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 December 31, 2022 and 2021 are not necessarily indicative of the results that may be expected for any future period. The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part IV, Item 15 of this Form 10-K and in conjunction with the “Risk Factors” included in Part I, Item 1A of this Form 10-K.
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 implant candidates, 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 implant candidates 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, the minimal fluctuations of drug levels dictated by our NanoPortal technology may improve the tolerability profiles for medicines that produce side effects associated with fluctuating drug levels.
Vivani resulted from the business combination of Second Sight Medical Products (Second Sight) and Nano Precision Medical (NPM). Since inception, Vivani’s main priority has been the further development of the company’s lead program, NPM-119, a miniature, 6-month, GLP-1 implant candidate for the treatment of patients with type 2 diabetes under the company’s Biopharm Division (formerly NPM). In parallel, Vivani’s new management team remained committed to identifying and exploring strategic options for the Neuromodulation Division (formerly Second Sight) that will enable further development of its pioneering neurostimulation systems to help patients recover critical body functions.
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 two companies completed the merger, concurrent with which Second Sight changed its name to Vivani Medical, Inc. and now conducts the present business of the Company. In September 2022, we announced the formation of the Company’s Biopharm Division to advance the assets of the former NPM which includes the further development of the Company’s lead program, NPM-119, a miniature, 6-month, GLP-1 implant candidate for the treatment of patients with type 2 diabetes. Vivani’s new management team remains committed to identifying and exploring strategic options for the Neuromodulation Division (formerly Second Sight) that will enable further development of its pioneering neurostimulation systems to help patients recover critical body functions. On December 28, 2022, the assets and liabilities of this segment were contributed to Cortigent, Inc. a newly formed wholly owned subsidiary of Vivani, in exchange for 20 million shares of common stock of Cortigent.
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. Vivani, is expected to continue to be majority-owned by Vivani immediately following the initial public offering.
From inception, our operations have been funded primarily through the sales of our common stock and warrants.
We were awarded a $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and approval) from the National Institutes of Health (NIH) to fund the “Early Feasibility Clinical Trial of a Visual Cortical Prosthesis” that commenced in January 2018.
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 and receipt of grants.
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 into the second half of 2024. 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.
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 the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. See Note 2 of notes to our consolidated financial statements for a more complete description of our significant accounting policies.
Operating Expenses. We 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. From time-to-time 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 these grants as reductions to operating expenses.
Comparison of the Years Ended December 31, 2022 and 2021
Research and development expense. Research and development expense increased from $11.0 million in 2021 to $14.2 million in 2022, an increase of $3.2 million, or 29%. The increase from the prior year was primarily due to increased use of outside contractors associated with product design, development and manufacturing associated with our products, increased headcount and professional fees, along with inclusion of new neuromodulation division costs.
General and administrative expense. General and administrative expense increased from $2.3 million in 2021 to $7.1 million in 2022, an increase of $4.8 million, or 205%. The increase is related to a provision for a legal claim of $1.7 million and increased accounting and legal costs and other expenses related to our merger of approximately $1.5 million and the general and administrative costs of the neuromodulation division since the merger of $1.1 million.
Net loss. The net loss was $13.9 million in 2022, as compared to $12.8 million in 2021. The $1.1 million increase in net loss from 2021 to 2022 was primarily attributable to a $7.9 million increase in operating expenses offset by a $6.9 million gain on the bargain purchase and increased interest income due to rate increases on cash investments.
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.
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 into the second half of 2024. 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.
Working capital was $40.7 million at December 31, 2022, as compared to $0.4 million at December 31, 2021.
Cash Flows from Operating Activities
During 2022, we used $18.8 million of cash in operating activities, consisting primarily of a net loss of $13.9 million, offset by $0.4 million from a net change in operating assets and liabilities and non-cash items including $5.3 million for gain on bargain purchase, depreciation and amortization of property and equipment and stock-based compensation.
During 2021, we used $11.0 million of cash in operating activities, consisting primarily of a net loss of $12.8 million, offset by a $0.4 million net change in operating assets and liabilities and non-cash charges of $1.4 million for depreciation and amortization of property and equipment, stock-based compensation and PPP loan forgiveness.
Cash Flows from Investing Activities
Investing activities in 2022 and 2021 used $0.3 million and $0.6 million, respectively, of cash for the purchase of equipment.
Cash Flows from Financing Activities
Financing activities provided $63.4 million of cash in 2022, including $55.4 million from cash acquired in merger for stock consideration and $8.0 million proceeds from SAFE note.
Financing activities provided $11.6 million of cash in 2021 from the net proceeds from the issuance of common stock and warrants.
Off-Balance Sheet Arrangements
At December 31, 2022, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
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