Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | Apr. 28, 2017 | |
Document And Entity Information | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2017 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | ETRM | |
Entity Registrant Name | EnteroMedics Inc | |
Entity Central Index Key | 1,371,217 | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 6,906,878 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 18,681,046 | $ 3,310,787 |
Accounts receivable (net of allowance for bad debts of $20,000 at March 31, 2017 and December 31, 2016) | 68,153 | 143,692 |
Inventory | 1,702,928 | 1,789,578 |
Prepaid expenses and other current assets | 401,757 | 476,624 |
Total current assets | 20,853,884 | 5,720,681 |
Property and equipment, net | 171,598 | 200,720 |
Other assets | 684,343 | 1,119,405 |
Total assets | 21,709,825 | 7,040,806 |
Current liabilities: | ||
Accounts payable | 533,597 | 1,311,706 |
Accrued expenses | 3,183,909 | 2,751,415 |
Total current liabilities | 3,717,506 | 4,063,121 |
Common stock warrant liability | 46,737 | 39,119 |
Total liabilities | 3,764,243 | 4,102,240 |
Commitments and contingencies (Note 5) | ||
Stockholders' equity: | ||
Preferred stock, $0.01 par value; 5,000,000 shares authorized and zero shares outstanding at March 31, 2017 and December 31, 2016; 12,531 and zero shares issued at March 31, 2017 and December 31, 2016, respectively | ||
Common stock, $0.01 par value; 300,000,000 shares authorized; 6,906,878 and 2,736,621 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively | 69,069 | 27,366 |
Additional paid-in capital | 326,184,707 | 303,852,582 |
Accumulated deficit | (308,308,194) | (300,941,382) |
Total stockholders' equity | 17,945,582 | 2,938,566 |
Total liabilities and stockholders' equity | $ 21,709,825 | $ 7,040,806 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017 | Dec. 31, 2016 | |
Condensed Consolidated Balance Sheets | ||
Net of allowance for bad debts | $ 20,000 | $ 20,000 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, authorized | 5,000,000 | 5,000,000 |
Preferred stock, outstanding | 0 | 0 |
Preferred stock, issued | 12,531 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 300,000,000 | 300,000,000 |
Common stock, shares issued | 6,906,878 | 2,736,621 |
Common stock, shares outstanding | 6,906,878 | 2,736,621 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Condensed Consolidated Statements of Operations | ||
Sales | $ 40,040 | $ 72,000 |
Cost of goods sold | 29,523 | 40,135 |
Gross profit | 10,517 | 31,865 |
Operating expenses: | ||
Selling, general and administrative | 5,928,986 | 6,141,177 |
Research and development | 1,124,413 | 1,432,381 |
Total operating expenses | 7,053,399 | 7,573,558 |
Operating loss | (7,042,882) | (7,541,693) |
Other income (expense): | ||
Interest income | 100 | 1,691 |
Interest expense | (1,149,294) | |
Change in value of warrant liability | (323,130) | 1,779,414 |
Change in value of convertible notes payable | (499,568) | |
Other, net | (900) | 688 |
Net loss | $ (7,366,812) | $ (7,408,762) |
Net loss per share-basic and diluted | $ (1.27) | $ (66.14) |
Shares used to compute basic and diluted net loss per share | 5,788,282 | 112,014 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash flows from operating activities: | ||
Net loss | $ (7,366,812) | $ (7,408,762) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 29,122 | 39,393 |
Stock-based compensation | 2,246,400 | 1,092,488 |
Amortization of commitment fees, debt issuance costs and original issue discount | 815,421 | |
Change in value of convertible notes payable | 499,568 | |
Change in value of warrant liability | 323,130 | (1,779,414) |
Change in operating assets and liabilities: | ||
Accounts receivable | 75,539 | 2,928 |
Inventory | 86,650 | (181,882) |
Prepaid expenses and other current assets | 74,867 | (42,036) |
Other assets | 435,063 | (87,520) |
Accounts payable | (778,109) | 89,397 |
Accrued expenses | 432,492 | (112,135) |
Accrued interest payable | 174,148 | |
Net cash used in operating activities | (4,441,658) | (6,898,406) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (11,544) | |
Net cash used in investing activities | (11,544) | |
Cash flows from financing activities: | ||
Proceeds from warrants exercised | 3,318,013 | |
Proceeds from sale of common stock and warrants for purchase of common stock | 6,468,148 | |
Proceeds from sale of convertible preferred stock | 12,531,000 | |
Common stock financing costs | (2,505,244) | (14,000) |
Proceeds from convertible notes payable | 11,000,000 | |
Repayments on convertible notes payable | (404,762) | |
Debt issuance costs | (445,003) | |
Net cash provided by financing activities | 19,811,917 | 10,136,235 |
Net increase in cash and cash equivalents | 15,370,259 | 3,226,285 |
Cash and cash equivalents: | ||
Beginning of period | 3,310,787 | 7,927,240 |
End of period | $ 18,681,046 | 11,153,525 |
Supplemental disclosure: | ||
Cash paid for interest | 163,152 | |
Noncash investing and financing activities: | ||
Conversion of convertible preferred shares to common stock | 12,531,000 | |
Conversion of convertible notes and interest payable | $ 1,397,538 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2017 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | (1) Summary of Significant Accounting Policies Description of Business EnteroMedics Inc. (the Company) develops and sells implantable systems to treat obesity, metabolic diseases and other gastrointestinal disorders. The Company was incorporated in the state of Minnesota on December 19, 2002 and was reincorporated in Delaware on July 22, 2004. The Company is headquartered in St. Paul, Minnesota. In January 2006, the Company established EnteroMedics Europe Sárl, a wholly-owned subsidiary located in Switzerland. The Company’s board of directors and stockholders approved a 1-for-70 reverse split (the Reverse Stock Split) of the Company’s outstanding common stock that became effective after trading on December 27, 2016. The Reverse Stock Split did not change the par value of the Company’s stock or the number of preferred shares authorized by the Company’s Fifth Amended and Restated Certificate of Incorporation. An amendment to the Certificate of Incorporation was also approved in connection with the Reverse Stock Split to increase the number of shares of the Company’s common stock authorized for issuance to 300 million shares, effective immediately after the Reverse Stock Split.. All share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. Risks and Uncertainties The Company is focused on the design and development of medical devices that use neuroblocking technology to treat obesity, metabolic diseases and other gastrointestinal disorders and currently has approvals to commercially launch the vBloc Neuromodulation System (vBloc System) in the United States, the European Economic Area and other countries that recognize the European CE Mark. The Company has devoted substantially all of its resources to recruiting personnel, developing its product technology, obtaining patents to protect its intellectual property and raising capital, and in 2015 commenced commercial operations in the United States. The Company’s products require approval from the U.S. Food and Drug Administration (FDA) or corresponding foreign regulatory agencies prior to commercial sales. The Company received FDA approval on January 14, 2015 for vBloc Therapy, delivered via the vBloc System, and has begun a controlled commercial launch at select surgical centers in the United States. The vBloc System has also received CE Mark and was previously listed on the Australian Register of Therapeutic Goods (ARTG). The medical device industry is characterized by frequent and extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often difficult to predict, and the outcome may be uncertain until the court has entered final judgment and all appeals are exhausted. The Company’s competitors may assert that its products or the use of the Company’s products are covered by U.S. or foreign patents held by them. The Company’s activities are subject to significant risks and uncertainties, including the ability to obtain additional financing, and there can be no assurance that the Company will be successful in obtaining additional financing on favorable terms, or at all. If adequate funds are not available, the Company may have to further reduce its cost structure until financing is obtained and/or delay development or commercialization of products or license to third parties the rights to commercialize products or technologies that the Company would otherwise seek to commercialize. Basis of Presentation The Company has prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The Company’s fiscal year ends on December 31. The accompanying condensed consolidated financial statements and notes thereto are unaudited. In the opinion of the Company’s management, these statements include all adjustments, which are of a normal recurring nature, necessary to present a fair presentation. Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet as of December 31, 2016 was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and accounts have been eliminated in consolidation. Fair Value of Financial Instruments Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their short maturities. The Company’s common stock warrants are required to be reported at fair value and the Company has elected to report its senior amortizing convertible notes at fair value. The fair values of common stock warrants and investments in debt and equity securities, if any, are disclosed in Note 3. The fair values of senior amortizing convertible notes (the Notes) outstanding, if any, are valued using a Binomial Lattice model. Common Stock Warrant Liability Common stock warrants that were issued in connection with the July 8, 2015 public offering (the Series A Warrants) and the common stock warrants issued in connection with the November 9, 2015, January 11, 2016 and May 2, 2016 7% senior amortizing convertible notes (the Note Warrants) are classified as a liability in the condensed consolidated balance sheets, as the common stock warrants issued provide for certain anti-dilution protections in the event shares of common stock or securities convertible into shares of common stock are issued below the then-existing exercise price. The fair value of these common stock warrants is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value being recognized as a component of other income (expense) in the condensed consolidated statements of operations. Cash and Cash Equivalents The Company considers highly liquid investments generally with maturities of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company’s cash equivalents are primarily in money market funds and certificates of deposit. The Company deposits its cash and cash equivalents in high-quality credit institutions. Short-Term Investments The Company considers all investments with maturities greater than three months and less than one year at the time of purchase as short-term investments and classifies them as either available for sale or held to maturity. The Company also considers certain investments with maturities greater than one year but which are also held for liquidity purposes and are available for sale as short-term investments. Available-for-sale securities are carried at fair value based on quoted market prices, with the unrealized gains and losses included in other comprehensive income within stockholders’ equity in the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in interest and other income. Interest and dividends on securities classified as available for sale are included in interest income. The cost of securities sold is based on the specific identification method. Short-term investments in debt securities which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income, using the interest method, over the period to maturity. Unrealized losses on held-to-maturity securities reflecting a decline in value determined to be other than temporary are charged to income. Inventory The Company accounts for inventory at the lower of cost or market and records any long-term inventory as other assets in the condensed consolidated balance sheets. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over their estimated useful lives of five to seven years for furniture and equipment and three to five years for computer hardware and software. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated balance sheets and the resulting gain or loss is reflected in the condensed consolidated statements of operations. Repairs and maintenance are expensed as incurred. Impairment of Long-Lived Assets The Company evaluates its long-lived assets for impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or estimates of future discounted cash flows. The Company has not identified any such impairment losses to date. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred income tax assets is recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company has provided a full valuation allowance against the gross deferred tax assets. The Company’s policy is to classify interest and penalties related to income taxes as income tax expense in the condensed consolidated statements of operations. Medical Device Excise Tax On January 14, 2015, the Company received FDA approval for vBloc Therapy, delivered via the vBloc System, and starting in the second quarter of 2015 revenues were generated from sales in the United States. As a result, the Company is now required to pay a quarterly Medical Device Tax which is a part of the Affordable Care Act, which imposes a 2.3% excise tax on the sale of certain medical devices by device manufactures, producers or importers. The excise tax was effective on sales of devices made after December 31, 2012. The Company records the Medical Device Tax as an operating expense in the condensed consolidated statements of operations. A moratorium was placed on the Medical Device Tax for 2016 and 2017. Comprehensive Loss Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investment owners and distributions to owners. There was no difference from reported net loss for the three months ended March 31, 2017 and 2016. Revenue Recognition Revenue is recognized when persuasive evidence of an arrangement exists, title or risk of loss has passed, the selling price is fixed or determinable and collection is reasonably assured. Products are sold through direct sales or medical device distributors and revenue is recognized upon sale to a bariatric center of excellence or a medical device distributor when no right of return or price protection exists. Terms of sales to international distributors are generally EXW, reflecting that goods are shipped “ex works,” in which risk of loss is assumed by the distributor at the shipping point. A provision for returns is recorded only if product sales provide for a right of return. No provision for returns was recorded for the three months ended March 31, 2017 and 2016, as the product sales recorded did not provide for rights of return. Research and Development Expenses Research and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical trial expenses, including supplies, devices, explants and revisions, quality assurance, regulatory expenses, payroll and other personnel expenses, materials and consulting costs. Patent Costs Costs associated with the submission of a patent application are expensed as incurred given the uncertainty of the patents resulting in probable future economic benefits to the Company. Stock-Based Compensation The fair value method is applied to all share-based payment awards issued to employees and where appropriate, nonemployees, unless another source of literature applies. All option grants are expensed on a straight-line basis over the vesting period. Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share for the three and nine months ended March 31, 2017 and 2016: Three Months Ended March 31, 2017 2016 Numerator: Net loss $ (7,366,812) $ (7,408,762) Denominator for basic and diluted net loss per share: Weighted-average common shares outstanding 5,788,282 112,014 Net loss per share—basic and diluted $ (1.27) $ (66.14) The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented: March 31, 2017 2016 Stock options outstanding 1,132,394 27,912 Warrants to purchase common stock 3,040,751 63,955 Recently Issued or Adopted Accounting Standards In May 2014, FASB issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update No. 2014-09 (ASU 2014-09)), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance will be effective for interim and annual reporting periods beginning after December 15, 2017. The Company does not believe that the adoption of the new standard will have a material effect on its previously reported revenue in that the accounting related to its current revenue-based business practices will not change under the new standard, though incremental disclosures required by the new standard may be significant. In March 2016, FASB issued Improvements to Employee Share-Based Payment Accounting, (Accounting Standards Update No. 2016-09 (ASU 2016-09)), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, the estimation of forfeitures, shares withheld for taxes and classification of shares withheld for taxes on the statement of cash flows. As part of the adoption of this guidance the Company has elected to account for forfeitures of share-based awards as they occur. The Company prospectively adopted ASU 2016-09 as required on January 1, 2017 and the adoption did not have a material effect on its consolidated financial statements. There have been no other significant changes in recent accounting pronouncements during the three months ended March 31, 2017 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. |
