (in thousands, except per share and contractual life data). Summary of Stock Option Activity | | | | | | | | | Weighted | | | | | | | | Weighted | | | Average | | | | | | | | Average | | | Remaining | | | | | | | | Exercise | | | Contractual | | | | | Number of | | | Price | | | Life | | | | | Shares | | | Per Share | | | (in Years) | | | Options outstanding at December 31, 2021 | | | 4,542 | | | $ | 2.89 | | | | | | | Granted | | | 866 | | | $ | 2.31 | | | | | | | Exercised | | | (73 | ) | | $ | 1.66 | | | | | | | Forfeited or expired | | | (335 | ) | | $ | 4.16 | | | | | | | Other adjustment | | | 272 | | | $ | 8.70 | | | | | | | Options outstanding at December 31, 2022 | | | 5,272 | | | $ | 3.07 | | | | | | | Granted | | | 1,384 | | | $ | 1.22 | | | | | | | Exercised | | | (333 | ) | | $ | 0.52 | | | | | | | Forfeited or expired | | | (232 | ) | | $ | 8.12 | | | | | | | Options outstanding, vested and expected to vest as of December 31, 2023 | | | 6,091 | | | $ | 2.60 | | | | 6.96 | | | Options exercisable as of December 31, 2023 | | | 4,125 | | | $ | 3.03 | | | | 6.11 | |
The estimated aggregate intrinsic value of stock options exercisable as of December 31, 2023 was $0.1 million. During the year ended December 31, 2022, other adjustment represents a prior period true-up and Second Sight options exchanged as part of the Merger for Vivani options on a like-for-like basis. Under accounting standards in a business combination, these options were measured at fair value as of the Merger date; however, the options were substantially out-of-the-money and were assigned no value. Restricted Stock Units (RSUs) A summary of restricted stock activity and related information (in thousands, except per share data): | | | Number of Shares | | | Weighted Average Grant Date Fair Value Per Share | | | Outstanding as of December 31, 2022 | | | 0 | | | $ | — | | | Granted | | | 403 | | | $ | 0.93 | | | Vested and released | | | 0 | | | $ | — | | | Forfeited and canceled | | | 0 | | | $ | — | | | Outstanding as of December 31, 2023 | | | 403 | | | $ | 0.93 | |
During the year ended December 31, 2023, the Company granted 402,500 RSUs, subject to market conditions which required our stock price to exceed $3.15 per share for three consecutive days in the four years from grant date for the RSUs to vest. Stock-Based Compensation Expense The 2011 Plan was further amended in 2015, 2016, 2017 and 2018 bringing the number of shares issuable under the Plan to 1,500,000.
No option were granted under the 2011 Plan in 2021 and the plan expired at May 31, 2021.
We recognizedfollowing table summarizes total stock-based compensation costexpense for stock options and RSUs, which is included in the statements of operations (in thousands).
Stock-based Compensation Expense | | | Year Ended December 31, | | | | | 2023 | | | 2022 | | | Research and development | | $ | 1,219 | | | $ | 896 | | | General and administrative | | | 645 | | | | 400 | | | Total stock-based compensation expense | | $ | 1,864 | | | $ | 1,296 | |
As of December 31, 2023, there was $1.8 million of total unrecognized stock-based compensation expense related to outstanding stock options that will be recognized over a weighted average period of 1.2 years. As of December 31, 2023, there was $0.1 million of total unrecognized compensation expense related to outstanding RSUs that will be recognized over a weighted average period of 0.1 years. Stock Options During the year ended December 31, 2023, we granted stock options to purchase 1,383,817 shares of common stock to certain employees and board members. The options are exercisable for a period of ten years from the date of grant at a weighted average price of $0.41.22 million during 2021per share, which was calculated at the fair value of our common stock on the respective grant date. The options generally vest over a period of four years. Stock Options (Service Vesting) During the year ended December 31, 2023, 1,183,817 stock options subject to service vesting, were issued and 2020, respectively.valued at $1.2 million using the Black-Scholes option-pricing model. During the year ended December 31, 2022, 866,471 stock options subject to service vesting, were issued and valued at $1.5 million using the Black-Scholes option-pricing model. The calculated value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:weighted-average assumptions.
