10-K
1
invobio20201231_10k.htm
FORM 10-K
invobio20201231_10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For the fiscal year ended December 31, 2020
or
For the transition period from to
INVO BIOSCIENCE, INC.
(Exact name of registrant as specified in Charter)
5582 Broadcast Court Sarasota, Florida, 34240
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (978) 878-9505
Securities registered pursuant to Section12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value per share INVO The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
Prior to November 12, 2020, the Registrant’s common stock was traded on the OTC QB Venture Market. The aggregate market value of the common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on the OTC QB Venture Market on June 30, 2020, was $19,556,356.
The number of shares outstanding of the Registrant’s common stock, $0.0001 par value, as of March 15, 2021 was 10,420,380.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORM 10-K
INVO BIOSCIENCE, INC.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 5
Item 1A. Risk Factors 19
Item 1B. Unresolved Staff Comments 32
Item 2. Properties 32
Item 3. Legal Proceedings 32
Item 4. Mine Safety Disclosures 32
Part II
Item 6. Selected Financial Data 34
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 40
Item 8. Financial Statements and Supplementary Data 41
Item 9A. Controls and Procedures 42
Item 9B. Other Information 43
Part III
Item 10. Directors, Executive Officers and Corporate Governance 44
Item 11. Executive and Director Compensation 48
Item 14. Principal Accountant Fees and Services 53
Part IV
Item 15. Exhibits, Financial Statement Schedules 54
SIGNATURES 58
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, the impact of the COVID-19 pandemic on our ability to advance our clinical programs and raise additional financing and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Table of Contents
Part I
Item1. Business
Introduction
This Annual Report on Form 10-K should be read together and in connection with the other reports that have been filed by us with the SEC for a comprehensive description of our financial condition and operating results. In the interest of disclosure, we have included in this Form 10-K certain material events and developments that have taken place through the date of filing of this Form 10-K with the SEC.
In this Annual Report on Form 10-K, INVO Bioscience, Inc. (INVO Bioscience, Inc., together with its subsidiaries, is referred to in this document as “we”, “us”, “INVO Bioscience”, “INVO,” or the “Company”), incorporates by reference certain information from parts of other documents filed with the Securities and Exchange Commission. The Securities and Exchange Commission allows us to disclose important information by referring to it in that manner. Please refer to all such information when reading this Annual Report on Form 10-K. All information is as of December 31, 2020 unless otherwise indicated. For a description of the risk factors affecting or applicable to our business, see “Risk Factors,” below.
The Company
We are a medical device company focused on the Assisted Reproductive Technology (“ART”) marketplace. Our mission is to increase access to care and expand fertility treatment and patient care across the globe. Our patented device, the INVOcell, is the first Intravaginal Culture (“IVC”) system in the world used for the in vivo incubation of eggs and sperm during fertilization and early embryo development. INVOcell was granted clearance in the United States by the U.S. Food & Drug Administration (“FDA”) in November 2015, received the CE mark in October 2019, and is now positioned to help provide millions of infertile couples across the globe access to a new infertility treatment option. We believe this novel device and procedure (the “INVO Procedure”) provides a more natural, safe, effective, efficient and economical fertility treatment compared to current infertility treatments, including in-vitro fertilization (“IVF”) and intrauterine insemination (“IUI”). Unlike conventional infertility treatments such as IVF where the eggs and sperm develop into embryos in a laboratory incubator, the INVOcell utilizes the women’s vaginal cavity as the incubator to support a more natural fertilization process. As such, this novel device promotes in vivo conception and early embryo development.
In both commercial utilization of INVOcell and in clinical studies, the INVO Procedure has proven to have equivalent pregnancy success and live birth rates as IVF. Additionally, we believe there are emotional benefits with the mother’s participation in fertilization and early embryo development by vaginal incubation compared to that of conventional IVF treatment by offering a more connected and personalized method to achieve pregnancy.
For many couples struggling with infertility, access to treatment is often unavailable. Financial challenges (i.e., cost of treatment) and limited availability (or capacity) of fertility medical care are two of the main challenges in the ART marketplace that contribute to a large percentage of untreated patients. Religious, social and cultural roadblocks can also prevent hopeful couples from realizing their dream to have a baby with conventional IVF. We believe INVOcell can address many of the key challenges in the ART market, particularly patient cost and infrastructure capacity constraints. The many benefits to the INVO Solution include:
● Promotes greater involvement by couples in the treatment and conception.
