The following discussion should be read in conjunction with our consolidated
financial statements and the related notes contained elsewhere in this Annual
Report on Form 10-K and in our other Securities and Exchange Commission filings.
The following discussion may contain predictions, estimates, and other
forward-looking statements that involve a number of risks and uncertainties,
including those discussed under "Risk Factors" and elsewhere in this Annual
Report on Form 10-K. These risks could cause our actual results to differ
materially from any future performance suggested below.
Overview
enVVeno Medical Corporation is a late clinical-stage med-tech company focused on
the advancement of innovative bioprosthetic (tissue-based) solutions to improve
the standard of care for the treatment of venous disease. Chronic Venous Disease
(CVD) is the world's most prevalent chronic disease, impacting approximately 71%
of the adult population of the U.S. Chronic Venous Insufficiency (CVI), is a
large subset of CVD, which most often occurs when valves inside of the veins of
the leg become damaged, resulting in the backwards flow of blood (reflux), blood
pooling in the lower leg, increased pressure in the veins of the leg (venous
hypertension) and in severe cases, venous ulcers that are difficult to heal. The
Company is developing surgical and non-surgical replacement venous valves for
patients suffering from severe CVI of the deep venous system of the leg.
The Company's lead product is the VenoValve®, which is a first-in-class surgical
replacement venous valve that is currently being evaluated in a U.S. pivotal
study. The Company is also developing a second product called enVVe™, which is a
first-in-class, non-surgical, transcatheter based replacement venous valve. The
Company is currently waiting for regulatory approval to begin a first-in-human
study for enVVe. Both the VenoValve and enVVe are designed to act as one-way
valves, to help assist in propelling blood up the veins of the leg, and back to
the heart and lungs.
The VenoValve and enVVe are being developed first for approval by the U.S. Food
and Drug Administration (FDA). We expect the VenoValve to be eligible for FDA
approval first, followed two to three years later by enVVe. Once approved, we
expect the VenoValve and enVVe to co-exist, with the VenoValve as a surgical
replacement venous valve option and enVVe as a non-surgical replacement venous
valve option. There are currently no devices approved as surgical or
non-surgical replacement venous valves, and there are no effective treatments
for deep venous CVI caused by incompetent valves.
Our team of officers and directors has been affiliated with numerous medical
devices that have received FDA approval or CE marking and that have been
commercially successful. We develop and manufacture our products in a 14,507 sq.
ft. leased manufacturing facility in Irvine, California, which has been ISO
13485-2020 certified for the design, development and manufacturing of tissue
based implantable medical devices.
Results of Operations
Comparison of the year ended December 31, 2022 to the year ended December 31,
2021
Revenues
As a late-stage clinical med tech Company, we are not currently generating
revenue and our future revenue, if any, is dependent on our ability to
commercialize our product candidates. We do not expect to begin generating
revenue with respect to any of our product candidates in the near term. We hope
to eventually achieve revenues by commercializing and selling our products or
licensing our technologies to companies that have the resources and
infrastructure in place to manufacture, market and sell our products. The
commercialization and/or licensing of any of our products may take several
years, if it is to occur at all, and depends on our ability to obtain regulatory
approval.
Net Loss
We reported net losses of $24.7 million and $16.5 million for the years ended
December 31, 2022 and 2021, respectively, representing an increase in net loss
of $8.2 million or 50%, resulting from, as described in further detail below, an
increase in operating expenses of $8.0 million, and a decrease in other expense
(income) of $0.2 million.
Selling, General and Administrative Expenses
For the year ended December 31, 2022, selling, general and administrative
expenses increased by $3.8 million or 34%, to $15.0 million from $11.2 million
for the year ended December 31, 2021. Of this increase, $2.8 million was due to
share-based compensation from grants made during 2021, and $0.2 million from
warrants issued to a vendor in 2022 which together increased share-based
compensation cost to $9.0 million in 2022 from $6.0 million in 2021.
The remaining $0.8 million increase reflects $0.5 million from higher
information technology and other office expense to support increases in staff,
$0.2 million from consulting for reimbursement codes for the Company's product
once commercially approved, and an increase in insurance expense of $0.1 million
primarily from the Company's D&O and cyber insurance policies.
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Research and Development Expenses
For the year ended December 31, 2022, research and development expenses
increased by $4.2 million or 74%, to $9.9 million from $5.7 million for the year
ended December 31, 2021. The increase is primarily due to an increase of $2.5
million in costs for the SAVVE trial and preparation for the enVVe
first-in-human trial, $1.1 million in higher lab quality testing to prepare for
regulatory audits, support the SAVVE trial and support enVVe product
development, $0.3 million in compensation from the increases in staffing also to
support the SAVVE trial and continued product development, and $0.3 million in
higher travel costs primarily for the SAVVE trial.
