SECOND SIGHT MEDICAL PRODUCTS The following discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors. The
consolidated results of operations for the years ended
Business Overview
Leveraging our 20 years of experience in neuromodulation for vision, we are
developing the Orion® Visual Cortical Prosthesis System ("Orion"), an implanted
cortical stimulation device intended to provide useful artificial vision to
individuals who are blind due to a wide range of causes, including glaucoma,
diabetic retinopathy, optic nerve injury or disease and eye injury. Orion is
intended to convert images captured by a miniature video camera mounted on
glasses into a series of small electrical pulses. The device is designed to
bypass diseased or injured eye anatomy and to transmit these electrical pulses
wirelessly to an array of electrodes implanted on the surface of the brain's
visual cortex, where it is intended to provide the perception of patterns of
light. We are conducting an Early Feasibility Study of the Orion device at the
? We have a good safety profile. Five subjects experienced a total of fourteen
adverse events (AEs) related to the device or to the surgery, through February
2022. One was considered a serious adverse event (SAE), and all of the adverse
events were in the expected category. The one SAE occurred at about three
months post-implant, was resolved quickly, and did not require a hospital stay.
There have been no serious adverse events due to the device or surgery since
? The efficacy data is encouraging. We measure efficacy by looking at three
measures of visual function: The first is square localization, where Orion
subjects sit in front of a touch screen and are asked to touch within the
boundaries of a square when it appears. The second is direction of motion,
where subjects are asked to identify the direction and motion of lines on a
screen. The third is grating visual acuity, a measure of visual acuity that is
adapted for very low vision. Five subjects have completed these tests at
36-months. For these 36-month results, on square localization, five of five
subjects tested in our feasibility study performed significantly better with
the system on than off. On direction of motion, five of five performed better
with the system on than off. On grating visual acuity, two of five tested had
measurable visual acuity on the scale of this test (versus none who can do it
with the device off). Another efficacy measurement of day-to-day functionality
and benefit is FLORA, an acronym for Functional Low-Vision Observer Rated
Assessment. FLORA is an assessment performed by an independent, third-party low
vision orientation and mobility specialist who spends time with each of the
subjects in their homes. The specialist asks each of the subjects a series of
questions and also observes them performing 15 or more daily living tasks, such
as finding light sources, following a sidewalk, or sorting laundry. The
specialist then determines if the system is providing a benefit, if it is
neutral, or if it is actually hurting the abilities of subjects to perform
these tasks. FLORA results to date show that 4 out of 4 completing the FLORA at
36 months had positive or mild positive results indicating the Orion system is
providing benefit. We reached agreement with the FDA in the fourth quarter of
2019 to utilize a revised version of FLORA as our primary efficacy endpoint in
our pivotal trial for Orion, pending successful validation of the instrument.
No peer-reviewed data is available yet for the Orion system. We are currently negotiating the clinical and regulatory pathway to commercialization with the FDA as part of the Breakthrough Devices Program.
Our principal offices are located in
Our first commercially approved product, the Argus® II Retinal Prosthesis System
("Argus II"), treats outer retinal degenerations, such as retinitis pigmentosa,
also referred to as RP. The Argus II was the only retinal prosthesis approved in
We conducted a qualitative patient preference information (PPI) study in 2021. In the study, an independent third party conducted guided interviews with 30 people who would potentially qualify for an implant such as the Orion System. Subjects were 18 - 74 with acquired bare light or no light perception bilaterally. They included balanced subsamples of sex, age, sudden vs. gradual vision loss, and time since vision loss. The one-hour semi-structured interviews were centered on a hypothetical device similar to Orion. The performance description was based on feedback from our Early Feasibility Study (EFS) participants implanted with Orion. The interviews also included a description of known risks for Orion, including the serious adverse event rate from the EFS. Throughout the interview, participants were asked for feedback on all aspects the hypothetical system; they also rated their interest in being implanted multiple times after each presentation of new information. These results created a valuable dataset for future device design and marketing. When asked at the end of the interview if they would be interested in being implanted with the hypothetical device, 33.3% replied with a strong yes, 10.0% a weak yes, 23.3% a weak no, and 33.3% a strong no.