Summary of Option Grant using the Black-Scholes Option-pricing Model | | 2023 | | 2022 | | Risk-free interest rate | 3.99% to 4.79% | | 3.42% – 4.45% | | Expected dividend yield | 0% | | 0% | | Expected volatility | 100% | | 100% | | Expected term | 4.00-6.20 years | | 4.25-6.08 years |
Stock Options (Market Conditions Vesting) During the year ended December 31, 2023, 200,000 stock options, subject to market conditions which required our stock price to exceed $6.30 per share for three consecutive days in the four years from grant date for the stock option to vest. These stock options with market conditions vesting were valued at $0.1 million. The fair value of these options subject to market conditions were valued using the Monte-Carlo Simulation model with the following assumptions: | ● | Beginning Stock Price. We utilized the Company’s publicly traded share price as of the Valuation Date as the beginning stock value. At the Valuation Date, the publicly traded common share price was $1.09 per share. |
| ● | Drift Rate. In determining the value of the instrument in the risk-neutral framework, risk-free rates were estimated based on the applicable treasury rate for the projection period. For each simulation, the term of the risk-free rate was based on the term from the Valuation Date through the latest date on which the award could vest (i.e., two years following the Performance Period End Date). Please note that, for the purposes of calculating the service period associated with the Subject Interest, the Company’s cost of equity was utilized as the drift rate. |
| ● | Volatility. The total equity volatility (standard deviation) was based on a total equity volatility analysis. |
| ● | Period. The period was measured as the number of years from the Valuation Date through the PSO expiration date (10 years following the date of grant). |
| ● | Dividends. The Company has not historically paid dividends. In addition, the Company does not expect to pay dividends going forward. As such, no dividends were considered in our analysis. |
Restricted Stock Units (RSUs) During the year ended December 31, 2023, the Company granted 402,500 RSUs. These RSUs are subject to market conditions which required our stock price to exceed $3.15 per share for three consecutive days in the four years from grant date for the RSUs to vest. | | | 2020 | | | Risk-free interest rate | | | 0.31% – 1.50% | | | Expected dividend yield | | | 0 | % | | Expected volatility | | | 78.0% to 96.0% | | | Expected term | | | 6.02 years | | | Weighted-average grant date calculated fair value | | $ | 3.72 | |
The steps involved in utilizing the Monte Carlo simulation in order to value the performance-based RSUs included the following: 1. Projection of the Company’s Common Stock Value. The performance-based RSUs were measured based on the Company’s underlying common stock value over the performance period (four years following the Valuation Date). Additionally, we considered the two-year vesting period following achievement of the performance condition. Accordingly, our common stock value was simulated over a six-year period to capture iterations through which the performance condition was satisfied on the Performance Period End Date. The analysis involved projecting our common stock value starting with our current common stock value. The forecasted stock price was based on the Geometric Brownian motion (“GBM”), and the Monte Carlo simulation generated random variables using the GBM to forecast our stock price on a daily basis over the specified period assuming 252 trading days per year. The Monte Carlo simulation for the PSO utilized the following assumptions: | ● | Beginning Stock Price. As of the Valuation Date, we were a publicly traded company with an observable share price. Therefore, we utilized our publicly traded share price as of the Valuation Date as the beginning stock value. At the Valuation Date, the Company’s publicly traded common share price was $1.09 per share. |
| ● | Drift Rate. In determining the value of the instrument in the risk-neutral framework, risk free rates were estimated based on the applicable treasury rate for the projection period. For each simulation, the term of the risk-free rate was based on the term from the Valuation Date through the latest date on which the award could vest (i.e., two years following the Performance Period End Date). Please note that, for the purposes of calculating the service period associated with the Subject Interest, our cost of equity was utilized as the drift rate. |
| ● | Volatility. The total equity volatility (standard deviation) was based on a total equity volatility analysis. |
| ● | Period. The period was measured as the number of years from the Valuation Date through the latest date on which the award could vest. |
| ● | Dividends. We have not historically paid dividends nor do we expect to pay dividends going forward. As such, no dividends were considered in our analysis. |
2. Consideration of the Performance-Vesting Schedule. As previously discussed, our publicly traded common share price must equal or exceed the Stock Price Hurdle amount of $3.15 over a 3-consecutive-trading-day rolling period on or before the Performance Period End Date. If such performance condition is achieved, 1/3 of the award shall vest on the Hurdle Achievement Date, 1/3 of the award shall vest one year following the Hurdle Achievement Date, and 1/3 of the award shall vest two years following the Hurdle Achievement Date.
A summary3. Performance-Based RSU Value Conclusion. The proceeds from the vesting of common shares were then discounted to the Valuation Date using the applicable risk-free rate, which is consistent with the assumption utilized to project stock option activity forprices in our Monte Carlo simulation. The Monte Carlo simulation was then iterated 100,000 times and the years ended December 31, 2021 and 2020 is presented below (in thousands, except per share and contractual life data):concluded fair value of the performance-based RSUs was based on the average result from the simulation. For the purposes of calculating the weighted service period associated with the Subject Interest, a separate simulation was performed using our cost of equity as the drift rate. The service period was then determined based on the median Hurdle Achievement Date.
