UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other
jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
As of August 10, 2023, the registrant had shares of common stock, par value $0.0001 per share and 7,680,938 warrants, outstanding.
VIVANI MEDICAL, INC.
AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
VIVANI MEDICAL, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (unaudited)
(in thousands except per share data)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Restricted cash | ||||||||
| Deposits and other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Litigation accrual | ||||||||
| Accrued compensation expense | ||||||||
| Current operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long term operating lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, par value, shares authorized; outstanding | ||||||||
| Common stock, par value $ per share; shares authorized; shares issued and outstanding: as of June 30, 2023 and as of December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
VIVANI MEDICAL, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
| For the Three Months ended | For the Six Months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development, net of grants | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense), net | ( |
) | ( |
) | ||||||||||||
| Net income/(loss) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net income/(loss) per common share – basic | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average common shares outstanding – basic | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
VIVANI MEDICAL, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
(in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustments | ||||||||||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
VIVANI MEDICAL, INC.
AND SUBSIDIARIES
Condensed
Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited)
(in thousands)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity (Deficit) | |||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Repurchase of common stock | ||||||||||||||||||||||||
| Options exercised | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
| Options exercised | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Options exercised | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Foreign currency adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Options exercised | ||||||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||
| Foreign currency adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
VIVANI MEDICAL, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ( |
) | ( |
) | ||||
| Accounts payable | ||||||||
| Accrued compensation expenses | ( |
) | ||||||
| Accrued expenses | ( |
) | ||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from SAFE note | ||||||||
| Net proceeds from sale of common stock and exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||
| Cash, cash equivalents and restricted cash: | ||||||||
| Net increase (decrease) | ( |
) | ||||||
| Balance at beginning of period | ||||||||
| Balance at end of period | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Establishment of operating right-of-use assets through operating lease obligations | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
VIVANI MEDICAL, INC.
AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)
| 1. | Organization and Business Operations |
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 implants, 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 implants 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 the life of the implant. In addition, by leveraging our proprietary NanoPortal implant technology we can design implants that deliver minimally fluctuating drug levels that may improve the tolerability profiles for certain medicines for which side effects are associated with fluctuating drug levels such as GLP-1 receptor agonists (GLP-1s).
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”), 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 renamed Vivani Medical, Inc.
In December 2022, we contributed our neuromodulation assets and certain liabilities to Cortigent, Inc. a newly formed corporation in Delaware, and wholly owned subsidiary of Vivani, in exchange for 20 million shares of common stock of Cortigent. While the primary focus of Vivani is to develop and ultimately commercialize our drug implant business from legacy company NPM, Vivani’s new 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 will continue to be majority-owned by Vivani immediately following its initial public offering.
Subject to completion of Cortigent’s initial public offering, Vivani intends to focus exclusively on further development of the drug implant 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 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.
In early July 2023, Vivani successfully completed the manufacture of clinical supplies to support a proposed first-in-human (“FIH”) investigation of NPM-119 (exenatide implant) in patients with type 2 diabetes mellitus. On July 14, 2023, the Company submitted an Investigational New Drug (“IND”) application to the U.S. Food and Drug Administration (“FDA)” for the proposed NPM-119 FIH study also named LIBERATE-1™. On August 11, 2023, FDA verbally notified Vivani that the agency was placing a clinical hold on Vivani’s IND application for the proposed clinical investigation and indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. Vivani plans to engage with the FDA in order to lift the clinical hold and commence its planned clinical development of NPM-119. The Company expects to commence enrollment in LIBERATE-1 in the second half of 2023 subject to regulatory clearance. Assuming LIBERATE-1 commences as planned, the Company would anticipate the availability of interim LIBERATE-1 data in the first half of 2024 and full top-line results in the second half of 2024.
8
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
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 $
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”), Business Combinations.