In the second quarter of 2016, the first U.S. baby from the INVOcell and INVO Procedure following FDA clearance was born in Texas.
Company History
We were formed on January 5, 2007 under the laws of the Commonwealth of Massachusetts under the name Bio X Cell, Inc. to acquire the assets of Medelle Corporation (“Medelle”). Dr. Claude Ranoux purchased all of the assets of Medelle, and then he contributed those assets, including four patents relating to the INVOcell technology, to Bio X Cell, Inc. upon its formation in January 2007.
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On December 5, 2008, Bio X Cell, Inc., doing business as INVO Bioscience, and each of the shareholders of INVO Bioscience entered into a share exchange agreement and consummated a share exchange with Emy’s Salsa AJI Distribution Company, Inc., a Nevada corporation (“Emy’s”). Upon the closing of the share exchange on December 5, 2008, the INVO Bioscience shareholders transferred all of their shares of common stock in INVO Bioscience to Emy’s. In connection with the share exchange, Emy’s changed its name to INVO Bioscience, Inc. and Bio X Cell, Inc. became a wholly owned subsidiary of Emy’s (re-named INVO Bioscience, Inc.).
On November 2, 2015 we were notified by the United States Food & Drug Administration (“FDA”) that the INVOcell and INVO Procedure were granted clearance via the de novo classification (as a Class II device) allowing us to market the INVOcell in the United States. Following this approval, we began marketing and selling INVOcell in many locations across the U.S. We currently have approximately 140 trained clinics or satellite facilities in the U.S. where patients can receive guidance and treatment for the INVO Procedure.
On November 12, 2018, we entered into a U.S. Distribution Agreement (the “Distribution Agreement”) with Ferring International Center S.A. (“Ferring”), which closed on January 14, 2019. At the closing, we received a $5,000,000 license payment upfront from Ferring. Pursuant to the Distribution Agreement, among other things, we granted Ferring an exclusive license in the United States market only, with rights to sublicense under patents related to our proprietary intravaginal culture device (INVOcellTM), together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans (the “Field”). Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in the U.S. market. We retained a limited exception to the exclusive license granted to Ferring allowing us, subject to certain restrictions, to establish up to five clinics that will commercialize INVO cycles in the U.S. This agreement was amended on March 2, 2021 to provide for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements. Ferring is obligated to make a second payment to us of $3,000,000 upon procurement of a five (5) day label enhancement from the FDA for the current incubation period for the Licensed Product at least three (3) years prior to the expiration of the term of the license for the Licensed Product and provided further that Ferring has not previously exercised its right to terminate the Distribution Agreement for convenience. In addition, under the terms of a separate Supply Agreement, Ferring is obligated to pay us a specified supply price for each Licensed Product purchased by Ferring for distribution. The Distribution Agreement has an initial term expiring on December 31, 2025 and at the end of the initial term it may be terminated by us if Ferring fails to generate specified minimum revenues to us from the sale of the Licensed Product during the final two years of the initial term. Provided that no such termination occurs at the end of the initial term, thereafter the term of the Distribution Agreement shall automatically be renewed for successive three (3) years terms unless terminated by mutual consent. We retain all commercialization rights for the Licensed Product outside of the United States. See “Amendment to Ferring Distribution Agreement” below regarding Amendment No. 1 to the Distribution Agreement.
In October 2019, we received notice that the INVOcell product received CE Marking. The CE marking (also known as CE mark) is a mandatory conformity mark on many products placed on the single market in the European Economic Area (“EEA”). The CE marking (an acronym for the French “Conformite Europeenne”) certifies that a product has met European Union (“EU”) health, safety and environmental requirements, which ensure consumer safety. It permits us to now commercially distribute INVOcell throughout various countries in the EU provided we comply with local registration requirements that vary by country. We had previously obtained the CE Mark in May 2008, but due to limited resources during that time we let the prior CE Mark lapse. With the re-certification completed, we are now actively marketing INVOcell within the EU.