Liquidity and Management's Plan
Liquidity and Management's Plans | 3 Months Ended |
Mar. 31, 2017 | |
Liquidity and Management's Plans | |
Liquidity and Management's Plans | (2) Liquidity and Management’s Plans The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company currently is not generating revenue from operations that is significant relative to its level of operating expenses, and does not anticipate generating significant revenue from operations or otherwise in the short-term. The Company has financed its operations to date principally through the sale of equity securities, debt financing and interest earned on investments. The Company’s history of operating losses, limited cash resources and lack of certainty regarding obtaining significant third-party reimbursement for the vBloc System or timing thereof, raise substantial doubt about our ability to continue as a going concern absent a strengthening of our cash position. On January 23, 2017, the Company closed an underwritten public offering consisting of units of common stock, convertible preferred stock and warrants to purchase common stock. Gross proceeds of the offering were $19.0 million, prior to deducting underwriting discounts and commissions and offering expenses of $2.5 million. During the three months ended March 31, 2017, common stock warrants for 592,256 shares of common stock were exercised by warrant holders with proceeds to the Company of $3.3 million. As of March 31, 2017, the Company had $18.7 million of cash and cash equivalents to fund its operations into early 2018. The Company’s anticipated operations include plans to expand the controlled commercial launch of vBloc Therapy, delivered via the vBloc System. The Company believes that it has the flexibility to manage the growth of its expenditures and operations depending on the amount of available cash flows, which could include reducing expenditures for marketing, clinical and product development activities. However, the Company will ultimately need to achieve sufficient revenues from product sales and/or obtain additional debt or equity financing to support its operations. Management is currently pursuing various funding options, including seeking additional equity financing as well as a strategic merger or other transaction to obtain additional funding or expand its product line during 2017 to continue the development of, and to successfully commercialize, the vBloc System. While there can be no assurance that the Company will be successful in its efforts, the Company has a long history of raising equity financing to fund its development activities. Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, result of operations, liquidity and financial condition would be materially and negatively affected, and the Company would be unable to continue as a going concern. Additionally, there can be no assurance that, assuming the Company is able to strengthen its cash position, it will achieve sufficient revenue or profitable operations to continue as a going concern. |
Fair Value Measurements
Fair Value Measurements | 3 Months Ended |
Mar. 31, 2017 | |
Fair Value Measurements | |
Fair Value Measurements | (3) Fair Value Measurements Fair value of financial assets and liabilities is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: · Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. · Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or model-derived valuations for which all significant inputs are observable, either directly or indirectly. · Level 3—Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. The Company’s assets that are measured at fair value on a recurring basis are classified within Level 1 or Level 2 of the fair value hierarchy. The Company does not hold any assets that are measured at fair value using Level 3 inputs. The types of instruments the Company invests in that are valued based on quoted market prices in active markets may include U.S. treasury securities and money market funds. Such instruments are classified by the company within Level 1 of the fair value hierarchy. U.S. treasuries are valued using unadjusted quoted prices for identical assets in active markets that the Company can access. The types of instruments the Company invests in that are valued based on quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include the Company’s U.S. agency securities, commercial paper, U.S. corporate bonds and municipal obligations. Such instruments are classified by the Company within Level 2 of the fair value hierarchy. The Company values these types of assets using consensus pricing or a weighted average price, which is based on multiple pricing sources received from a variety of industry standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. The multiple prices obtained are then used as inputs into a distribution-curve-based algorithm to determine the daily market price. The Company did not hold any short-term investments classified as available for sale or held to maturity as of March 31, 2017 and December 31, 2016. The fair value of the Company’s common stock warrant liability is calculated using a Black-Scholes valuation model and is classified as Level 2 in the fair value hierarchy. The fair values are presented below along with the valuation assumptions: Series A Warrants November 2015 Note Warrants March 31, 2017 December 31, 2016 March 31, 2017 December 31, 2016 Risk-free interest rates 1.27 % 1.20 % 1.50 % 1.47 % Expected life 21 months 24 months 43 months 46 months Expected dividends — % — % — % — % Expected volatility 181.45 % 122.03 % 136.37 % 102.29 % Fair value $ 20,626 $ 36,000 $ 2,303 $ 449 January 2016 Note Warrants May 2016 Note Warrants March 31, 2017 December 31, 2016 March 31, 2017 December 31, 2016 Risk-free interest rates 1.93 % 1.93 % 1.93 % 1.93 % Expected life 45 months 48 months 49 months 52 months Expected dividends — % — % — % — % Expected volatility 133.88 % 108.57 % 130.39 % 106.37 % Fair value $ 15,163 $ 1,633 $ 8,645 $ 1,037 The following table summarizes fair value measurements of the Series A Warrants and Note Warrants by level at December 31, 2016 and March 31, 2017: Level 1 Level 2 Level 3 Total Common stock warrants at December 31, 2016 $ — $ 39,119 $ — $ 39,119 Common stock warrants at March 31, 2017 $ — $ 46,737 $ — $ 46,737 During the three months ended March 31, 2016, the Company had amounts outstanding from 7% senior amortizing convertible notes (the Notes) related to Note issuances on November 9, 2015 (the First Closing) and January 11, 2016 (the Second Closing), when the Company issued Notes with principal amounts of $1.5 million and $11.0 million, respectively. As of December 31, 2015 and March 31, 2016, the fair value of the outstanding Notes from the First Closing was determined to be $1.3 million and $1.2 million, respectively. The fair value of the Notes issued with the Second Closing was determined to be $9.9 million on the January 11, 2016 issue date and $9.5 million on March 31, 2016. The fair values were calculated using a Binomial Lattice model and the following assumptions: November 2015 Notes January 2016 Notes March 31, 2016 December 31, 2015 March 31, 2016 January 11, 2016 Risk-free interest rates 0.68 % 1.11 % 0.68 % 1.01 % Expected life 1.61 years 1.86 years 1.61 years 1.83 years Expected dividends — % — % — % — % Expected volatility 65.0 % 57.5 % 65.0 % 60.0 % Fair value per share of common stock $ 0.01 $ 0.03 0.01 $ |
Inventory
Inventory | 3 Months Ended |
Mar. 31, 2017 | |
Inventory | |