Accordingly,
The
acquisition-date fair value of consideration transferred totaled $
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 | $ | |||
| Property and equipment | ||||
| Prepaid expenses | ||||
| Right of use assets | ||||
| Other assets | ||||
| Total identifiable assets acquired | ||||
| Current liabilities | ( |
) | ||
| Right of use liabilities | ( |
) | ||
| Total liabilities assumed | ||||
| Net identifiable assets acquired | $ | |||
The
SAFE loan of $
The following table summarizes the calculation of the gain on bargain purchase (in thousands):
| Total consideration | $ | |||
| SAFE loan forgiven | ( |
) | ||
| Less net identifiable assets acquired | ( |
) | ||
| Gain on bargain purchase | $ |
Because
NPM purchased
We
recognized $
Pro
forma consolidated net loss as if Second Sight had been included in the consolidated results was $
Liquidity
From
inception, our operations have been funded primarily through the sales of our common stock and warrants. The completion of our
reverse merger with Second Sight Medical Products, Inc. provided $
Our financial statements have been presented on the basis that our business is a going concern, 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. We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations through September 2024.
9
2. Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation
These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and following the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In our opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2022, included within our Annual Report on Form 10-K filed with the SEC on March 31, 2023. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.
Income taxes - interim periods
In calculating the provision for interim income taxes, in accordance with ASC 740, Income Taxes, an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period.
Use of estimates
The preparation of financial statements requires management to make a number of estimates and assumptions related to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the period. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Some of the more significant estimates include the purchase price of net assets acquired in the Merger, useful lives of long-lived assets, the fair value of equity-based compensation, and the estimated incremental borrowing rate used in calculating lease assets and liabilities and evaluation of going concern. Actual results could differ materially from those estimates.
Basic net income/loss per share is computed using net income/loss from operations divided by the weighted-average number of shares of common stock outstanding during the period.
Diluted net income/loss per share represents net income/loss from operations divided by the weighted- average number of common shares outstanding during the period, including all potentially dilutive common stock equivalents. Common stock equivalents consist of shares subject to warrants and share-based awards with exercise prices less than the average market price of common stock for the period, to the extent their inclusion would be dilutive.
| June
30, 2023 |
June
30, 2022 |
|||||||
| Shares underlying warrants outstanding | ||||||||
| Shares underlying stock options outstanding | ||||||||
| Shares underlying RSU’s | ||||||||
The shares underlying the SAFE obligation were issuable only if the Merger were to be terminated. These contingently issuable shares were excluded from the dilutive computation because conversion was not “probable” as defined in the accounting literature. However, if the evaluation met the probability threshold, the shares would be excluded from diluted EPS since their inclusion would have an anti-dilutive effect.
Significant Accounting Policies
Our significant accounting policies are set forth in our financial statements for the year ended December 31, 2022, included within our Annual Report on Form 10-K filed with the SEC on March 31, 2023.
Recently Issued Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on the financial statements.
3. Concentration of 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 we deem reputable.
Foreign Operations
The
accompanying condensed consolidated financial statements as of June 30, 2023, include gross assets amounting to $
10
4. Fair Value Measurements
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-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-traded non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.
Cash equivalents, which includes money market funds, are the only financial instrument measured and recorded at fair value on our consolidated balance sheet, and they are valued using Level 1 inputs.
Assets measured at fair value on a recurring basis are as follows (in thousands):
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| June 30, 2023 (unaudited): | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| December 31, 2022: | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
5. Selected Balance Sheet Detail
Property and equipment
Property and equipment consisted of the following (in thousands):
| June
30, 2023 |
December
31, 2022 |
|||||||
| Equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Software | ||||||||
| Leasehold improvements | ||||||||
| Accumulated depreciation and amortization | ( |
) | ( |
) | ||||
| Property and equipment, net | $ | $ | ||||||
11
Right-of-use assets and operating lease liabilities
We lease certain office 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 based on the information available at commencement date in determining the present value of lease payments.
| Assets | Classification | June
30, 2023 (in thousands) |
December
31, 2022 (in thousands) |
|||||||
| Non-current assets | Right-of-use assets | $ | $ | |||||||
| Liabilities | ||||||||||
| Current | Current operating lease liabilities | $ | $ | |||||||
| Long term | Long term operating lease liabilities | $ | $ | |||||||
| For the three months ended June 30, 2023 | For the three months ended June 30, 2022 | For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | |||||||||||||
| Cash paid for operating lease liabilities (in thousands) | $ | $ | ||||||||||||||
Rent
expense, including common area maintenance charges, was $
On
February 1, 2023, we entered into a lease agreement, effective
Vivani
entered into
The Company evaluated the lease under the provisions of ASC 842, Leases. Information related to the right-of-use assets and related lease liabilities under this lease are as follows (in thousands):
| Year Ending December 31, | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total lease payments | $ | ||||
| Less imputed interest | ( | ) | |||
| Total lease liabilities | $ | ||||
| Discount rate | % | ||||
12
6. Equity Securities
We are authorized to issue shares of common stock with issued as of June 30, 2023. In addition, we are authorized to issue shares of preferred stock with 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, shares were deemed issued for the merger acquisition.