10. SummaryIncome Taxes As discussed in Note 1, Organization and Business Operations, Nano Precision Medical, Inc. and Second Sight Medical Products, Inc. merged on August 30, 2022. The transaction was accounted for as a reverse merger business combination under GAAP. Accordingly, the consolidated income tax provision includes NPM for all periods presented, and the legacy Second Sight business of Stock Option ActivityVivani since the date of the merger. | | | | | | | | | Weighted | | | | | | | | Weighted | | | Average | | | | | Number | | | Average | | | Remaining | | | | | of | | | Exercise | | | Contractual | | | | | Shares | | | Price | | | Life (in Years) | | | Options outstanding at December 31, 2019 | | | 984 | | | $ | 21.75 | | | | | | | Granted | | | 228 | | | | 5.49 | | | | | | | Exercised | | | — | | | | — | | | | | | | Forfeited or expired | | | (1,016 | ) | | | 19.34 | | | | | | | Options outstanding at December 31, 2020 | | | 196 | | | | 15.48 | | | | | | | Granted | | | — | | | | — | | | | | | | Exercised | | | — | | | | — | | | | | | | Forfeited or expired | | | (14 | ) | | | 12.95 | | | | | | | Options outstanding, vested and expected to vest at December 31, 2021 | | | 182 | | | $ | 15.68 | | | | 6.59 | | Options exercisable at December 31, 2021 | | | 148 | | | $ | 18.38 | | | | 6.25 | |
Due to the net losses in 2023 and 2022, the provision for income taxes consists only of minimum California franchise taxes presented in general and administrative expenses. The exercise pricescomponents of common stock options outstandingdeferred income assets and exercisableliabilities as of December 31, 2023 and 2022 are as follows at December 31, 2021 (in thousands): Summary of Exercise Prices of Common Stock Options Outstanding and Exercisable
| | | | | Options | | | Options | | | | | | | Outstanding | | | Exercisable | | | Exercise Price | | | (Shares) | | | (Shares) | | | $ | | 0.90 to 0.91 | | | | 22 | | | | 8 | | | $ | | 5.67 to 6.64 | | | | 85 | | | | 64 | | | $ | | 13.84 to 16.40 | | | | 52 | | | | 52 | | | $ | | 32.80 to 40.00 | | | | 10 | | | | 10 | | | $ | | 72.08 to 104.72 | | | | 13 | | | | 14 | | | | | | | | | 182 | | | | 148 | |
Stock options exercisable at December 31, 2021 had minimal intrinsic value. As of December 31, 2021, there was $0.1 million of total unrecognized compensation cost related to the outstanding stock options that will be recognized over a weighted average period of 2.03 years.
| | | | | | | | | | | | December 31, | | | | | 2023 | | | 2022 | | | Deferred Tax: | | | | | | | | | | Accruals and reserves | | $ | 1,101 | | | $ | 1,475 | | | Capitalized R&E §174 | | | 5,120 | | | | 2,456 | | | Lease ROU | | | 302 | | | | 48 | | | Stock compensation | | | 1,541 | | | | 1,499 | | | Net operating loss | | | 48,170 | | | | 44,749 | | | R&D credit | | | 6,770 | | | | 6,319 | | | Gross deferred tax assets | | | 63,004 | | | | 56,546 | | | | | | | | | | | | | Investment in subsidiary | | | (1,924 | ) | | | (1,510 | ) | | Accumulated depreciation and amortization | | | (200 | ) | | | (202 | ) | | Gross deferred tax liabilities | | | (2,124 | ) | | | (1,712 | ) | | | | | | | | | | | | Valuation Allowance | | | (60,880 | ) | | | (54,834 | ) | | | | | | | | | | | | Total Deferred Tax Assets, Net | | $ | — | | | $ | — | | | | | | | | | | | | | Change in Valuation Allowance for the Year Ended | | $ | 6,046 | | | $ | 4,980 | |
Employee Stock Purchase Plan
We adopted an employee stock purchase plan in June 2015 for all eligible employees. UnderThe reconciliation of income tax computed at the plan, sharesexpected U.S. federal statutory tax rate of our common stock may be purchased at six-month intervals at 85%21% to income tax expense (benefit) and the corresponding rate from operations consist of the lower of the closing price of the common stock (i) on the first trading day of the offering period or (ii) on the last trading day of the purchase period. An employee may purchase in any one calendar year shares of common stock having an aggregate fair market value of up to $25,000 determined as of the first trading day of the offering period. Additionally, a participating employee may not purchase more than 12,500 shares of common stock in any one offering period. At December 31, 2020, 241,719 shares were issued under the stock purchase plan. Although we originally registered shares for sale to employees under our 2015 Employee Stock Purchase Plan, as amended, we discovered that we had inadvertently exceeded the number of shares registered. We offered to rescind the sale of up to 45,468 shares of our common stock to persons who purchased those shares under the ESPP and to reimburse any losses upon the sale of up to an additional 2,470 shares of our common stock from persons who purchased shares from our ESPP but have resold such shares, in each case, because these shares may not have been exempt from registration under the Securities Act of 1933. It may also be possible that by not disclosing that the shares were unregistered, we may face contingent liability for noncompliance with applicable federal and state securities laws. The rescission of these share purchases resulted in the repurchase and cancelation of 39,467 shares of our common stock. The total cost for the repurchase of these shares and the reimbursement of any losses from the sale of such shares totaled approximately $270,000. The ESPP plan was suspended in 2020 and no shares were issued in 2021.
We may continue to have potential liability even after this rescission offer is made due to our issuances of securities in possible violation of the federal and state securities laws. The Securities Act does not expressly provide that a rescission offer will terminate a purchaser’s right to rescind a sale of stock that was not registered or exempt from the registration requirements of the Securities Act. Should any offerees reject the rescission offer, we may continue to be potentially liable under the Securities Act for the purchase price or for certain losses if the shares have been sold.