Inventory | (4) Inventory From the Company’s inception, inventory related purchases had been used for research and development related activities and had accordingly been expensed as incurred. In December 2011, the Company began receiving ARTG listings for components of the VBloc Rechargeable System from the Australian Therapeutic Goods Administration, with the final components being listed on the ARTG in January 2012. As a result, the Company determined certain assets were recoverable as inventory beginning in December 2011. The Company accounts for inventory at the lower of cost or market and records any long-term inventory as other assets in the condensed consolidated balance sheets. There was $667,000 and $676,000 of long-term inventory, primarily consisting of raw materials, as March 31, 2017 and December 31, 2016, respectively. Current inventory consists of the following as of: March 31, December 31, 2017 2016 Raw materials $ 283,281 $ 335,606 Work-in-process 1,403,761 1,437,957 Finished goods 15,886 16,015 Inventory $ 1,702,928 $ 1,789,578 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2017 | |
Commitments and Contingencies | |
Commitments and Contingencies | (5) Commitments and Contingencies Operating Lease The Company rents its office, warehouse and laboratory facilities under an operating lease, which was originally set to expire on September 30, 2015. On August 25, 2015, the Company entered into an amendment extending the term of the operating lease for three years until September 30, 2018, with monthly base rent ranging from $18,925 to $20,345. Total rent expense recognized for each of the three month periods ended March 31, 2017 and 2016 was $58,905 and $67,718. At March 31, 2017, future minimum payments under the lease are as follows: Year ending December 31, Remaining nine months of 2017 $ 178,844 2018 183,103 $ 361,947 Clinical Trials The Company is evaluating the vBloc System in human clinical trials, including the EMPOWER trial and ReCharge trial. Both of these clinical trials require patients to be followed out to 60 months. The Company is required to pay for patient follow up visits only to the extent they occur. In the event a patient does not attend a follow up visit, the Company has no financial obligation. The Company is also required to pay for explants or revisions, including potential conversions of ReCharge control devices to active devices, should a patient request or be required to have one during the course of the clinical trials. The Company has no financial obligation unless an explant, revision or conversion is requested or required. Clinical trial costs are expensed as incurred. Product Liability Claims The Company is exposed to product liability claims that are inherent in the testing, production, marketing and sale of medical devices. Management believes any losses that may occur from these matters are adequately covered by insurance, and the ultimate outcome of these matters will not have a material effect on the Company’s financial position or results of operations. The Company is not currently a party to any product liability litigation and is not aware of any pending or threatened product liability litigation that could have a material adverse effect on the Company’s business, operating results or financial condition. Litigation On February 28, 2017, the Company received a class action and derivative complaint filed on February 24, 2017 in U. S. District Court for the District of Delaware by Vinh Du, one of the Company’s shareholders. The complaint names as defendants EnteroMedics, the board of directors and four members of our senior management, namely, Scott Youngstrom, Nick Ansari, Peter DeLange and Paul Hickey, and contains a purported class action claim for breach of fiduciary duty against the board of directors and derivative claims for breach of fiduciary duty against the board of directors and unjust enrichment against our senior management. The allegations in the complaint relate to the increase in the number of shares authorized for grant under our Second Amended and Restated 2003 Stock Incentive Plan (the “Plan”), which was approved by our shareholders at the Special Meeting of Shareholders held on December 12, 2016 (the “Special Meeting”), and to our subsequent grant of stock options on February 8, 2017, to the Company’s Directors and senior management to purchase an aggregate of 1,093,450 shares of our common stock (the “Option Grants”). In the complaint, the plaintiff contends that (i) the number of shares authorized for grant under the Plan, as adjusted by the board of directors after the Special Meeting for the subsequent recapitalization of the Company, resulted from an alleged breach of fiduciary duties by the board of directors, and (ii) our senior management was allegedly unjustly enriched by the subsequent Option Grants. The plaintiff seeks relief in the form of an order rescinding the Plan as approved by the shareholders at the Special Meeting, an order cancelling the Option Grants, and an award to plaintiff for his costs, including fees and disbursements of attorneys, experts and accountants. On April 17, 2017, we filed a motion to dismiss the complaint based on the plaintiff’s failure to satisfy Delaware’s demand requirement for a derivative action and failure to state a valid claim. The defendant has until June 15, 2017 to file its response to the motion to dismiss. We believe the allegations in the complaint are without merit, and intend to defend the action vigorously. Except as disclosed in the foregoing paragraph, the Company is not currently a party to any litigation and the Company is not aware of any pending or threatened litigation against it that could have a material adverse effect on the Company’s business, operating results or financial condition. The medical device industry in which the Company operates is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. As a result, the Company may be involved in various legal proceedings from time to time. |
Senior Amortizing Convertible N
Senior Amortizing Convertible Notes | 3 Months Ended |
Mar. 31, 2017 | |
Senior Amortizing Convertible Notes | |
Senior Amortizing Convertible Notes | (6) Senior Amortizing Convertible Notes On November 9, 2015, January 11, 2016 and May 2, 2016 the Company issued 7% senior amortizing convertible notes (the Notes) with principal amounts of $1.5 million, $11.0 million and $6.25 million. Note Warrants were also issued in connection with each of the three Notes. As of December 31, 2016 the Notes were fully amortized, primarily through non-cash conversions of the Notes into shares of common stock. For the three months ended March 31, 2016, the condensed consolidated statement of operations includes interest expense related to the Notes. See further details regarding the Notes and Note Warrants in footnote 8 to the Company’s Consolidated Financial Statements contained in our Annual Report on Form 10-K for the Year Ended December 31, 2016. |
Stock-based Compensation
Stock-based Compensation | 3 Months Ended |
Mar. 31, 2017 | |
Stock-based Compensation | |
Stock-based Compensation | (7) Stock-based Compensation The fair value method of accounting for share-based payments is applied to all share-based payment awards issued to employees and where appropriate, nonemployees, unless another source of literature applies. Based on the application of these standards, stock-based compensation expense for stock-based awards under the Company’s Amended and Restated 2003 Stock Incentive Plan (the Plan) and inducement grants for the three months ended March 31, 2017 and 2016, including $142,000 and $3,000 for nonemployees, respectively, was allocated to operating expenses follows: Three Months Ended March 31, 2017 2016 Selling, general and administrative $ 2,217,200 $ 839,777 Research and development 29,200 252,711 Total $ 2,246,400 $ 1,092,488 As of March 31, 2017 there was approximately $6.4 million of total unrecognized compensation costs, net of estimated forfeitures, related to employee unvested stock option awards, which are expected to be recognized over a weighted-average period of 2.8 years. The estimated grant-date fair values of the stock options were calculated using the Black-Scholes valuation model, based on the following assumptions for the three and nine months ended March 31, 2017 and 2016: Three Months Ended March 31, 2017 2016 Risk-free interest rates 1.92%–2.39% 1.16%–1.64% Expected life 6.00 years 5.00 years–6.25 years Expected dividends 0% 0% Expected volatility 114.38%–131.24% 88.43%–92.24% Option activity under the Plan for the three months ended March 31, 2017 was as follows: Outstanding Options Shares Available For Number of Weighted-Average Grant Shares (1) Exercise Price (1) Balance, December 31, 2016 2,988,243 19,840 $ 770.35 Shares reserved — — — Options granted (1,113,450) 1,113,450 7.12 Options exercised — — — Options cancelled 896 (896) 65.14 Balance, March 31, 2017 1,875,689 1,132,394 $ 20.34 _________________ (1) Outstanding option amounts as of December 31, 2016 and March 31, 2017 include both 2003 Plan options as well as inducement options granted in November 2015 and January 2016 to executive officers in conjunction with their recruitment. |