7. Warrants
NPM, prior to the Merger, issued common stock and warrants (collectively, the “unit” or “units”) in 2019, 2020 and 2021 for $ per unit. Outstanding warrants of to purchase common stock are shown in the table below and generally expire years from the date of issuance at $ per share, 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 were outstanding and are convertible into shares in the table below and converted as part of the Merger for Vivani warrants on a like for-like basis. The weighted average exercise price of these warrants is $. Of this total warrants are convertible into 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 were substantially out-of-the-money and were assigned no value.
13
A summary of warrant activity for the six months ended June 30, 2023 is presented below (in thousands, except per share and contractual life data).
| Number
of Shares |
Weighted
Average Exercise Price Per Share |
Weighted
Average Remaining Contractual Life (in Years) |
||||||||||
| Warrants outstanding as of December 31, 2022 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Forfeited or expired | ||||||||||||
| Warrants outstanding as of June 30, 2023 | $ | |||||||||||
| Warrants exercisable as of June 30, 2023 | $ | |||||||||||
The warrants outstanding as of June 30, 2023, had intrinsic value.
8. Stock-Based Compensation
| Number
of Shares |
Weighted
Average Exercise Price Per Share |
Weighted
Average Remaining Contractual Life (in Years) |
||||||||||
| Options outstanding as of December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( |
) | $ | |||||||||
| Forfeited or expired | ( |
) | $ | |||||||||
| Options outstanding, vested and expected to vest as of June 30, 2023 | $ | |||||||||||
| Options exercisable as of June 30, 2023 | $ | |||||||||||
The estimated aggregate intrinsic value of stock options exercisable as of June 30, 2023, was $. As of June 30, 2023, there was $ million of total unrecognized compensation cost related to outstanding stock options that will be recognized over a weighted average period of years.
During
the six months ended June 30, 2023, we granted stock options to purchase
shares of common stock to certain employees and board members. The options are exercisable for a period of from the date of grant at a weighted average price of $
per 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 . The fair value of options subject to only service conditions are valued using the Black-Scholes option pricing
model, while those subject to performance or market conditions are valued using the Monte-Carlo Simulation model. During the
six-months ended June 30, 2023,
options were issued and valued at $
| ● | 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, riskfree 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. |
During the six-months ended June 30, 2023, 921,817 options were issued and valued at $0.9 million using the Black-Scholes option-pricing model using the following assumptions: expected term of to years, volatility of %, risk-free interest rate of % to %, and expected dividend rate of %.
We also granted RSU’s (as defined below) during the quarter.
Number
of Shares |
Weighted
Average Grant
Date Fair Value
Per Share |
|||||||
| Outstanding as of December 31, 2022 | $ | |||||||
| Awarded | ||||||||
| Vested and released | ||||||||
| Forfeited/canceled | ||||||||
| Outstanding as of June 30, 2023 | $ | |||||||
As of June 30, 2023, there was $ million of total unrecognized compensation cost related to the outstanding RSUs that will be recognized over a weighted average period of years.
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| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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| 9. | Risk and Uncertainties |
We continue to monitor the ongoing COVID-19 global pandemic which has resulted in travel and other restrictions to reduce the spread of the disease. We presently are not experiencing any significant disruptions from the ongoing COVID-19 pandemic. All clinical and chemistry, manufacturing and control activities are currently active.
The safety, health and well-being of all patients, medical staff and internal and external teams is the paramount and primary focus. As the pandemic and its resulting restrictions evolve in jurisdictions across the country, the potential exists for further disruptions to projected timelines. We are in close communication with clinical teams and key vendors and are prepared to take action should the pandemic worsen and impact the business in the future.
