InVivo Soon To Enter Clinical Testing

| About: InVivo Therapeutics (NVIV)

Over the past few months the preclinical, mostly from primates, data coming out of InVivo Therapeutics (NASDAQ:NVIV) has been quite impressive. The company has posted videos on its website of once paralyzed African Green Monkeys now walking and running. Amazing stuff! That said, biotech investors typically do not get overly excited about preclinical data. The real proof will come once human clinical testing begins.

With 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 seeking to commence a human clinical study in July 2011. InVivo plans to meet with the FDA in December 2011 to finalize the design for the trial. 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 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 are expecting the trial to start in early 2012.

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.

With 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 primate data for submission to the agency and seeks to file an IDE in early 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 by the end of 2012.

In Peripheral Nerve

Management also seeks to file another IDE around the middle of 2012 for 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 another opportunities to partner in 2012. There are an estimated 3 million nerve block injections done in the U.S. each year. Existing treatment options are limited and only curb pain for as little as one week. InVivo is formulating its drug-releasing hydrogel to block nerve pain for up to twelve months.

Why We Like InVivo

Although many companies are currently working on pharmaceutical treatment options, we like InVivo’s approach with their biopolymer scaffold device (BSD) for several reasons:

1) BSD will be regulated as a medical device. Management filed the Investigational Device Exemption (IDE) to the U.S. FDA in July 2011. The proposed indication is to protect and support spinal tissue and prevent secondary injury, including inflammation and glial scarring, following traumatic spinal cord injury. We think this initial, simpler approach to treating SCI provides investors with a quicker and lower risk path to market than the traditional pharmaceutical or biologic pathway.

2) Strong scientific rationale. InVivo’s technology for the BSD was born out of the labs of Robert S. Langer, ScD, Professor at Massachusetts Institute of Technology and Joseph P. Vacanti, MD, affiliated with Massachusetts General Hospital. Dr. Langer has written over 1,100 articles, holds approximately 760 issued and pending patents worldwide that have been licensed or sublicensed to over 220 pharmaceutical, chemical, biotechnology and medical device companies. InVivo’s CEO, Frank Reynolds, having suffered a paralyzing injury to his spine in December 1992, has spent years gaining subject matter expertise on the spine and spinal cord.

3) Intellectual property protection is strong. Ultimately, we believe combination therapy will become the standard of care for SCI. InVivo’s owns the patent rights to use of all biopolymer scaffolding products which serve as an extracellular matrix for cell therapy, or in combination with pharmaceutical products or biologic growth factors. These patents also protect the use of time-release drugs, design and manufacture of materials for use in SCI that mimics the natural cellular architecture of the inner grey and outer white matter of the spinal cord. We believe this creates significant barriers to entry for competitors and provides for meaningful licensing and partnering opportunities in the future for InVivo.

4) Animal data has been very encouraging. Although we have only seen data in African Green Monkeys, we note the physiological anatomy and neurophysiology characteristics between how the spinal cord works and functions these primates and humans is nearly identical. African Green Monkeys are an acceptable regulatory indicator of potential hazards and research supports translation to humans, Nature Medicine, Vol-13,No.5:561-566, May 2007. The genomic similarity to humans is over 98%.

Stock Looks Undervalued

The current market capitalization of InVivo is only $60 million. We have looked at 20 previous deals between larger pharmaceutical or medical device companies and small players in the spinal cord injury market.

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The current market capitalization would suggest that InVivo's BSD and Hydrogel device have sales potential of only $10 million. This absurdly low. In fact, we see BSD with potential peak sales in the $500 million range. The injectable Hydrogel is a potential blockbuster product with peak sales over $1 billion when we include the peripheral nerve damage opportunity. We base this on the opportunity to heal stalled wounds in the 250,000 to 300,000 patients in the U.S. currently living with SCI. If we look outside the U.S., and include Canada and Western Europe, and the number grows to 400,000 chronic SCI patients in these markets. Including Asia, Australia, and Latin America, and the number of chronic SCI patients is around 2.0 million worldwide. With the injectable Hydrogel, there are an estimated 3 million nerve block procedures done in the U.S. each year. Penetration of only 5% with BSD and Hydrogel meet our peak sales forecasts. Penetration of only 5% with BSD and Hydrogel meet our peak sales forecasts.

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

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