Here's Why We Like InVivo Therapeutics

| About: InVivo Therapeutics (NVIV)

We recently sat down with management at InVivo Therapeutics (NASDAQ:NVIV) to receive an update on the pipeline and business plans for 2012. We think management has set some aggressive but achievable goals in 2012. The stock continues to look attractive to us.

Making Progress Toward The Clinic

BSD

During the third quarter the company took a number of positive steps with respect to bringing its biopolymer scaffold device ("BSD") into human clinical trials. InVivo submitted an IDE to the U.S. FDA in July 2011 seeking to commence a human clinical study. InVivo plans to meet with the FDA in April 2012 to finalize the design for the trial. We think talks will center on the inclusion / exclusion criteria. We are expecting this program to be an open-label design, seeking to enroll a total of 10 patients with endpoints in improvement of function one to two levels below the site of injury. We expect the program will enroll 2 patients (Part-A) and offer initial preliminary data in two months after initiation. If positive, the FDA should allow expansion into the next 8 patients (Part-B). The total time of the trial should be around three to four months. We expect that InVivo will spend the next few months working on scale-up manufacturing for the device. We are expecting the trial to start around mid-2012 and cost around $1.5 million.

Strongly positive data should allow management to transition the IDE to a humanitarian device exemption ("HDE") pathway and qualify for Orphan designation. The HDE pathways greatly speeds the path to market, whereas the Orphan designation will protect from competing products for seven years post launch. Based on preclinical data from the company’s three primate studies, we are optimistic on this IDE program. Previously completed primate data has been submitted to a peer-review journal for publication. We are expecting data from the second primate study to be presented shortly.

Drug-Releasing Hydrogel

In the meantime, management is working with the FDA to submit additional data around the company’s drug releasing hydrogel for SCI. The company is preparing the rodent and primate data for submission to the agency and seeks to file an IDE around the middle of 2012. We expect the design of the Hydrogel IDE study will be similar to the IDE program for the BSD discussed above. If positive, we expect management to expand into a larger pre-market approval (PMA) program in 2013.

Peripheral Nerve

Management also seeks to file another IDE around the middle of 2012 for chronic pain due to peripheral nerve damage. Expansion into peripheral nerve damage is a meaningful opportunity for the company. It not only expands the company’s focus beyond SCI, but it potentially creates other opportunities to partner or seek non-dilutive funding in 2012.

On January 17, 2012, management announced collaboration with the Geisinger Health System to conduct a preclinical study using the injectable hydrogel for the treatment of chronic pain caused by peripheral nerve compression. The study will be conducted jointly in the Tapinos Lab of Molecular Neuroscience at the Weis Center for Research and the Slotkin Lab of Spinal Cord Injury Research at the Geisinger Clinic’s Neurosciences Institute. The endpoint of the study will be the effectiveness of using injectable hydrogels for the controlled release of drugs to alleviate chronic pain resulting from compression-induced peripheral nerve damage looking at both molecular and behavioral impact in rodents. The study is planned to have four arms: 1) injectable scaffold with drug therapy, 2) the injectable scaffold alone, 3) injectable drug therapy alone, and 4) a control group receiving no injection.

We see this as a significant opportunity for InVivo. There are an estimated 3.2 million nerve block injections done in the U.S. each year. It’s an estimated $15 billion market. Existing treatment options are limited and only curb pain for as little as one week. A localized injection using the hydrogel to provide time-released anti-inflammatory therapies like methylprednisolone could provide pain relief for up to twelve months with limited systemic side-effects.

New Headquarters In Cambridge

We note that in December 2011, management entered into a multi-year lease for a 21,000 square-foot facility in Cambridge, MA to serve as the company’s fully integrated global headquarters. The facility will house InVivo’s corporate offices, lab space, a rodent vivarium, and a cGMP cleanroom. Details of the facility include:

  • A chemistry lab for formulations and chemical synthesis of the Company’s hydrogel and polymer-based scaffold technologies;
  • A cGMP cleanroom for manufacturing and packaging of the Company’s biomaterial devices for clinical studies and early product launch;
  • A rodent vivarium to evaluate the safety and efficacy of various devices and treatment combinations in SCI and other nervous system injury models, which the Company believes to be one of the largest dedicated to spinal cord injury research in the world;
  • A biology lab for developing cell therapies used in combination with the Company’s biomaterial devices;
  • A surgeon training facility to educate the medical community, prepare for product launch, and engage physicians for research and product development purposes; and,
  • The ability to expand to additional space as the Company grows.

Financial Update

With all the planned clinical and preclinical programs noted above, we expect that InVivo will require significant cash in next year's quarters. The company exited the third quarter 2011 (ended September 30, 2011) with $3.7 million in cash and investments.

Raised Roughly $3.0 Million In Q4-201q

On December 21, 2011, InVivo entered into a securities purchase agreement with Ingenieria E Inversiones LTDA (IEI-LTDA) whereby the company sold 0.980 million shares of common stock to IEI-LTDA at $2.04 per share, plus issued 0.343 million warrants to purchase additional common stock over the next five years at $3.06 per share. Net proceeds from the transaction were $1.9 million.

We remind investors that there were a total of 18.8 million warrants outstanding as of September 30, 2011. This included 15.6 million warrants currently exercisable at $1.40 per share and 3.2 million warrants currently exercisable at $1.00 per share. According to management, roughly $1.0 million additional capital was raised in the fourth quarter 2011 from conversion of these warrants. Therefore, we estimate that InVivo exited 2011 with approximately $4.9 million in cash. We find this to be sufficient to fund operations into the third quarter 2012.

S1 & S3 Active

Despite the still 17+ million warrants outstanding, InVivo is going to require additional cash either in the second or third quarter 2012 to keep the pipeline on track. On December 16, 2011, the company filed an S1 registering $10 million in maximum aggregate offering. As noted above, roughly $2.0 million was offered a week later. On January 5, 2012, InVivo filed an S3 registering an additional $50 million in potential maximum aggregate offerings. The combination of the S1, S3, and the 17+ million warrants outstanding currently in-the-money put InVivo in an excellent position to raise additional capital in 2012 and beyond.

Conclusion

In July 2011 we initiated coverage of InVivo Therapeutics with an Outperform rating and $4.50 price target. We are excited about the opportunity that InVivo presents to investors. There are currently no significant treatment options for patients with spinal cord injury ("SCI"). Although many companies are currently working on pharmaceutical treatment options, we like InVivo’s approach with its biopolymer scaffold device for several reasons. These include speed to market, simplicity of the idea, intellectual property protection, and strong animal model data.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.