10. Commitments and Contingencies
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 expense for the three and six months ended June 30, 2023 were $
Litigation, Claims and Assessments
Three oppositions filed by Pixium Vision SA (“Pixium”) are pending in the European Patent Office, each challenging the validity of a European patent owned by us. The outcomes of the challenges are not certain, however, if successful, they may affect our ability to block competitors from utilizing our patented technology. We do not believe a successful challenge will have a material effect on our ability to manufacture and sell our products, or otherwise have a material effect on our 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. 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 $
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 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.
11. Subsequent Events
In early July 2023, Vivani successfully completed the manufacture of clinical supplies to support a proposed first-in-human (“FIH”) investigation of NPM-119 (exenatide implant) in patients with type 2 diabetes mellitus. On July 14, 2023, the Company submitted an Investigational New Drug (“IND”) application to the U.S. Food and Drug Administration (“FDA)” for the proposed NPM-119 FIH study also named LIBERATE-1. On August 11, 2023, FDA verbally notified Vivani that the agency was placing a clinical hold on Vivani’s IND application for the proposed clinical investigation and indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. Vivani plans to engage with the FDA in order to lift the clinical hold and commence its planned clinical development of NPM-119. The Company expects to commence enrollment in LIBERATE-1 in the second half of 2023 subject to regulatory clearance. Assuming LIBERATE-1 commences as planned, the Company would anticipate the availability of interim LIBERATE-1 data in the first half of 2024 and full top-line results in the second half of 2024.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our products, plans and strategy for our business and related financing, contains forward-looking statements that involve risks and uncertainties, including statements regarding our expected financial results in future periods. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “will,” “would,” “strategy” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, liquidity, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals, including those required to commence clinical development of our product candidates, insurance reimbursements and product launches, our financing plans and future capital requirements, and statements regarding the anticipated or projected impact of our merger on our business, results of operations, financial condition or prospects, the materially adverse impact of the recent COVID-19 coronavirus pandemic and related public health measures on our business. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. We assume no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect actual outcomes.
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 implants, 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 implants 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 the life of the implant. In addition, by leveraging our proprietary NanoPortal implant technology we can design implants that deliver minimally fluctuating drug levels that may improve the tolerability profiles for certain medicines for which side effects are associated with fluctuating drug levels such as GLP-1 receptor agonists (GLP-1s).
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”) 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 renamed Vivani Medical, Inc.
In December 2022, we contributed our neuromodulation assets and certain liabilities to Cortigent, Inc., a newly formed wholly owned subsidiary of Vivani, in exchange for 20 million shares of common stock of Cortigent. While the primary focus of Vivani is to develop and ultimately commercialize our drug implant business from legacy company NPM, Vivani’s new 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 is expected to continue to be majority-owned by Vivani immediately following the initial public offering.
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 by, Vivani’s stockholders at its 2023 Annual Meeting of Stockholders held on June 15, 2023.
Subject to completion of Cortigent’s initial public offering, Vivani intends to focus exclusively on further development of the drug implant business.
In early July 2023, Vivani successfully completed the manufacture of clinical supplies to support a proposed first-in-human (“FIH”) investigation of NPM-119 (exenatide implant) in patients with type 2 diabetes mellitus. On July 14, 2023, the Company submitted an Investigational New Drug (“IND”) application to the U.S. Food and Drug Administration (“FDA)” for the proposed NPM-119 FIH study also named LIBERATE-1. On August 11, 2023, FDA verbally notified Vivani that the agency was placing a clinical hold on Vivani’s IND application for the proposed clinical investigation and indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. Vivani plans to engage with the FDA in order to lift the clinical hold and commence its planned clinical development of NPM-119. The Company expects to commence enrollment in LIBERATE-1 in the second half of 2023 subject to regulatory clearance. Assuming LIBERATE-1 commences as planned, the Company would anticipate the availability of interim LIBERATE-1 data in the first half of 2024 and full top-line results in the second half of 2024.
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Liquidity
From inception, our operations have been funded primarily through the sales of our common stock and warrants. The completion of our reverse merger with Second Sight Medical Products, Inc. provided $53.3 million in net assets including approximately $55.4 million in cash.
Second Sight was awarded a $6.4 million National Institutes of Health (“NIH”) five-year grant (with annual reviews) from NIH to fund the “Early Feasibility Clinical Trial of a Visual Cortical Prosthesis.” The fifth and final year grant of $1.0 million was approved in March 2023.
