SECOND SIGHT MEDICAL PRODUCTS 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 as well as our audited 2021 financial statements and related notes included
in our Annual Report on Form 10-K, which was filed with the
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 June 2018 .
? The efficacy data is encouraging. We measure efficacy by looking at three
measures of visual function: The first is square localization, where Orion
subjects sit in front of a touch screen and are asked to touch within the
boundaries of a square when it appears. The second is direction of motion,
where subjects are asked to identify the direction and motion of lines on a
screen. The third is grating visual acuity, a measure of visual acuity that is
adapted for very low vision. Five subjects have completed these tests at
36-months. For these 36-month results, on square localization, five of five
subjects tested in our feasibility study performed significantly better with
the system on than off. On direction of motion, five of five performed better
with the system on than off. On grating visual acuity, two of five tested had
measurable visual acuity on the scale of this test (versus none who can do it
with the device off). Another efficacy measurement of day-to-day functionality
and benefit is FLORA, an acronym for Functional Low-Vision Observer Rated
Assessment. FLORA is an assessment performed by an independent, third-party
low vision orientation and mobility specialist who spends time with each of
the subjects in their homes. The specialist asks each of the subjects a series
of questions and also observes them performing 15 or more daily living tasks,
such as finding light sources, following a sidewalk, or sorting laundry. The
specialist then determines if the system is providing a benefit, if it is
neutral, or if it is actually hurting the abilities of subjects to perform
these tasks. FLORA results to date show that 4 out of 4 completing the FLORA
at 36 months had positive or mild positive results indicating the Orion system
is providing benefit. We reached agreement with the FDA in the fourth quarter
of 2019 to utilize a revised version of FLORA as our primary efficacy endpoint
in our pivotal trial for Orion, pending successful validation of the
instrument.
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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.
In
On
Market Development Plans
Orion. By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The only notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable. We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligible for the Orion based on our clinical trials and the associated results.
Our objective in designing and developing the Orion visual prosthesis system is
to bypass the optic nerve and directly stimulate the part of the brain
responsible for human vision. An Early Feasibility Study of the Orion device is
currently underway at
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Liquidity
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 2020 primarily through the following transactions:
? OnJune 25, 2021 , we closed an underwritten public offering of 11,500,000 shares of common stock at a price of$5.00 per share for aggregate net proceeds of$53.3 million ? OnMarch 23, 2021 , we closed our private placement to seven institutional investors of 4,650,000 shares of common stock at a price of$6.00 per share for aggregate net proceeds of approximately$24.5 million
We were awarded a
We are subject to the risks and uncertainties associated with a business with no revenue that is developing a novel medical device. 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. 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.
Merger Agreement
As discussed in the Notes to Condensed Consolidated Financial Statements of the
Company, on
Safe Agreement
On
In the event NPM completes an equity financing within one year from the date of
termination of the merger at a lower valuation, SSMP may be eligible to receive
additional shares of NPM capital stock as set forth in the SAFE. If the Merger
is completed, the SAFE will terminate. The SAFE is classified as a
marked-to-market asset pursuant to ASC 480, Distinguishing Liabilities from
Equity, due to the potential variability at the time of share settlement. The
carrying value of the SAFE as of
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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
There have been no other material changes to our critical accounting policies
during the six months ended
Results of Operations
Operating Expenses. We generally recognize our operating expenses as incurred in
three general operational categories: research and development, clinical and
regulatory 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 and general and administrative
personnel. We have received grants from institutions or agencies, such as the
? 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. Due to the recent downsizing of our business, we
are currently evaluating the path forward for our research and development
activities for Orion, including the potential for collaboration with 3rd
parties and/or outsourcing the engineering work for Orion.
? 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 offset by grant
revenue received in support of specific clinical research products. We expect
clinical and regulatory expenses to be lower in the short-run as we have
closed our clinical study activities related to Argus II. In the long-run, we
expect clinical and regulatory expenses to increase if and when we conduct a
larger clinical study of 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.
Comparison of the Three Months Ended
Research and development expense. Research and development expense increased by
Clinical and regulatory expense. Clinical and regulatory expense decreased
General and administrative expense. General and administrative expense increased
Comparison of the Six Months Ended
Research and development expense. Research and development expense increased by
Clinical and regulatory expense. Clinical and regulatory expense decreased
General and administrative expense. General and administrative expense decreased
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 medical device, 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 Orion. We expect expenses to increase in connection with our ongoing activities, particularly as we continue clinical trials of Orion, initiate new research and development projects and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for Orion, 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 substantial 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 further 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 and cash equivalents decreased by
Material Cash Requirements for Known Contractual and Other Obligations
The Merger Agreement as amended provides for the aggregate amount of cash, cash
equivalents, and marketable securities of the Company being not less than
Cash Flows from Operating Activities
During the first six months of 2022, we used
Cash Flows from Investing Activities
Cash used for investing activities in the first six months of 2022 was
Cash Flows from Financing Activities
Financing activities provided zero cash in the first six months of 2022.
Financing activities provided
Off-Balance Sheet Arrangements
At
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