Fiscal 2020 Developments and First Quarter 2021 Developments
Birmingham, Alabama JV Agreement
On March 10, 2021, our wholly owned subsidiary, INVO Centers, LLC (“INVO Centers”), entered into a limited liability company agreement (the “JV LLC Agreement”) with HRCFG, LLC (“HFCRG”) to form a joint venture for the purpose of commercializing our technologies related to our INVOcell and procedure for an in vivo method of vaginal incubation at a dedicated INVO fertility clinic in Birmingham, Alabama. The name of the joint venture LLC is HRCFG INVO, LLC, (the “JV Company”) and the members are INVO Centers and HRCFG. HRCFG’s responsibilities include providing clinical practice expertise perform recruitment functions, provide all necessary training, and provide day-to-day management of the clinic. INVO Centers will provide access to and will be the exclusive provider to the JV Company of the INVOcell and procedure. INVO Centers will also perform all required in vitro fertilization industry specific compliance and accreditation functions and product documentation for product registration. INVOcell will also provide a reasonable amount of funding to the JV Company. In connection with the formation of the JV Company, we provided an initial $30,000 in funding. In connection with such funds, HRCFG issued us a note (the “Note”) under which these funds will be repaid from 30% of JV Company’s operating profit. Interest on such funds accrues at a rate of 1.5%. In addition, promptly upon opening the dedicated INVO Technologies clinic in Birmingham, Alabama, (the “BHAM Clinic”) for business, we will issue to HRCFG 25,000 shares of our common stock. We will issue to HRCFG an additional 25,000 shares of our common stock for each additional INVOcell-based clinic opened for business by the JV Company.
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Amendment to Ferring Distribution Agreement
On March 2, 2021, we entered into Amendment No. 1 to Distribution Agreement (the “Amendment”) with Ferring. Pursuant to the Amendment, Ferring agreed to purchase a 2,004 count of product for $501,000 pursuant to the Distribution Agreement in March 2021, at which point the minimum annual target for 2020 set forth in Section 2.4 of the Distribution Agreement will be deemed to be satisfied in full as a result of such purchase. The Amendment provides for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements.
Malaysia Distribution and JV Agreements
On November 23, 2020, we entered into a Distribution Agreement with IDS Medical Systems (“Distributor”) to distribute the INVOcell system to Malaysia under which Distributor was appointed as the exclusive distributor in Malaysia. We can elect to terminate Distributor’s exclusivity upon its failure to meet certain purchase targets, in our sole discretion. The agreement is for a term of three years. We also granted Distributor an exclusive right to the INVO trademarks in Malaysia in connection with the sale of products in Malaysia.
On November 23, 2020, we entered into a separate joint venture agreement with SNS Murni SDN BHD (“SNS Murni”), a company incorporated in Malaysia, to establish an exclusive joint venture in Malaysia to (i) introduce, promote and market our technologies related to the INVOcell and INVO Procedure in dedicated government-owned fertility clinics in Malaysia, and (ii) establish INVO Clinics in Malaysia. The joint venture will be co-managed and owned 50% by each of INVO Bioscience and SNS Murni.
North Macedonia JV Agreement
On November 23, 2020, we entered into a joint venture agreement with Ginekaliks Dooel (“Ginekaliks”), a limited liability company incorporated in the Republic of North Macedonia, to establish an exclusive joint venture to (i) commercialize, introduce, promote and market technologies related to the INVOcell and INVO Procedure in North Macedonia, (ii) establish a private healthcare institution to offer the INVO Procedure. The joint venture will be co-managed and owned 50% by each of INVO Bioscience and Ginekaliks.
Medesole JV Agreement
On January 13, 2020, we entered into a joint venture agreement (the “Agreement”) with Medesole Healthcare and Trading Private Limited, India (“Medesole”), an Indian corporation that promotes and distributes healthcare technologies, medical equipment and allied services to hospitals, clinics and primary health care centers in India and the Middle East.
Pursuant to the Agreement, Invo Bioscience and Medesole will form a joint venture entity incorporated and registered in India, which will operate under the name Medesole INVO Bioscience India Private Limited (the “JV”). After formation, we will grant to the JV all required licenses for promoting, marketing and selling INVO technology in India. Invo Bioscience and Medesole intend that the JV will open and operate dedicated INVOcell-only clinics in India.
The JV will be co-managed and owned 50% by each of INVO Bioscience and Medesole.
Public Offering--Nasdaq Listing
In November 2020, we conducted a public offering of 3,625,000 shares (the “Shares”) of our common stock at a price of $3.20 per share. We received approximately $10.1 million after deducting the underwriting discounts and commissions and offering expenses. Concurrent with the initial closing of the offering, our common stock became listed on the Nasdaq Capital Market.
Mexico JV Agreement
Effective September 24, 2020, INVO Centers, LLC, entered into a Pre-Incorporation and Shareholders Agreement with Francisco Arredondo, MD PLLC (“Arredondo”) and Security Health LLC, a Texas limited liability company (“Ramirez”, and together with INVO and Arredondo, the “Shareholders”) under which the Shareholders will commercialize the INVO Procedure and offer related medical treatments in Mexico. Each party will own one-third of the Mexican incorporated company, Positib Fertility, S.A. de C.V. (the “Mexico Company”). The Mexico Company will acquire the INVOcell product at cost plus any incurred shipping, customs and related fees.