Stock Sales
Stock Sales | 3 Months Ended |
Mar. 31, 2017 | |
Stock Sales | |
Stock Sales | (8) Stock Sales On January 23, 2017, the Company closed an underwritten public offering consisting of units of common stock, convertible preferred stock and warrants to purchase common stock. Gross proceeds of the offering were $19.0 million, prior to deducting underwriting discounts and commissions and offering expenses of $2.5 million. The offering was comprised of Class A Units, priced at a public offering price of $5.31 per unit, with each unit consisting of one share of common stock and one five-year warrant (each, a "2017 Warrant") to purchase one share of common stock with an exercise price of $5.84 per share, and Class B Units, priced at a public offering price of $1,000 per unit, with each unit comprised of one share of Series A Preferred Stock (the Preferred Stock), which was convertible into 188 shares of common stock, and 2017 Warrants to purchase 188 shares of common stock. The conversion price of the Preferred Stock issued in the transaction as well as the exercise price of the 2017 Warrants are fixed priced and do not contain any variable pricing features nor any price based anti-dilutive features apart from customary adjustments for splits and reverse splits of common stock and both have been recorded within Shareholders’ Equity in the condensed consolidated balance sheet. The Preferred Stock included a beneficial ownership limitation of 4.99%, but had no dividend preference (except to extent dividends are also paid on the common stock), liquidation preference or other preferences over common stock. The securities comprising the units were immediately separable were issued separately. A total of 1,218,107 shares of common stock, 12,531 shares of Preferred Stock convertible into 2,359,894 shares of common stock, and 2017 Warrants to purchase 3,577,994 shares of common stock were issued in the offering including the underwriters’ exercise of their over-allotment option to purchase 466,695 shares of common stock and 2017 Warrants to purchase an additional 466,695 shares of common stock. On January 23 and January 24, 2017 all shares of Preferred Stock issued in conjunction with the offering were converted by their holders into 2,359,894 shares of common stock. |
Warrants
Warrants | 3 Months Ended |
Mar. 31, 2017 | |
Warrants | |
Warrants | (9) Warrants During the three months ended March 31, 2017, common stock warrants for 592,256 shares of common stock were exercised by warrant holders with proceeds to the Company of $3.3 million. Stock warrant activity for the three months ended March 31, 2017 is as follows: Weighted Average Common Exercise Shares Price Balance, December 31, 2016 55,049 $ 238.90 Granted (1) 3,577,994 5.84 Exercised (592,256) 5.60 Cancelled (36) 238.90 Balance, March 31, 2017 3,040,751 $ 8.00 _______________ (1) See Note 8 regarding the issuance of 2017 Warrants |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2017 | |
Subsequent Events | |
Subsequent Events | (10) Subsequent Events On April 26, 2017, the Company entered into a Clinical Trial Agreement (the “Agreement”) with Southern California Permanente Medical Group (“Southern”) with an effective date of June 1, 2017. Under the Agreement, the Company is sponsoring an investigator-initiated study with Southern California Permanente Medical Group, a division of Kaiser Permanente, to study vBloc therapy as a treatment for Type 2 diabetic patients with obesity over a three-year period. As sponsor of the study, the Company is obligated to pay Southern approximately $3.4 million over three years to fund the study. Either party may terminate the Agreement at any time upon 30 days’ notice. |
Summary of Significant Accoun16
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Summary of Significant Accounting Policies | |
Description of Business | Description of Business EnteroMedics Inc. (the Company) develops and sells implantable systems to treat obesity, metabolic diseases and other gastrointestinal disorders. The Company was incorporated in the state of Minnesota on December 19, 2002 and was reincorporated in Delaware on July 22, 2004. The Company is headquartered in St. Paul, Minnesota. In January 2006, the Company established EnteroMedics Europe Sárl, a wholly-owned subsidiary located in Switzerland. The Company’s board of directors and stockholders approved a 1-for-70 reverse split (the Reverse Stock Split) of the Company’s outstanding common stock that became effective after trading on December 27, 2016. The Reverse Stock Split did not change the par value of the Company’s stock or the number of preferred shares authorized by the Company’s Fifth Amended and Restated Certificate of Incorporation. An amendment to the Certificate of Incorporation was also approved in connection with the Reverse Stock Split to increase the number of shares of the Company’s common stock authorized for issuance to 300 million shares, effective immediately after the Reverse Stock Split.. All share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. |
Risks and Uncertainties | Risks and Uncertainties The Company is focused on the design and development of medical devices that use neuroblocking technology to treat obesity, metabolic diseases and other gastrointestinal disorders and currently has approvals to commercially launch the vBloc Neuromodulation System (vBloc System) in the United States, the European Economic Area and other countries that recognize the European CE Mark. The Company has devoted substantially all of its resources to recruiting personnel, developing its product technology, obtaining patents to protect its intellectual property and raising capital, and in 2015 commenced commercial operations in the United States. The Company’s products require approval from the U.S. Food and Drug Administration (FDA) or corresponding foreign regulatory agencies prior to commercial sales. The Company received FDA approval on January 14, 2015 for vBloc Therapy, delivered via the vBloc System, and has begun a controlled commercial launch at select surgical centers in the United States. The vBloc System has also received CE Mark and was previously listed on the Australian Register of Therapeutic Goods (ARTG). The medical device industry is characterized by frequent and extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often difficult to predict, and the outcome may be uncertain until the court has entered final judgment and all appeals are exhausted. The Company’s competitors may assert that its products or the use of the Company’s products are covered by U.S. or foreign patents held by them. The Company’s activities are subject to significant risks and uncertainties, including the ability to obtain additional financing, and there can be no assurance that the Company will be successful in obtaining additional financing on favorable terms, or at all. If adequate funds are not available, the Company may have to further reduce its cost structure until financing is obtained and/or delay development or commercialization of products or license to third parties the rights to commercialize products or technologies that the Company would otherwise seek to commercialize. |
Basis of Presentation | Basis of Presentation The Company has prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The Company’s fiscal year ends on December 31. The accompanying condensed consolidated financial statements and notes thereto are unaudited. In the opinion of the Company’s management, these statements include all adjustments, which are of a normal recurring nature, necessary to present a fair presentation. Interim results are not necessarily indicative of results for a full year. The condensed consolidated balance sheet as of December 31, 2016 was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
Principles of Consolidation | Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and accounts have been eliminated in consolidation. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their short maturities. The Company’s common stock warrants are required to be reported at fair value and the Company has elected to report its senior amortizing convertible notes at fair value. The fair values of common stock warrants and investments in debt and equity securities, if any, are disclosed in Note 3. The fair values of senior amortizing convertible notes (the Notes) outstanding, if any, are valued using a Binomial Lattice model. |