Restricted Stock Units
The following table presented below summarizes Restricted Stock Unit (RSU) activity(in thousands) for the year ended December 31, 2020 (in thousands, except per share data):2023 and 2022:
Summary
| | | For the Year Ended December 31, | | | | | 2023 | | | 2022 | | | | | | | | | | | | | | | | | Pre-tax loss | | $ | (25,652 | ) | | | | | | $ | (13,889 | ) | | | | | | | | | | | | | | | | | | | | | | | | Federal tax (benefit) at statutory rate | | $ | (5,387 | ) | | | 21.0 | % | | $ | (2,916 | ) | | | 21.0 | % | | State tax (benefit), net of federal tax benefit | | | (1,791 | ) | | | 7.0 | % | | | (1,073 | ) | | | 7.7 | % | | R&D tax credit from current year | | | (1,050 | ) | | | 4.1 | % | | | (707 | ) | | | 5.1 | % | | Impact on effective rate of loss eliminated in consolidation | | | — | | | | — | % | | | (311 | ) | | | 2.2 | % | | Other | | | 2,184 | | | | -8.5 | % | | | 28 | | | | -2.0 | % | | Change in valuation allowance | | | 6,046 | | | | -23.6 | % | | | 4,980 | | | | -35.9 | % | | Total provision for income taxes | | $ | 2 | | | | 0.0 | % | | | 2 | | | | 0.0 | % |
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of Restricted Stock Unit (RSU) ActivityDecember 31, 2023 and 2022, a full valuation allowance has been recorded because deferred tax assets have been assessed to be less than “more likely than not” to be realized. | | | | | | | Weighted | | | | | | | | | Average | | | | | | | | | Grant Date | | | | | | Number | | | Fair Value | | | | | | of Awards | | | Per Share | | | Outstanding as of December 31, 2019 | | | | 61 | | | $ | 5.92 | | | Awarded | | | | — | | | | | | | Vested | | | | (15) | | | | 5.92 | | | Forfeited/canceled | | | | (46) | | | | 5.92 | | | Outstanding as of December 31, 2020 | | | | — | | | | | |
There was no activity in the year ended December 31, 2021. As of December 31, 2021, there was no unrecognized compensation cost related2023, we had federal and apportioned state net operating loss (“NOL”) and federal and state R&D credit carry-forwards available to RSUs as they have all been canceled.
The total stock-based compensation recognized for stock-based awards granted in the consolidated statements of operations for the years ended December 31, 2021offset future taxable income and 2020 isincome taxes as follows (in thousands):
Stock-based Compensation Expense
| | | 2021 | | | 2020 | | | | | | | | | | | Research and development | | $ | 22 | | | $ | 127 | | | Clinical and regulatory | | | 35 | | | | 51 | | | Selling and marketing | | | — | | | | 41 | | | General and administrative | | | 18 | | | | 202 | | | Total | | $ | 75 | | | $ | 421 | |
| | | As of December 31, 2023 | | | Pre TCJA (Tax Cuts and Jobs Acts of 2017) period federal NOL carry-forward, begin expiring 2030 | | $ | 47,353 | | | Post TCJA period federal NOL carry-forward, with no carry-forward limitation | | | 136,332 | | | Total federal NOL carry-forward | | $ | 183,685 | | | | | | | | | State NOL carry-forward, begin expiring 2030 | | $ | 120,068 | | | | | | | | | Federal R&D tax credit carry-forward, begin expiring in 2036 | | $ | 2,518 | | | State R&D carry-forward, no expiration date | | $ | 7,524 | | | | | | | | | Total R&E related deferred income tax assets (net of applicable amortization) | | $ | 5,120 | | | | | | | | | Reserve for uncertain income tax positions | | | Nil | |
10. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2021 and 2020 are summarized below (in thousands):
Schedule of Deferred Tax Assets
| | | 2021 | | | 2020 | | | Stock-based compensation | | $ | 401 | | | $ | 380 | | | Research credits | | | 8,629 | | | | 8,848 | | | Depreciation | | | (52 | ) | | | (52 | ) | | Net operating loss carryforwards | | | 33,033 | | | | 30,492 | | | Inventory write down | | | 81 | | | | 82 | | | Other | | | 454 | | | | 375 | | | Total deferred tax assets | | | 42,399 | | | | 40,125 | | | Valuation allowance | | | (42,399) | | | | (40,125) | | | Net deferred tax assets | | $ | — | | | $ | — | |
In assessing the potential realization of these deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon us attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 20212023, the Company has Federal and 2020, management determined it wasCalifornia research and development credit carryforwards of $2.5 million and $7.5 million, respectively. The Federal research and development credit carryforwards will expire beginning in 2036 if not more likely than not that our deferredutilized. The California research and development credits have no expiration date.
Under recently enacted U.S. tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferredlegislation, although the treatment of tax assets at such dates.
NaN federal tax provision has been provided for thelosses generated in taxable years endedending before December 31, 20212017, has generally not changed, tax losses generated in taxable years beginning after December 31, 2017, may only be utilized to offset 80% of taxable income annually. This change may require NPM and 2020 dueLegacy SSMP to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years.
To the extent that each of the tax filers continue to generate taxable losses, unused losses will carry-forward to offset future taxable income, if any, until these unused losses expire. However, the tax filers may be unable to use these losses to offset taxable income before our unused losses expire at various dates that range from 2030 through 2037 for federal net operating losses generated before 2018. Federal net operating losses generated for year 2018 and forward do not expire. State net operating losses expire from 2030 through 2042. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss, or NOL, carry-forwards to offset its post-change taxable income may be limited. Limitations may also apply to the losses incurred during such periods. Our effectiveutilization of other pre-change tax rate is different from the federal statutory rate of 21% due primarily to operating losses that receive no tax benefitattributes as a result of a valuation allowance recorded for such losses.an ownership change.