Gain on Extinguishment of Note Payable
For the year ended December 31, 2021 the Company recorded a one-time $0.3
million gain on extinguishment of note payable due to the forgiveness of the
loan it had obtained under the PPP program authorized by the CARES act.
Other Income
Other income in 2022 was $0.3 million consisting of $0.2 million in interest
income and realized gains, and $0.1 million of unrealized losses, all related to
our investments in US Treasury securities.
Liquidity and Capital Resources
For the twelve-months ended December 31, 2022, the Company incurred losses from
operations of $24.7 million and used $15.6 million cash in operating activities.
The net cash used in operating activities during 2022 increased by $3.8 million
from $11.8 million for the year ended December 31, 2021.
The operating losses and the uses of cash are primarily due to the Company's
product research and development and administrative activities. Administrative
functions relate to costs to support the Company's public reporting and investor
relations activities as well as internal administrative functions. Research and
development activities are for continued product development and clinical trials
for the VenoValve and for the enVVe. The Company will continue to incur these
costs to complete its clinical trials, enhance products, develop new products,
and operate as a public company. Although we have discretion in how we use the
Company's cash resources, we expect to continue these activities for the
foreseeable future as we seek to obtain regulatory approval for our studies and
product candidates. We are not currently generating revenue.
Our cash flows from investing activity have historically consisted of purchases
of property and equipment for our lab and offices. However, during 2022, we
commenced a program to invest excess cash in US Treasury bills. During the year
we purchased $48.1 million of these investments and $13.7 million of them
matured generating $0.2 million in realized gains and interest income. We expect
to continue investing as the treasury bills mature and as allowed by the cash
requirements of our operations. Also, during 2022, we purchased $0.1 million of
property and equipment consisting primarily of lab and test equipment.
We do not currently have material commitments for capital expenditures or other
expenditures with the exception of our facility lease commitment of $0.4 million
per year. However, we expect a modest increase in purchases of property and
equipment as we continue SAVVE and plan for commercialization of the VenoValve.
The Company has historically funded its operations through financing activities
such as the capital raises completed in 2021. During 2021, the Company raised an
aggregate of $57.4 million in net proceeds in private and public placements of
its securities. Our cash balance as of December 31, 2022, is $4.6 million. In
addition, we have $34.5 million in investments, for total cash and investments
of $39.1 million.
Our future capital requirements will remain dependent upon a variety of factors,
especially including the success of our clinical trials and related product
development costs and our ability to successfully bring products to market. At
our existing cash burn rate of approximately $4 million to $5 million per
quarter, we should have sufficient cash to fund operations through the end of
2024 and into 2025. With primary endpoints following full enrollment in the
SAVVE pivotal trial of thirty (30) days for safety, and six (6) months for
effectiveness, we expect to have primary endpoint data well in advance of the
need to raise additional capital. Any inability to raise additional financing
would have a material adverse effect on us.
Based upon our cash and working capital as of December 31, 2022, we have
sufficient capital resources to meet our obligations as they become due within
one year after the date of this Annual Report and sustain operations.
32
Off-Balance Sheet Arrangements
None.
Contractual Obligations
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are
not required to provide the information requested by paragraph (a)(5) of this
Item.
Critical Accounting Policies and Estimates
Basis of Presentation
The accompanying audited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP").
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 reported amounts of assets and
liabilities and disclosures of contingent liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
Significant estimates and assumptions include the valuation allowance related to
the Company's deferred tax assets, and the valuation of warrants.
Share-Based Compensation
The Company measures the cost of services received in exchange for awards of
equity instruments based on the grant date fair value of the award and
recognized on a straight-line basis over the period services are provided in
exchange for the award, usually the vesting period. The fair value of the
Company's stock options is estimated at the date of grant using the
Black-Scholes based option valuation model. The inputs for determining fair
value are expected term, volatility, expected dividend yield and the risk-free
interest rate. The Company estimated the expected term of the options using the
simplified method. The Company uses its stock's historical market information to
calculate volatility. The dividend yield assumption is based on the Company's
history and expectation of future dividend payouts on the common stock. The
risk-free interest rate is based on the implied yield available on U.S. treasury
zero-coupon issues with an equivalent remaining expected term. Forfeitures of
unvested stock options are recorded when they occur.
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ENVVENO MEDICAL CORPORATION 