We are subject to the risks and uncertainties associated with a business with no revenue that is developing novel pharmaceutical product candidates and medical devices candidates. 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. We expect our operating expenses to increase significantly as we continue our business operations, particularly as we prepare to and initiate our planned clinical trial of NPM-119 and conduct our other research and development activities.
On August 11, 2023, the FDA notified us that the agency was placing a clinical hold on our IND for the proposed FIH study of NPM-119. The FDA indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. If we are required to conduct additional IND-enabling activities such as additional pre-clinical studies, our overall expenditures relating to our NPM-119 program would increase. Our financial statements have been presented on the basis that our business is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. To finance our operations, we will need to raise additional capital, which cannot be assured. Our operating plan may change as a result of many factors currently unknown to us, and we will need to seek additional funds through public or private equity offerings or 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 or maintain our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which could materially and adversely affect our business, financial condition and results of operations. We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations through September 2024.
Merger Agreement
As discussed in the Notes to Condensed Consolidated Financial Statements of the Company, on February 4, 2022, the Company entered the Merger Agreement with Second Sight. On May 13, 2022, the Company filed a Registration Statement on Form S-4 (the “Registration Statement”) with the SEC in connection with the contemplated Merger, which is currently effective. Shareholders of the Company approved the Merger on July 27, 2022, and the merger was completed in August 2022.
Safe Agreement
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. If the Merger were to be terminated without completion, NPM would issue to Second Sight that number of shares of NPM common stock equal to not less than 2.133% of the issued and outstanding shares of NPM common stock assuming exercise or conversion of all outstanding vested and unvested options, warrants, and convertible securities. 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 million adjusted the purchase consideration.
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Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) and the requirements of the United States Securities and Exchange Commission require management to make estimates, assumptions and judgments that affect the amounts, liabilities, revenue and expenses reported in the financial statements and the notes to the financial statements. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable 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. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies during the six months ended June 30, 2023.
Results of Operations
Operating Expenses. We generally recognize our operating expenses as incurred in two general operational categories: research and development 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 and general and administrative personnel. 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 the amount of funding received from 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, and clinical as well as internal and external costs associated with conducting clinical trials and maintaining relationships with regulatory agencies offset by grant revenue received in support of specific research projects. We expense our research and development costs as they are incurred. |
| ● | 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. |
Comparison of the Three Months Ended June 30, 2023 and 2022
Research and development expense. Research and development expense increased by $0.7 million, or 21%, to $3.9 million in the second quarter of 2023 from $3.2 million in the second quarter of 2022. The costs increased due to costs of our acquired company Second Sight being included from the merger acquisition date of August 30, 2022. This inclusion increased these costs for the quarter by $0.5 million. The remainder of the increase was primarily due to drug implants development costs.
General and administrative expense. General and administrative expense increased $2.2 million, or 255%, to $3.1 million in the second quarter of 2023 from $0.9 million in the same period of 2022. This increase was attributable to increased costs associated with the inclusion of our acquired company Second Sight which totaled $1.0 million in the second quarter of 2023, higher costs associated with being a public company of $0.9 million for D&O insurance and professional fees, and payroll related expenses. Approximately $0.2 million of costs were incurred related to the Cortigent IPO in the quarter.
Other income. Other income was impacted by the merger acquisition of cash which increased our interest income by $0.5 million for the three months ended June 30, 2023 as compared to the same period in 2022 before the merger.
Comparison of the Six Months Ended June 30, 2023 and 2022
Research and development expense. Research and development expense increased by $1.9 million, or 33%, to $7.8 million in the first six months of 2023 from $5.9 million in the same period of 2022. The costs increased due to costs of our acquired company Second Sight being included from the merger acquisition date of August 30, 2022. This inclusion increased these costs for the period by $1.2 million. The remainder of the increase was primarily due to drug implants development costs.
General and administrative expense. General and administrative expense increased $3.7 million, or 174%, to $5.8 million in the first six months of 2023 from $2.1 million in the same period of 2022. This increase was attributable to increased costs associated with the inclusion of our acquired company Second Sight which totaled $2.1 million in the first six months of 2023, higher public company costs of $1.0 million, and higher payroll related expenses. Approximately $0.3 million of costs were incurred related to the Cortigent IPO in the period.