WeSecond Sight Medical Products, Inc. experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the secondthird quarter of 2017.2022 as a result of the merger. The ownership change will subject ourits net operating loss carryforwardscarry-forwards to an annual limitation, which will significantly restrict ourits ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a tax-exempt interest rate specified by the Internal Revenue Service. We have not yet fully analyzed the available information to determine the amount of the annual limitation. Based on information available
The Company has the following activity relating to us, the 2017 limitation is estimated to range between $1.4 millionunrecognized tax benefits (in thousands): and $3.7 million annually. In total, we estimate that the 2017 ownership change will result in approximately $120 million and $56 million of federal and state net operating loss carryforwards, respectively, expiring unused.
| | | | | | | | | | | Year Ended December 31, | | | | | 2023 | | | 2022 | | | Balance at beginning of year | | $ | — | | | $ | — | | | Increases based on tax positions related to the current year | | | 262 | | | | — | | | Increases based on tax positions related to prior years | | | 1,430 | | | | — | | | Reductions based on tax positions related to prior years | | | — | | | | — | | | Balance at end of year | | $ | 1,692 | | | $ | — | |
As of December 31, 2021, after2023, the ownership change under Section 382(g), weCompany had $1.7 million of unrecognized tax benefits which are comprised of federal of $0.5 million and California of $1.2 million. The Company’s unrecognized gross tax benefits would not reduce its annual effective tax rate if recognized because the Company has recorded a full valuation allowance on deferred tax assets. The Company does not foresee any material changes to its gross unrecognized tax benefit within the next 12 months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not recognize any accrued interest and penalties related to gross unrecognized tax benefits related to the year ended December 31, 2023 and 2022. All years are open for examination by federal and state incomeauthorities. The Company currently has no federal or state tax net operating loss carryforwards, which may be appliedexaminations in progress. Beginning January 1, 2022, we are required to future taxable income, of approximately $124.3 million and $76.8 million, respectively. The federal net operating loss carryforwards for years before 2018 will expire at various dates from 2035 through 2037. The federal net operating loss carryforwards for 2018 and forward do not expire. The state net operating loss carryforwards will expire at various dates from 2033 through 2041. We also have a federal and statecapitalize certain research and development tax credit carryforwards totaling approximately $4,755,000expenditures in accordance with section 174 of the Internal Revenue Code, as amended by the Tax Cuts and $4,903,000, respectively. The federal research and development tax credit carryforwards will expire at various dates from 2023 through 2041. The state research and development tax credit carryforwards do not expire.Jobs Act of 2017, instead of previously being allowed to expense. Amortization of such capitalized expenditures are allowed over a 5-year period if incurred in the U.S. or a 15-year period if incurred outside the United States.
We file income tax returns in the U.S. federal jurisdiction and various states and are subject to income tax examinations by federal tax authorities for tax years ended 2017 and later and by state authorities for tax years ended 2016 and later. We currently are not under examination by any tax authority. Our policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2021,2023 and 2020,2022, we have no accrued interest or penalties related to uncertain tax positions. Second Sight Switzerland, our foreign subsidiary, has not had any taxable income in the prior and current years.
11. Product Warranties
A summary of activity of our warranty liabilities, which are included in accrued expenses in the accompanying consolidated balance sheets, for the years ended December 31, 2021 and 2020 is presented below (in thousands):
Schedule of Activity in the Company's Warranty Liabilities
| | | 2021 | | | 2020 | | | Balance, beginning of year | | $ | 200 | | | $ | 1,575 | | | Additions | | | — | | | | — | | | Settlements | | | — | | | | (875) | | | Adjustments and other | | | (150 | ) | | | (500 | ) | | Total | | $ | 50 | | | $ | 200 | |
During 2021and 2020 we reduced our warranty expense by $0.1 million and $0.5 million, respectively due to the discontinued sales of Argus II and the resultant end of the product warranty periods.
12.11. Right-of-use Assets and Operating Lease Liabilities
We lease certain office, laboratory, research and development space and equipment for our use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease costs are recognized in the income statement over the lease term on a straight-line basis. Depreciation is computed using the straight-line method over the estimated useful life of the respective assets. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. As most of our leases do not provide an implicit rate, we used our estimated incremental borrowing rate of 10% based on the information available at commencement date in determining the present value of lease payments.