Common Stock Warrant Liability | Common Stock Warrant Liability Common stock warrants that were issued in connection with the July 8, 2015 public offering (the Series A Warrants) and the common stock warrants issued in connection with the November 9, 2015, January 11, 2016 and May 2, 2016 7% senior amortizing convertible notes (the Note Warrants) are classified as a liability in the condensed consolidated balance sheets, as the common stock warrants issued provide for certain anti-dilution protections in the event shares of common stock or securities convertible into shares of common stock are issued below the then-existing exercise price. The fair value of these common stock warrants is re-measured at each financial reporting period and immediately before exercise, with any changes in fair value being recognized as a component of other income (expense) in the condensed consolidated statements of operations. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers highly liquid investments generally with maturities of 90 days or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company’s cash equivalents are primarily in money market funds and certificates of deposit. The Company deposits its cash and cash equivalents in high-quality credit institutions. |
Short-Term Investments | Short-Term Investments The Company considers all investments with maturities greater than three months and less than one year at the time of purchase as short-term investments and classifies them as either available for sale or held to maturity. The Company also considers certain investments with maturities greater than one year but which are also held for liquidity purposes and are available for sale as short-term investments. Available-for-sale securities are carried at fair value based on quoted market prices, with the unrealized gains and losses included in other comprehensive income within stockholders’ equity in the condensed consolidated balance sheets. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in interest and other income. Interest and dividends on securities classified as available for sale are included in interest income. The cost of securities sold is based on the specific identification method. Short-term investments in debt securities which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income, using the interest method, over the period to maturity. Unrealized losses on held-to-maturity securities reflecting a decline in value determined to be other than temporary are charged to income. |
Inventory | Inventory The Company accounts for inventory at the lower of cost or market and records any long-term inventory as other assets in the condensed consolidated balance sheets. |
Property and Equipment, Net | Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over their estimated useful lives of five to seven years for furniture and equipment and three to five years for computer hardware and software. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from the condensed consolidated balance sheets and the resulting gain or loss is reflected in the condensed consolidated statements of operations. Repairs and maintenance are expensed as incurred. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets The Company evaluates its long-lived assets for impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or estimates of future discounted cash flows. The Company has not identified any such impairment losses to date. |
Income Taxes | Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred income tax assets is recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company has provided a full valuation allowance against the gross deferred tax assets. The Company’s policy is to classify interest and penalties related to income taxes as income tax expense in the condensed consolidated statements of operations. |
Medical Device Excise Tax | Medical Device Excise Tax On January 14, 2015, the Company received FDA approval for vBloc Therapy, delivered via the vBloc System, and starting in the second quarter of 2015 revenues were generated from sales in the United States. As a result, the Company is now required to pay a quarterly Medical Device Tax which is a part of the Affordable Care Act, which imposes a 2.3% excise tax on the sale of certain medical devices by device manufactures, producers or importers. The excise tax was effective on sales of devices made after December 31, 2012. The Company records the Medical Device Tax as an operating expense in the condensed consolidated statements of operations. A moratorium was placed on the Medical Device Tax for 2016 and 2017. |
Comprehensive Loss | Comprehensive Loss Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investment owners and distributions to owners. There was no difference from reported net loss for the three months ended March 31, 2017 and 2016. |
Revenue Recognition | Revenue Recognition Revenue is recognized when persuasive evidence of an arrangement exists, title or risk of loss has passed, the selling price is fixed or determinable and collection is reasonably assured. Products are sold through direct sales or medical device distributors and revenue is recognized upon sale to a bariatric center of excellence or a medical device distributor when no right of return or price protection exists. Terms of sales to international distributors are generally EXW, reflecting that goods are shipped “ex works,” in which risk of loss is assumed by the distributor at the shipping point. A provision for returns is recorded only if product sales provide for a right of return. No provision for returns was recorded for the three months ended March 31, 2017 and 2016, as the product sales recorded did not provide for rights of return. |
Research and Development Expenses | Research and Development Expenses Research and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical trial expenses, including supplies, devices, explants and revisions, quality assurance, regulatory expenses, payroll and other personnel expenses, materials and consulting costs. |
Patent Costs | Patent Costs Costs associated with the submission of a patent application are expensed as incurred given the uncertainty of the patents resulting in probable future economic benefits to the Company. |
Stock-Based Compensation | Stock-Based Compensation The fair value method is applied to all share-based payment awards issued to employees and where appropriate, nonemployees, unless another source of literature applies. All option grants are expensed on a straight-line basis over the vesting period. |
Net Loss Per Share | Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share for the three and nine months ended March 31, 2017 and 2016: Three Months Ended March 31, 2017 2016 Numerator: Net loss $ (7,366,812) $ (7,408,762) Denominator for basic and diluted net loss per share: Weighted-average common shares outstanding 5,788,282 112,014 Net loss per share—basic and diluted $ (1.27) $ (66.14) The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented: March 31, 2017 2016 Stock options outstanding 1,132,394 27,912 Warrants to purchase common stock 3,040,751 63,955 |
Recently Issued or Adopted Accounting Standards | Recently Issued or Adopted Accounting Standards In May 2014, FASB issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update No. 2014-09 (ASU 2014-09)), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance will be effective for interim and annual reporting periods beginning after December 15, 2017. The Company does not believe that the adoption of the new standard will have a material effect on its previously reported revenue in that the accounting related to its current revenue-based business practices will not change under the new standard, though incremental disclosures required by the new standard may be significant. In March 2016, FASB issued Improvements to Employee Share-Based Payment Accounting, (Accounting Standards Update No. 2016-09 (ASU 2016-09)), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, the estimation of forfeitures, shares withheld for taxes and classification of shares withheld for taxes on the statement of cash flows. As part of the adoption of this guidance the Company has elected to account for forfeitures of share-based awards as they occur. The Company prospectively adopted ASU 2016-09 as required on January 1, 2017 and the adoption did not have a material effect on its consolidated financial statements. There have been no other significant changes in recent accounting pronouncements during the three months ended March 31, 2017 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. |