Other income. Other income was impacted by the merger acquisition of cash which increased our interest income to $0.7 million for the six months ended June 30, 2023 as compared to the same period in 2022 before the merger.
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Liquidity and Capital Resources
Our financial statements have been presented on the basis that our business is a going concern, 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 a novel pharmaceutical product candidates and medical device candidates, including limitations on our operating capital resources and uncertain demand for our products. 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.
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Conducting clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete and we may never generate the necessary data or results required to obtain marketing approval. We do not expect revenues until we are successful in completing the development and obtaining marketing approval for our products. We expect expenses to increase in connection with our ongoing activities, particularly as we initiate clinical trials, initiate new research and development projects and seek marketing approval for any product candidates that we successfully develop. In particular, we expect to incur increased expenses as we initiate our planned Phase 2 clinical trial of NPM-119. On August 11, 2023, the FDA notified us that the agency was placing a clinical hold on our IND for the proposed FIH study of NPM-119. The FDA indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. If we are required to conduct additional IND-enabling activities such as additional pre-clinical studies, our overall expenditures relating to our NPM-119 program would increase. In addition, if we obtain marketing approval we expect to incur significant additional expenses related to sales, marketing, distribution and other commercial infrastructure to commercialize such product. In addition, our product candidates, if approved, may not achieve commercial success. We incur significant costs associated with operating as a public company in a regulated industry.
Until such time, if ever, we can generate product revenues, we anticipate that we will seek to fund our operations through public or private equity or 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. To the extent that we raise additional capital through the sale of equity, convertible debt or other equity-linked securities, the ownership interests of some or all of our common stockholders will be diluted, the holders of new equity securities may have priority rights over our existing stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into agreements on unattractive terms. If, for example, we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. Our inability to raise capital could have a material adverse effect on our business, financial condition and results of operations.
Cash, cash equivalents and restricted cash decreased by $12.6 million from $46.4 million as of December 31, 2022 to $33.9 million as of June 30, 2023. Working capital was $29.1 million as of June 30, 2023 compared to $40.7 million as of December 31, 2022, a decrease of $11.6 million. We use our cash and cash equivalents and working capital to fund our operating activities.
Cash Flows from Operating Activities
During the six months ended June 30, 2023, we used $12.5 million of cash in operating activities, consisting primarily of a net loss of $12.8 million and a net increase in net operating assets of $0.9 million, partially offset by non-cash charges of $1.2 million for depreciation and amortization of property and equipment, stock-based compensation and change in right of use assets. During the six months ended June 30, 2022, we used $6.6 million of cash in operating activities, consisting primarily of a net loss of $8.0 million, offset by non-cash charges which provided cash of $1.0 million for depreciation and amortization of property and equipment, stock-based compensation, change in right of use and partially offset by a net decrease in net operating assets of $0.4 million.
Cash Flows from Investing Activities
Cash used for investing activities in the six months ended June 30, 2023 and 2022 was minimal for both periods. In 2023 $81,000 was used for the purchase of property and equipment. In 2022, $116,000 was used for the purchase of property and equipment.
Cash Flows from Financing Activities
Financing activities was $7,000 in the six months ended June 30, 2023. Financing activities provided $8.0 million of cash in the six months ended June 30, 2022 from the funding of the SAFE agreement.
Off-Balance Sheet Arrangements
As of June 30, 2023, we did not have any transactions, obligations or relationships that constitute off-balance sheet arrangements.
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| Item 3. | 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. As of June 30, 2023, our investments consisted solely of money market funds.
Exchange Rate Sensitivity
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 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2023, based on the evaluation of these disclosure controls and procedures, our CEO and CFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the six months ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are updating our internal control environment to address changes in our risks in financial reporting to accommodate our operating activities, staffing levels, and segregation of duties. Such changes may result in new or reduced controls.
Inherent Limitations on Effectiveness of Controls
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II-OTHER INFORMATION
| Item 1. | Legal Proceedings |
Three oppositions filed by Pixium Vision SA (“Pixium”) are pending in the European Patent Office, each challenging the validity of a European patent owned by Second Sight. The outcomes of the challenges are not certain, however, if successful, they may affect our ability to block competitors from utilizing our 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 our 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 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, and currently claim 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 9, 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 the judgement, the Company was ordered to pay to Pixium the amount of €2,500,000 minus a €947,780 credit for the $1,000,000 already paid for, a net amount payable of approximately €1,552,220. The Company filed an appeal with the Appeals Court of Paris on May 24, 2023. The Company recorded a charge of $1,675,000 for the year ended December 31, 2022 related to this matter but plans to raise any and all legal challenges to this preliminary judgement.