Our prior market research found that there are 50,000 to 80,000 individuals in
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We began selling the Argus II System in
We are also researching multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with 3rd party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we believe will be complimentary to our products include: eye tracking, object recognition and localization, thermal imaging and depth-based decluttering.
In
In early
On
In furtherance of our decision to withdraw Argus II from the market, we have
terminated two post-market studies for Argus II in
In
In
We completed our offer to rescind certain purchases of shares under our ESPP
plan on
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In
On
On
Effective
By letter dated
We are researching multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with third-party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we are currently researching include: eye tracking, object recognition and localization, thermal imaging and depth-based image decluttering.
We are subject to the risks and uncertainties associated with a business without revenues, including limitations on our operating capital resources and uncertain future demand for our product. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future. Based on our current plans, we do not have sufficient funds to continue operating our business at current levels for at least twelve months from the date of issuance of this report. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity offerings, debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs, or we may be unable to expand our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
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Capital Funding
Capital Funding
From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated from the sale of our Argus II product. We have funded our business since 2019 has been primarily through the following transactions:
? On
shares of common stock at a price of
of$53.3 million
? On
investors of 4,650,000 shares of common stock at a price of
aggregate net proceeds of approximately
? On
the Board of Directors of the Company and
shareholders. Each promissory note was unsecured and accrued interest at a rate
of twelve percent (12%) per annum beginning on receipt of the loan amounts. We
repaid the principal and accrued interest of
? On
of common stock at an offering price of
proceeds of approximately
We were awarded a
On
We have experienced recurring operating losses and negative operating cash flows since inception and have financed our working capital requirements through the recurring sale of our equity securities in both public and private offerings.
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations for at least twenty-four months. Our ability to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our business initiatives and/or raise additional capital, however, there can be no assurances that we will be able to do so.
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Insurance Reimbursement
Obtaining reimbursement from governmental and private insurance companies is
critical to our commercial success. Due to the price of the Orion system, our
future sales would be limited without the availability of third-party
reimbursement. In the
? Medicare FFS patients - Coverage is determined by Medicare Administrative
Contractors (MACs) that administer various geographic regions of the
? Medicare Advantage patients - Medicare Advantage plans are required to cover
the same benefits as those covered by the MAC in that jurisdiction. For
example, if a MAC in a jurisdiction has favorable coverage for Orion, then
typically Medicare Advantage plans in that MAC jurisdiction offer the same
coverage. Individual hospitals and ASCs may negotiate contracts specific to
that individual facility. In addition, procedural payment is variable and can
be based on a percentage of billed charges, payment groupings or other
individually negotiated payment methodologies. Medicare Advantage plans also
allow providers to confirm coverage and payment for the procedure in advance of
implantation.
? Commercial insurer patients - Commercial insurance plans make coverage and
payment rate decisions independent of Medicare, and contracts are individually
negotiated with facility and physician providers.
Currently, we are in the process of evaluating potential reimbursement pathways
for Orion in the U.S. market. Compared to Argus II, which was largely catering
to the Medicare patient population, Orion is expected to address a patient
population with a more diverse and balanced payor mix due to our potential
indications profile and expected younger patient population, on average. As
Orion is a part of the
Product and Clinical Development Plans
Orion. By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The principle notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable (including RP) or age-related macular degeneration ("AMD"). We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligible for the Orion based on our clinical trials and the associated results.
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Our objective in designing and developing the Orion visual prosthesis system is
to bypass the optic nerve and directly stimulate the part of the brain
responsible for human vision. An Early Feasibility Study of the Orion device is
currently underway at
In
COVID-19 Pandemic
In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to wear masks in the office and use their best judgement to work remotely or work in the office. While many of our employees are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.
In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. Also, some of our suppliers of certain materials used in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets and may result in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 or its variants could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. See the Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business.
Recently Adopted Accounting Standards
We believe that recently issued, but not yet effective, authoritative guidance, if currently adopted, would not have a material impact on our financial statement presentation or disclosures.