Summary of Significant Accoun17
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Summary of Significant Accounting Policies | |
Computation of Basic and Diluted Net Loss per Share | Three Months Ended March 31, 2017 2016 Numerator: Net loss $ (7,366,812) $ (7,408,762) Denominator for basic and diluted net loss per share: Weighted-average common shares outstanding 5,788,282 112,014 Net loss per share—basic and diluted $ (1.27) $ (66.14) |
Antidilutive Securities | March 31, 2017 2016 Stock options outstanding 1,132,394 27,912 Warrants to purchase common stock 3,040,751 63,955 |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Summary of Fair Value Measurements of Senior Amortizing Convertible Notes and Common Stock Warrants | Level 1 Level 2 Level 3 Total Common stock warrants at December 31, 2016 $ — $ 39,119 $ — $ 39,119 Common stock warrants at March 31, 2017 $ — $ 46,737 $ — $ 46,737 |
Warrants | |
Series A Warrants Fair Value Calculated Using Black-Scholes Valuation Model | Series A Warrants November 2015 Note Warrants March 31, 2017 December 31, 2016 March 31, 2017 December 31, 2016 Risk-free interest rates 1.27 % 1.20 % 1.50 % 1.47 % Expected life 21 months 24 months 43 months 46 months Expected dividends — % — % — % — % Expected volatility 181.45 % 122.03 % 136.37 % 102.29 % Fair value $ 20,626 $ 36,000 $ 2,303 $ 449 January 2016 Note Warrants May 2016 Note Warrants March 31, 2017 December 31, 2016 March 31, 2017 December 31, 2016 Risk-free interest rates 1.93 % 1.93 % 1.93 % 1.93 % Expected life 45 months 48 months 49 months 52 months Expected dividends — % — % — % — % Expected volatility 133.88 % 108.57 % 130.39 % 106.37 % Fair value $ 15,163 $ 1,633 $ 8,645 $ 1,037 |
Notes | |
Summary of Fair Value Measurements of Senior Amortizing Convertible Notes and Common Stock Warrants | November 2015 Notes January 2016 Notes March 31, 2016 December 31, 2015 March 31, 2016 January 11, 2016 Risk-free interest rates 0.68 % 1.11 % 0.68 % 1.01 % Expected life 1.61 years 1.86 years 1.61 years 1.83 years Expected dividends — % — % — % — % Expected volatility 65.0 % 57.5 % 65.0 % 60.0 % Fair value per share of common stock $ 0.01 $ 0.03 0.01 $ |
Inventory (Tables)
Inventory (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Inventory | |
Current Inventory | March 31, December 31, 2017 2016 Raw materials $ 283,281 $ 335,606 Work-in-process 1,403,761 1,437,957 Finished goods 15,886 16,015 Inventory $ 1,702,928 $ 1,789,578 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Commitments and Contingencies | |
Future Minimum Lease Payments | Year ending December 31, Remaining nine months of 2017 $ 178,844 2018 183,103 $ 361,947 |
Stock-based Compensation (Table
Stock-based Compensation (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Stock-based Compensation | |
Summary of Operating Expenses and Employee and Nonemployees | Three Months Ended March 31, 2017 2016 Selling, general and administrative $ 2,217,200 $ 839,777 Research and development 29,200 252,711 Total $ 2,246,400 $ 1,092,488 |
Stock Option Valuation Assumptions | Three Months Ended March 31, 2017 2016 Risk-free interest rates 1.92%–2.39% 1.16%–1.64% Expected life 6.00 years 5.00 years–6.25 years Expected dividends 0% 0% Expected volatility 114.38%–131.24% 88.43%–92.24% |
Summary of Stock Option Activity | Outstanding Options Shares Available For Number of Weighted-Average Grant Shares (1) Exercise Price (1) Balance, December 31, 2016 2,988,243 19,840 $ 770.35 Shares reserved — — — Options granted (1,113,450) 1,113,450 7.12 Options exercised — — — Options cancelled 896 (896) 65.14 Balance, March 31, 2017 1,875,689 1,132,394 $ 20.34 _________________ (1) Outstanding option amounts as of December 31, 2016 and March 31, 2017 include both 2003 Plan options as well as inducement options granted in November 2015 and January 2016 to executive officers in conjunction with their recruitment. |
Warrants (Tables)
Warrants (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Warrants | |
Stock Warrants Activity | Weighted Average Common Exercise Shares Price Balance, December 31, 2016 55,049 $ 238.90 Granted (1) 3,577,994 5.84 Exercised (592,256) 5.60 Cancelled (36) 238.90 Balance, March 31, 2017 3,040,751 $ 8.00 _______________ (1) See Note 8 regarding the issuance of 2017 Warrants |
Summary of Significant Accoun23
Summary of Significant Accounting Policies (Detail) | Jan. 14, 2015 | Mar. 31, 2017USD ($)shares | Dec. 31, 2016itemshares | Mar. 31, 2016USD ($) | Jan. 06, 2016shares |
Schedule Of Significant Accounting Policies [Line Items] | |||||
Reverse Stock Split Ratio | item | 0.0142 | ||||
Common stock authorized for issuance | shares | 300,000,000 | 300,000,000 | 300,000,000 | ||
Cash equivalents maturity period | 90 days | ||||
Excise tax rate on medical devices | 2.30% | ||||
Provision for returns | $ | $ 0 | $ 0 | |||
Minimum | |||||
Schedule Of Significant Accounting Policies [Line Items] | |||||
Short term investment maturity period | 1 year | ||||
Maximum | |||||
Schedule Of Significant Accounting Policies [Line Items] | |||||
Short term investment maturity period | 3 months | ||||
Furniture and Fixtures | Minimum | |||||
Schedule Of Significant Accounting Policies [Line Items] | |||||
Property and equipment estimated useful lives | 5 years | ||||
Furniture and Fixtures | Maximum | |||||
Schedule Of Significant Accounting Policies [Line Items] | |||||
Property and equipment estimated useful lives | 7 years | ||||
Computer hardware and software | Minimum | |||||
Schedule Of Significant Accounting Policies [Line Items] | |||||
Property and equipment estimated useful lives | 3 years | ||||
Computer hardware and software | Maximum | |||||
Schedule Of Significant Accounting Policies [Line Items] | |||||
Property and equipment estimated useful lives | 5 years |
Summary of Significant Accoutin
Summary of Significant Accouting Policies - Computation of Basic and Diluted Net Loss Per Share (Detail) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Numerator: | ||
Net loss | $ (7,366,812) | $ (7,408,762) |
Denominator for basic and diluted net loss per share: | ||
Weighted-average common shares outstanding | 5,788,282 | 112,014 |
Net loss per share-basic and diluted | $ (1.27) | $ (66.14) |
Summary of Significant Accout25
Summary of Significant Accouting Policies - Additional Information (Detail) - shares | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Stock options outstanding | ||
Anti-dilutive Securities | ||
Anti-dilutive as of end of each period | 1,132,394 | 27,912 |
Warrants to purchase common stock | ||
Anti-dilutive Securities | ||
Anti-dilutive as of end of each period | 3,040,751 | 63,955 |
Liquidity and Management's Pl26
Liquidity and Management's Plans (Detail) - USD ($) | Jan. 23, 2017 | Mar. 31, 2017 | Dec. 31, 2016 | Mar. 31, 2016 | Dec. 31, 2015 |
Liquidity and Management's Plans | |||||
Gross proceeds before deducting estimate offering expenses | $ 19,000,000 | ||||
Offering costs | $ 2,500,000 | ||||
Common stock warrants | 592,256 | ||||
Proceeds from warrants exercised | $ 3,318,013 | ||||
Cash and cash equivalents | $ 18,681,046 | $ 3,310,787 | $ 11,153,525 | $ 7,927,240 |
Fair Value Measurements (Detail
Fair Value Measurements (Detail) - USD ($) | Jan. 11, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 |
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Convertible notes, interest rate | 7.00% | ||||
Notes Issued November 2015 | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Risk-free interest rates | 0.68% | 1.11% | |||
Expected life | 1 year 7 months 10 days | 1 year 10 months 10 days | |||
Expected volatility | 65.00% | 57.50% | |||
Fair value per share of common stock | $ 0.01 | $ 0.03 | |||
Notes Issued November 2015 | First closing | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Debt Instrument Carrying Amount | $ 1,500,000 | ||||
Fair value outstanding notes | $ 1,200,000 | $ 1,300,000 | |||
Notes Issued January 11, 2016 | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Risk-free interest rates | 1.01% | 0.68% | |||
Expected life | 1 year 9 months 29 days | 1 year 7 months 10 days | |||
Expected volatility | 60.00% | 65.00% | |||
Fair value per share of common stock | $ 0.02 | $ 0.01 | |||