From time to time, we may be involved in a variety of legal proceedings and claims relating to securities laws, product liability, patent infringement, contract disputes, employment matters and other matters relating to various claims that arise in the normal course of our business in addition to governmental and other regulatory investigations and proceedings. It is our opinion that the outcome of such matters will not have a material adverse effect on our results of operations, however, the results of litigation, proceedings, disputes 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.
| Item 1A. | Risk Factors |
Our business is subject to numerous material and other risks. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Form 10-Q, including our consolidated financial statements and the related notes, and in our other filings with the SEC. If any of the stated risks actually occur, our business, prospects, operating results, and financial condition could suffer materially. In such event, the trading price of our common stock could decline and you might lose all or part of your investment. The material risks associated with our business were most recently discussed in our Form 10-K that we filed on March 31, 2023. There have been no material changes from the risk factors previously disclosed in such filing, other than those as discussed below.
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; |
| ● | manufacturing sufficient quantities of a product candidate or other materials necessary to conduct clinical trials; |
| ● | 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 11, 2023, the U.S. Food and Drug Administration (FDA) notified Vivani that the agency was placing a clinical hold on Vivani’s Investigational New Drug (IND) application for the proposed first in human (FIH) study of NPM-119. The FDA indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. Vivani plans to engage with the FDA in order to lift the clinical hold and commence its planned clinical development of NPM-119. However, there can be no assurance that we can address the issues that the FDA may identify in its letter 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. |
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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.
Clinical development involves a lengthy and expensive process with uncertain outcomes. We may incur additional costs and experience delays in developing our product candidates, and our clinical development efforts may not yield favorable results.
To 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, can take many years and has an uncertain outcome. Failure can occur at any stage 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 11, 2023, the FDA notified us that the agency was placing a clinical hold on IND application for the proposed FIH study of NPM-119. The FDA indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. We plan to engage with the FDA in order to lift the clinical hold and commence our planned clinical development of NPM-119. However, there can be no assurance that we can address the issues that the FDA may identify in its letter 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.
Even if we experience success in early development for any product candidate, that experience may not be replicated in later development or with respect to any other product candidates. For example, in our industry, product candidates in later-stage clinical trials routinely fail to demonstrate adequate safety and efficacy despite having progressed through initial clinical trials or preclinical testing.
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Even if our clinical trials generate data that we believe are promising, such data may not be sufficient to support 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 for and commercialize any of our product candidates.
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 European Medicines Agency (EMA) or other regulatory agencies to perform clinical trials or preclinical studies in addition to those that we currently anticipate. For example, on August 11, 2023, the FDA notified us that the agency was placing a clinical hold on our IND for the proposed FIH study of NPM-119. The FDA indicated its intention to subsequently provide an official clinical hold letter stating the reasons for the clinical hold. If we are required to conduct additional IND-enabling activities such as additional pre-clinical studies, our overall 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 order to continue our operations and pursue our business objectives.
There can be no assurance that we 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; |
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| ● | 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 shareholders 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.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
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| Item 6. | Exhibits |
EXHIBIT INDEX
| Exhibit No. | Exhibit Description |
| 31.1 | Certification of Principal Executive Officer of Vivani Medical, Inc. pursuant to Section 302 of Sarbanes-Oxley Act of 2002.* |
| 31.2 | Certification of Principal Financial and Accounting Officer of Vivani Medical, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| 101.INS | XBRL Instant 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)* |
| * | Indicates the exhibit is being furnished, not filed, with this report. |
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SIGNATURES
Pursuant to the requirements 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.
| Name | Title | Date | ||
| /s/ Adam Mendelsohn | Chief Executive Officer | August 14, 2023 | ||
| Adam Mendelsohn | (Principal Executive Officer) | |||
| /s/ Brigid A. Makes | Chief Financial Officer | August 14, 2023 | ||
| Brigid A. Makes | (Principal Financial and Accounting Officer) |
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