On May 18, 2020 weNovember 21, 2022, Vivani entered into a Letter Agreementtriple net lease agreement for a single building with Sylmar Biomedical Park, LLC (the “Landlord”), pursuant to which43,645 square feet of space in Alameda, California. The stated term of the parties agreed to acceleratelease commenced on June 1, 2023 and terminates on September 30, 2033, ten years and 4 months. The lease term is based on the expiration dates of our existing leases (the “Leases”), to a date not later than June 18, 2020 (“Accelerated Termination Date”). We agreed to pay the Landlord (i) $210,730 to bring the Leases current (the “Owed Rent”) and to remit (ii) a one-time early termination feenon-cancellable period in the amountlease agreement. There are two options to extend the lease, each for a term of $150,000five years; however, the extension options were not included in the measurement of the ROU asset and lease liability since it is not reasonably certain that the Company will exercise such extension options. (the “Early Termination Amount”). PriorPayments increase annually from $2,676,311 to $3,596,784, or 124 monthly payments less the early termination agreed in this letter we were obligated to pay aggregate base rent offirst four which are abated, totaling approximately $0.9 million$31.0 million. Vivani will be responsible for insurance, property taxes and common area maintenance expenses forcharges. Vivani deposited $1.3 million to guarantee a letter of credit to secure the term remaining underlease and this amount is included in long-term assets on the Leases through the respective expiration dates in February 2022 and April 2023. The Landlord acknowledged thatbalance sheet as of the date of the Letter Agreement the Owed Rent and the Early Termination Amount constituted all amounts owing to the Landlord under the Leases. As a result of the letter agreement, we wrote down the right-of-use assets and extinguished relatedDecember 31, 2023. The lease liabilities in the amounts of $2.3 million and $2.4 million, respectively. We paid an early termination fee of $150,000 which was expensed in our restructuring charges for the nine months endedEmeryville, California expired on September 30, 2020. Due to the termination of this lease there are no right-of-use assets or current or long term lease liabilities at December 31, 2020.2023.
On January 22, 2021,February 1, 2023, we entered into a lease agreement, effective FebruaryMarch 1, 2021,2023, to sub-leasesublease office space to replace ourCortigent’s existing headquarters. We payOur rental payments amount to $17,00022,158 per month increasing to $17,500 per month on February 1, 2022, plus operating expenses, to lease 17,29014,823 square feet of office space at 13170 Telfair Avenue, Sylmar, CA 91342. Additionally, we received full rent abatement for March 2021, and will receive half rent abatement during March 2022. 27200 Tourney Road, Valencia, California 91355.The sub-lease is forsublease has a term of two years and two months. We are not affiliatesalso entered into a lease for storage space on January 25, 2023, in the same building at a cost of are not related to, or otherwise have any other relationship with, the other parties, other than the lease.$6,775 per month for a term of two years and one month.
The Company evaluated the lease amendment under the provisions of ASC 842. Informationfollowing table summarizes supplemental balance sheet information related to the Company’s right-of-use assets and related lease liabilities are as followingsoperating leases (in thousands, except for remaining lease term and discount rate)thousands):
| Year ending December 31: | | | | | | | | | | 2022 | | $ | 201 | | | 2023 | | | 52 | | | Total lease payments | | | 253 | | | Less imputed interest | | | (16) | | | Total lease liabilities | | $ | 237 | | | | | | | | | Other supplemental information: | | | | | | Current operating lease liabilities | | $ | 185 | | | Long term operating lease liabilities | | | 52 | | | Total lease liabilities | | $ | 237 | | | Discount rate | | | 10 | % |
| | | | For the year ended
December 31,
2021 | | For the year ended
December 31,
2020 | | | Cash paid for operating lease liabilities | | | | 170 | | | 303 | |
| | | | | December 31, | | | | | Balance Sheet Classification | | 2023 | | | 2022 | | | Assets | | | | | | | | | | Non-current assets | | Right-of-use assets | | $ | 19,616 | | | $ | 779 | | | Liabilities | | | | | | | | | | | | Current | | Current operating lease liabilities | | $ | 1,383 | | | $ | 955 | | | Long-term | | Long-term operating lease liabilities | | $ | 19,313 | | | $ | — | |
Operating lease cost was $Rent expense, including2.8 million and $0.9 million during 2023 and 2022, respectively. Variable lease cost, comprising primarily of common area maintenance charges and taxes, for the operating lease was $179,0001.1 million and $303,0000.3 million during 20212023 and 2020,2022, respectively. The following table summarizes a maturity analysis of our lease liabilities showing the aggregate lease payments as of December 31, 2023 (in thousands except weighted average data): | Year Ending December 31, | | | | | | 2024 | | | $ | 3,070 | | | 2025 | | | | 2,914 | | | 2026 | | | | 2,889 | | | 2027 | | | | 2,976 | | | 2028 | | | | 3,065 | | | Thereafter | | | | 15,861 | | | Total lease payments | | | | 30,775 | | | Less imputed interest | | | | (10,079 | ) | | Total lease liabilities | | | $ | 20,696 | | | | | | | | | | Weighted average discount rate | | | | 8.41 | % | | Weighted average remaining lease term | | | | 9.49 years | |
Other information related to leases are as follows (in thousands): | | | | | | | | | | Year ended December 31, | | | | | 2023 | | | 2022 | | | Cash paid for operating lease liabilities | | $ | 1,932 | | | $ | 1,049 | |
13.12. Commitments and Contingencies
License Agreements
We have exclusive licensing agreements to utilize certain patents, related to the technology for visual prostheses. We have determined that only the agreement with Doheny Eye Institute (“DEI”) applies to Argus II and Orion requiring future royalty payments through 2033. We have agreed to pay to DEI royalties for licensed products sold or leased by us. The royalty rate is 0.5%, based on related net sales of the patented portion of licensed products.
In the past we have paid royalties under a license agreement with the Johns Hopkins University (“JHU”). The JHU agreement expired, along with the underlying patents, in 2018. Pursuant to these agreements, DEI and JHU, we have incurred costs of approximately $1,000 for the year ended December 31, 2020 and zero in 2021.