Notes Issued January 11, 2016 | Second closing | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Debt Instrument Carrying Amount | $ 11,000,000 | ||||
Fair value outstanding notes | $ 9,900,000 | $ 9,500,000 | |||
Series A Warrants Issued July 8, 2015 | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Risk-free interest rates | 1.27% | 1.20% | |||
Expected life | 21 months | 24 months | |||
Expected volatility | 181.45% | 122.03% | |||
Fair value | $ 20,626 | $ 36,000 | |||
Warrants Issued November 2015 | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Risk-free interest rates | 1.50% | 1.47% | |||
Expected life | 43 months | 46 months | |||
Expected volatility | 136.37% | 102.29% | |||
Fair value | $ 2,303 | $ 449 | |||
Warrants Issued January 11, 2016 | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Risk-free interest rates | 1.93% | 1.93% | |||
Expected life | 45 months | 48 months | |||
Expected volatility | 133.88% | 108.57% | |||
Fair value | $ 15,163 | $ 1,633 | |||
Warrants Issued May 2, 2016 | |||||
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |||||
Risk-free interest rates | 1.93% | 1.93% | |||
Expected life | 49 months | 52 months | |||
Expected volatility | 130.39% | 106.37% | |||
Fair value | $ 8,645 | $ 1,037 |
Fair Value Measurements - Senio
Fair Value Measurements - Senior Amortizing Convertible Notes and Common Stock Warrants (Detail) - Common Stock - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total | $ 46,737 | $ 39,119 |
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Total | $ 46,737 | $ 39,119 |
Inventory (Detail)
Inventory (Detail) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Inventory | ||
Long-term inventory | $ 667,000 | $ 676,000 |
Inventory - Additional Informat
Inventory - Additional Information (Detail) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Inventory | ||
Raw materials | $ 283,281 | $ 335,606 |
Work-in-process | 1,403,761 | 1,437,957 |
Finished goods | 15,886 | 16,015 |
Inventory | $ 1,702,928 | $ 1,789,578 |
Commitments and Contingencies31
Commitments and Contingencies (Detail) | Aug. 25, 2015USD ($) | Feb. 28, 2017shareholderdefendantshares | Mar. 31, 2017USD ($) | Mar. 31, 2016USD ($) | Sep. 30, 2016 |
Loss Contingencies [Line Items] | |||||
Operating lease agreement expiration date | Sep. 30, 2018 | Sep. 30, 2015 | |||
Operating lease agreement term | 3 years | ||||
Total rent expense | $ 58,905 | $ 67,718 | |||
Number of months that require patients to be followed out in clinical trials | 60 months | ||||
Du Litigation | |||||
Loss Contingencies [Line Items] | |||||
Number of shareholders | shareholder | 1 | ||||
Number of Senior Management members | defendant | 4 | ||||
Number of Shares | shares | 1,093,450 | ||||
Minimum | |||||
Loss Contingencies [Line Items] | |||||
Operating lease, monthly base rent | $ 18,925 | ||||
Maximum | |||||
Loss Contingencies [Line Items] | |||||
Operating lease, monthly base rent | $ 20,345 |
Commitments and Contingencies -
Commitments and Contingencies - Additional Information (Detail) | Mar. 31, 2017USD ($) |
Commitments and Contingencies | |
Remaining nine months of 2017 | $ 178,844 |
2,018 | 183,103 |
Operating Leases, Future Minimum Payments Due, Total | $ 361,947 |
Senior Amortizing Convertible33
Senior Amortizing Convertible Notes (Detail) - USD ($) $ in Thousands | May 02, 2016 | Mar. 31, 2016 | Jan. 11, 2016 | Nov. 09, 2015 |
Debt Instrument [Line Items] | ||||
Convertible notes, interest rate | 7.00% | |||
Senior Amortizing Convertible Note | ||||
Debt Instrument [Line Items] | ||||
Convertible notes, interest rate | 7.00% | 7.00% | 7.00% | |
Senior amortizing convertible notes to be issued | $ 6,250 | $ 11,000 | $ 1,500 |
Stock-based Compensation - Expe
Stock-based Compensation - Expense for Stock-Based Awards (Detail) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Stock-based compensation | $ 2,246,400 | $ 1,092,488 |
Total unrecognized compensation costs related to non-vested stock options | $ 6,400,000 | |
Total unrecognized compensation costs related to non-vested stock options, weighted-average period of recognition | 2 years 9 months 18 days | |
Selling, general and administrative | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Stock-based compensation | $ 2,217,200 | 839,777 |
Research and development | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Stock-based compensation | 29,200 | 252,711 |
Nonemployees | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Stock-based compensation | $ 142,000 | $ 3,000 |
Stock-based Compensation - Esti
Stock-based Compensation - Estimated Grant-Date Fair Values of Employee Stock Options (Detail) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Risk-free interest rates, minimum | 1.92% | 1.16% |
Risk-free interest rates, maximum | 2.39% | 1.64% |
Expected life | 6 years | |
Expected dividends | 0.00% | 0.00% |
Expected volatility, minimum | 114.38% | 88.43% |
Expected volatility, maximum | 131.24% | 92.24% |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected life | 5 years | |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected life | 6 years 3 months |
Stock-based Compensation - Summ
Stock-based Compensation - Summary of Stock Option Activity (Detail) - Stock Incentive Plan 2003 | 3 Months Ended |
Mar. 31, 2017$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Shares Available For Grant, Beginning Balance | 2,988,243 |
Shares Available For Grant, Options granted | (1,113,450) |
Shares Available For Grant, Options cancelled | 896 |
Shares Available For Grant, Ending Balance | 1,875,689 |
Outstanding Options, Number of Shares, Beginning Balance | 19,840 |
Outstanding Options, Number of Shares, Options granted | 1,113,450 |
Outstanding Options, Number of Shares, Options cancelled | (896) |
Outstanding Options, Number of Shares, Ending Balance | 1,132,394 |
Outstanding Options, Weighted-Average Exercise Price, Beginning Balance | $ / shares | $ 770.35 |
Outstanding Options, Weighted-Average Exercise Price, Options granted | $ / shares | 7.12 |
Outstanding Options, Weighted-Average Exercise Price, Options cancelled | $ / shares | 65.14 |
Outstanding Options, Weighted-Average Exercise Price, Ending Balance | $ / shares | $ 20.34 |
Stock Sales (Detail)
Stock Sales (Detail) - USD ($) $ / shares in Units, $ in Millions | Jan. 24, 2017 | Jan. 23, 2017 | Mar. 31, 2017 | Dec. 31, 2016 |
Class of Stock [Line Items] | ||||
Gross proceeds before deducting estimate offering expenses | $ 19 | |||
Offering costs | $ 2.5 | |||
Number of common stock | 6,906,878 | 2,736,621 | ||
Common stock warrants | 592,256 | |||
Beneficial ownership percentage | 4.99% | |||
Common stock (in shares) | 1,218,107 | 6,906,878 | 2,736,621 | |
Preferred stock ( in shares) | 0 | 0 | ||
Class A Units | ||||
Class of Stock [Line Items] | ||||
Offer price | $ 5.31 | |||
Number of common stock | 1 | |||
Common stock warrants | 1 | |||
Warrant Term | 5 years | |||
Exercise price | $ 5.84 | |||
Shares issued upon conversion (in shares) | 188 | |||
Class B Units | ||||
Class of Stock [Line Items] | ||||
Offer price | $ 1,000 | |||
Common stock warrants | 3,577,994 | |||
Shares issued upon conversion (in shares) | 2,359,894 | |||
Preferred Stock | ||||
Class of Stock [Line Items] | ||||
Shares issued upon conversion (in shares) | 2,359,894 | 2,359,894 | ||
Preferred stock ( in shares) | 12,531 | |||
Warrants 2,017 | ||||
Class of Stock [Line Items] | ||||
Common stock warrants | 188 | |||
Over-allotment option | ||||
Class of Stock [Line Items] | ||||
Common stock shares issued (in shares) | 466,695 | |||
Over-allotment option | Warrants 2017 | ||||
Class of Stock [Line Items] | ||||
Common stock shares issued (in shares) | 466,695 |
Warrants (Detail)
Warrants (Detail) | 3 Months Ended |
Mar. 31, 2017USD ($)$ / sharesshares | |
Class of Warrant or Right [Line Items] | |
Common stock warrants | 592,256 |
Proceeds from warrants exercised | $ | $ 3,318,013 |
Common Stock | |
Class of Warrant or Right [Line Items] | |
Beginning Balance | 55,049 |
Granted | 3,577,994 |
Exercised | (592,256) |
Cancelled | (36) |
Ending Balance | 3,040,751 |
Beginning Balance | $ / shares | $ 238.90 |
Granted | $ / shares | 5.84 |
Exercised | $ / shares | 5.60 |
Cancelled | $ / shares | 238.90 |
Ending Balance | $ / shares | $ 8 |
Subsequent Events (Detail)
Subsequent Events (Detail) - Southern - Subsequent Event $ in Millions | Apr. 26, 2017USD ($) |
Clinical trial period of Type 2 diabetic patient study | 3 years |
Amount obligated to pay | $ 3.4 |
Term of agreement | 3 years |
Termination notice period | 30 days |