Critical Accounting Policies and Estimates
The following discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in conformity with accounting principles generally accepted in
Stock-Based Compensation. Pursuant to Financial Accounting Standards Board ASC 718 Share-Based Payment ("ASC 718"), we record stock-based compensation expense for all stock-based awards. Under ASC 718, we estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for awards that are expected to vest is then amortized on a straight-line basis over the requisite service period of the award, which is generally the option vesting term.
? The grant price of the issuances is determined based on the fair value of the
shares at the date of grant.
? The risk free interest rate for periods within the contractual life of the
option is based on the
? We calculate the expected term of options using a weighted average of option
vesting periods and an estimate of one-half of the period between vesting and
expiration of the option.
? Volatility is determined based on our average historical volatilities since our
trading history began in
volatilities of comparable companies in our industry.
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? Expected dividend yield is based on current yield at the grant date or the
average dividend yield over the historical period. We have never declared or
paid dividends and have no plans to do so in the foreseeable future.
Patent Costs. We have over 300 domestic and foreign patents. Due to the uncertainty associated with the successful development of one or more commercially viable products based on our research efforts and any related patent applications, all patent costs, including patent-related legal, filing fees and other costs, including internally generated costs, are expensed as incurred. Patent costs are included in general and administrative expenses in the consolidated statements of operations.
Results of Operations
Cost of sales. Cost of sales includes adjustments related to prior sales of our Argus II system. Our product involves technologically complex materials and processes.
Operating Expenses. We generally recognize our operating expenses as incurred in
four general operational categories: research and development, clinical and
regulatory, sales and marketing, and general and administrative. Our operating
expenses also include a non-cash component related to the amortization of
stock-based compensation for research and development, clinical and regulatory,
sales and marketing and general and administrative personnel. From time-to-time
we have received grants from institutions or agencies, such as the
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? 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, offset by grant revenue received in
support of specific research projects. We expense our research and development
costs as they are incurred. We expect research and development expenses to
increase in the future as we pursue further enhancements of our existing
product and develop technology for our potential future products, such as the
Orion Visual Cortical Prosthesis. We also expect to receive additional grants
in the future that will be offset primarily against research and development
costs.
? Clinical and regulatory expenses consist primarily of salaries, travel and
related expenses for personnel engaged in clinical and regulatory functions, as
well as internal and external costs associated with conducting clinical trials
and maintaining relationships with regulatory agencies. We expect clinical and
regulatory expenses to increase as we conduct clinical studies of potential
future products such as the Orion Visual Cortical Prosthesis.
? Sales and marketing expenses consist primarily of salaries, commissions, travel
and related expenses for personnel engaged in sales, marketing and business
development functions, as well as costs associated with promotional and other
marketing activities, including the cost of units consumed as demos or samples.
We have suspended sales activities until such time as we are ready to market
Orion.
? General and administrative expenses consist primarily of salaries and related
expenses for executive, legal, finance, human resources, information technology
and administrative personnel, as well as recruiting and professional fees,
patent filing and annuity costs, insurance costs and other general corporate
expenses, including rent. We expect general and administrative expenses to
increase as we add personnel and incur additional costs related to the growth
of our business and operate as a public company.
Comparison of the Years Ended
Cost of sales. Cost of sales were a negative
Research and development expense. Research and development expense decreased
from
Clinical and regulatory expense. Clinical and regulatory expense decreased from
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Selling and marketing expense. Selling and marketing expense decreased from
General and administrative expense. General and administrative expense increased
from
Restructuring charges. We recorded non-cash restructuring charges of
Net loss. The net loss was
Liquidity and Capital Resources
We have experienced recurring operating losses and negative operating cash flows since inception and have financed our working capital requirements through the recurring sale of our equity securities in both public and private offerings.
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations for at least twenty-four months. Our ability to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our business initiatives and/or raise additional capital, however, there can be no assurances that we will be able to do so.
On
On
On
On
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Working capital was
Cash Flows from Operating Activities
During 2021, we used
During 2020, we used
Cash Flows from Investing Activities
Investing activities in 2021 and 2020 used
Cash Flows from Financing Activities
Financing activities provided
Financing activities provided
Off-Balance Sheet Arrangements
At
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