Indemnification Agreements
We maintain indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.
Clinical Trial Agreements
Based upon FDA approval of Argus II, which was obtained in February 2013, we were required to collect follow-up data from subjects enrolled in our pre-approval trial for a period of up to ten years post-implant, which was extended through the year 2019. This requirement to collect follow-up data was halted in 2020 with FDA approval. In addition, we conducted three post-market studies to comply with U.S. FDA, French, and European post-market surveillance regulations and requirements and are conducting an early feasibility clinical study of Orion. We have contracted with various universities, hospitals, and medical practices to provide these services. Payments are based on procedures performed for each subject and are charged to clinical and regulatory expense as incurred. Total amounts charged to expenseexpensed for the yearsyear ended December 31, 20212023 and 20202022 were $0.40.1 million and $1.10.2 million, respectively.
California Board Representation
As of January 1, 2021, all publicly held domestic or foreign corporations whose principal executive offices are located in California must meet the minimum requirements for female directors and for directors from underrepresented communities on their boards as required respectively by Women on Boards (SB 826) and Underrepresented Communities on Boards (AB 979). California law authorizes the California Secretary of State to impose fines to enforce compliance of SB 826 including a $100,000 fine for "failure to timely file board member information with the Secretary of State"; a $100,000 fine for a first violation, defined as "each director seat required by this section to be held by a female, which is not held by a female during at least a portion of a calendar year"; and a $300,000 fine for subsequent violations. The Company currently has one female director and under California’s staggered compliance schedule as of December 31, 2021 the Company is required to have to have a minimum of three female directors. To date the Company has not filed board information with the Secretary of State. To the knowledge of the Company the Secretary of State has not to date imposed any fines. California has also instituted a parallel Board diversity compliance and reporting framework focused on directors "from an underrepresented community," which is defined to mean "an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender." Under the law’s staggered compliance schedule a publicly held corporation whose principal executive offices are located in California must have at least one director from an underrepresented community on its board as of December 31, 2021. Companies that fail to timely comply with AB 979 may be fined $100,000 for the first violation and $300,000 for subsequent violations. The Company is not in compliance with these provisions and has accrued $100,000 as of December 31, 2021.
Litigation, Claims and Assessments
Three oppositions filed by Pixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned by us.Cortigent. The outcomes of the challenges are not certain, however, if successful, they may affect our ability to block competitors from utilizing ourCortigent’s neuromodulation patented technology. We believe a successful challenge will not have a material effect on our ability to manufacture and sell our products, or otherwise have a material effect on ourCortigent’s operations. As described in the Company’s 10-K for the year ended December 31, 2020, the Company had entered into a Memorandum of Understanding (“MOU”) for a proposed business combination with Pixium Vision SA (“Pixium”). In response to a press release by Pixium dated March 24, 2021, and subsequent communications between us and Pixium, our Board of Directors determined that the business combination with Pixium was not in the best interest of our shareholders. On April 1, 2021, we gave notice to Pixium that we were terminating the MOU between the parties and seeking an amicable resolution of termination amounts that may be due, however no assurance can be given that an amicable resolution will be reached. We accrued $1,000,000 of liquidated damages as contemplated by the MOU in accounts payable as of March 31, 2021 and remitted that amount to Pixium in April 2021. Pixium indicated that it considered this termination wrongful, rejected the Company’s offers, but retained the $1,000,000$1,000,000 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, and currently claim damages of approximately €5.1€5.1 million or about $5.6$5.6 million. We believe we have fulfilled our obligations to Pixium with the liquidated damages payment of $1,000,000 and thus$1,000,000.On December 8, 2022, the Company doesreceived notice that the Paris Commercial Court has rendered its judgement, including finding that the Company’s termination of the MOU was not believe any further loss accrual is necessary.
valid. In November 2020, we andthe judgment, the Company was ordered to pay to Pixium retained Oppenheimer & Co. Inc. as placement agentthe amount of €2,500,000 minus a €947,780 credit for the $1,000,000 already paid for, a proposed private placementnet amount payable of securitiesapproximately €1,552,220. On May 24, 2023, the Company filed an appeal against the judgment from the Paris Commercial Court except in connectionso far as such prior judgment dismissed (i) Pixium’s claim for the Company to pay it a sum of €480,693 relating to the alleged time spent by its teams, (ii) Pixium’s application to order the Company to pay it a sum of €1,500,000 in respect to alleged loss of opportunity and (iii) deducted the sum of $1,000,000 that we already paid Pixium and which Pixium retained. Thereafter Pixium filed its brief with the Business Combination. On April 1, 2021, we received an invoice from Oppenheimer for more than $1.86 million. This amount includes a requested commissionParis Court of 6.5% on $27.9 million raised in the private placement. We believe that claims for payment presented by this invoice are without merit.
On or about July 19, 2021, Martin SumichrastAppeal and filed a complaint with the Superior Court of the State of California, County of Los Angeles—Central District, claiming that he is entitled to compensation for services, as well as exemplary and other damages in an amount to be determined at trial but not less than $2 million, which arise from his allegedly arranging and securing financing that the Company obtained in May 2020 via a registered underwritten public offering of common stock. The complaint was dismissed by the courtcross-appeal on January 18, 2022. Sumichrast appealed2024. Meanwhile, the dismissal, howeverCompany received notice that the Paris Commercial Court in its judgment dated January 31, 2024 converted Pixium’s receivership proceedings to liquidation proceedings and that Pixium’s liquidator is due to intervene in the pending proceedings before the Paris Court of Appeal. The Company recorded a charge of $1,675,000 for the year ended December 31, 2022 related to this matter but plans to continue its appeal was subsequently abandoned on March 1, 2022.against the preliminary judgment.
We are party to litigation arising in the ordinary course of business. It is our opinion that the outcome of such matters will not have a material effect on our financial statements,results of operations, however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
13. Quarterly Financial Summary (unaudited)Subsequent Event Schedule of Quarterly Financial Summary | | | Three Months Ended | | | | | December 31, | | | September 30, | | | June 30, | | | March 31, | | | (in thousands, except per share data) | | 2021 | | | 2021 | | | 2021 | | | 2021 | | | Product sales | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | Gross profit | | $ | 130 | | | $ | — | | | $ | — | | | $ | — | | | Operating loss | | $ | (1,291 | ) | | $ | (2,503 | ) | | $ | (2,296 | ) | | $ | (2,843 | ) | | Net loss | | $ | (1,283 | ) | | $ | (2,501 | ) | | $ | (2,294 | ) | | $ | (2,843 | ) | | Net loss per share – basic and diluted | | $ | (0.03 | ) | | $ | (0.06 | ) | | $ | (0.08 | ) | | $ | (0.12 | ) |
The Company evaluated subsequent events for recognition and disclosure through the date the financial statements were issued or filed. Nothing has occurred outside normal operations that required recognition or disclosure in these financial statements except as follows: | | | Three Months Ended | | | | | December 31, | | | September 30, | | | June 30, | | | March 31, | | | | | 2020 | | | 2020 | | | 2020 | | | 2020 | | | Product sales | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | Gross profit | | $ | 500 | | | $ | — | | | $ | — | | | $ | — | | | Operating loss | | $ | (1,274 | ) | | $ | (1,602 | ) | | $ | (3,116 | ) | | $ | (8,904 | ) | | Net loss | | $ | (1,291 | ) | | $ | (1,603 | ) | | $ | (3,100 | ) | | $ | (8,886 | ) | | Net loss per share – basic and diluted | | $ | (0.06 | ) | | $ | (0.07 | ) | | $ | (0.15 | ) | | $ | (0.57 | ) |
On March 1, 2024, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Securities Purchase Agreement”) relating to the issuance of 3,947,368 shares of the Company’s common stock, par value of $0.0001 per share (the “Common Stock”) and warrants to purchase up to an aggregate of 3,947,368 shares of Common Stock (the “Warrant”), to such investor at a purchase price of $3.80 per share and accompanying warrant in a registered direct offering (the “Offering”). The Warrant has an exercise price of $3.80 per share, is exercisable immediately upon issuance and will expire three years following the date of issuance. The Company also entered into a Placement Agency Agreement with Maxim Group LLC (“Maxim” and such agreement, the “Placement Agency Agreement,” and together with the Securities Purchase Agreement, the “Agreements”), who acted as the sole placement agent for the Offering. The gross proceeds from the Offering will be approximately $15.0 million, before paying the placement agent fees and other estimated offering expenses. The Offering is being made pursuant to the shelf registration statement on Form S-3 (File No. 333-256904) previously filed by the Company with the SEC on June 8, 2021 and declared effective on June 14, 2021. The Offering is made only by means of a prospectus forming a part of the effective registration statement and a prospectus supplement relating to the Offering. Pursuant to the terms of the Securities Purchase Agreement, until 45 days following the closing of the Offering, the Company has agreed not to issue (or enter into any agreement to issue) any shares of Common Stock or Common Stock equivalents, subject to certain exceptions. The Company has further agreed not to enter into an agreement involving a variable rate transaction until one year following the closing of the Offering. In addition, the Company’s directors and officers have entered into lock-up agreements with the Company pursuant to which each of them has agreed not to, for a period of 90 days from the closing of the Offering, offer, sell, transfer or otherwise dispose of the Company’s securities, subject to certain exceptions. 14. Subsequent Event
On February 4, 2022, we entered intoIn connection with the Placement Agency Agreement, the Company agreed to pay Maxim an agreement and planaggregate cash fee of merger with Nano Precision Medical, Inc., a California corporation (“NPM”), and, upon and subject to the execution of a joinder, NPM Acquisition Corp., a California corporation and a wholly-owned subsidiary7.0% of the Company (“Merger Sub”).aggregate proceeds raised from the sale and issuance of the shares of Common Stock and accompanying Warrants. Pursuant to the agreement and subject to the terms and conditions set forth therein, NPM will merge with and into Merger Sub (the “Merger”), and upon consummation of the merger, Merger Sub will cease to exist and NPM will become a wholly-owned subsidiary of the Company. Upon completion of the merger and subject to shareholder approval,Placement Agency Agreement, the Company will changealso agreed to reimburse Maxim up to $65,000 for its name as agreed in the future and intends to change its trading symbol as NPM requests in writing following consultation with Nasdaq.legal expenses.
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