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The Mexico Company will operate in Monterrey Nuevo Leon, Mexico and any other cities and places in Mexico as approved by the Mexico Company’s board of directors and Shareholders. In addition, the Shareholders agreed that the Mexico Company will be our exclusive distributor in Mexico. The Shareholders also agreed not to compete directly or indirectly with the Mexico Company in Mexico.
Private Placement
From May 15, 2020 through July 1, 2020, we entered into definitive securities purchase agreements (“Purchase Agreements”) with accredited investors for their purchase of (i) secured convertible notes issued by us in the aggregate original principal amount of $3,494,840 (the “Notes”), and (ii) Unit Purchase Options (“Purchase Options”) to purchase 303,623 units (each, a “Unit”), at an exercise price of $3.20 per Unit (subject to adjustments), with each Unit exercisable for (A) one share of our common stock and (B) a 5-year warrant (the “Warrants”) to purchase one share of our common stock at an exercise price of $3.20 (subject to adjustments) (the “Private Placement”). Each purchaser of a Note was issued a 5-year Purchase Option to purchase 0.086875 Units (as adjusted for the Reverse Splits (as defined below) for each dollar of Notes purchased. We received gross proceeds of approximately $3.5 million (of which $3,351,200 was received in cash and $143,640 resulted from cancellation of indebtedness). Tribal Capital Markets, LLC acted as placement agent (the “Placement Agent”) in the Private Placement. We paid the Placement Agent and certain selling agents a cash fee of 8% on a portion of the proceeds for an aggregate amount of $236,000. We also agreed to issue the Placement Agent and the selling agent 5-year warrants to purchase 6,750 shares of our common stock at an exercise price of $3.20. These warrants have the same terms and conditions as the Warrants issued in the Private Placement, except for the different exercise price. We received approximately $2,998,905 in net proceeds from the Private Placement, after deducting Placement Agent fees and selling agent fees payable to the Placement Agent and selling agent, respectively, and investor counsel in connection with the transaction. We used approximately $413,456 in proceeds to repay outstanding 9% promissory notes and we intend to use the remaining proceeds for working capital and general corporate purposes.
Pursuant to that certain Form of Secured Convertible Note entered into in connection with the Purchase Agreement (the “Form of Note”), interest on such Notes accrues at a rates of ten percent (10%) per annum and is payable either in cash or in shares of our common stock at conversion price of $3.20 (following and subject to adjustment for stock splits, combinations or similar events and anti-dilution provisions, among other adjustments) on each of the six and twelve month anniversary of the issuance date and on the maturity dates of November 15, 2021, December 22, 2021 and December 30, 2021.
All amounts of principal and interest due under the Notes are convertible at any time after the issuance date, in whole or in part (subject to rounding for fractional shares), at the option of the holders, into our common stock at a fixed conversion price of $3.20, which is subject to adjustment as described above.
Upon any issuance by us of any of our equity securities, including common stock, for cash consideration, indebtedness or a combination thereof after the date hereof (a “Subsequent Equity Financing”), each holder of a Note will have the option to convert the outstanding principal and accrued but unpaid interest of its Note into the number of fully paid and non-assessable shares of common stock issued in the Subsequent Equity Financing (“Conversion Securities”) equal to the product of unpaid principal, together with the balance of unpaid and accrued interest and other amounts payable hereunder multiplied by 1.1, divided by the price per share paid by the investors for the Conversion Securities.
A Note may not be converted, and shares of common stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of our outstanding ordinary shares.
We may prepay the Notes at any time in whole or in part by paying an amount equal to 100% of the principal amount to be redeemed, together with accrued and unpaid interest plus a prepayment fee equal to one percent (1%) of the principal amount to be repaid.
The Notes contain customary events of default including but not limited to: (i) failure to make payments when due; and (ii) bankruptcy or insolvency of the Company. If an event of default occurs, each holder may require us to redeem all or any portion of the Notes (including all accrued and unpaid interest thereon), in cash.
The Notes are secured by the proceeds from the $3,000,000 milestone payment pursuant to Section 7.2(b) of the Distribution Agreement dated November 12, 2018 between us and Ferring International Center S.A., after such proceeds are actually received by us from Ferring, all pursuant to the terms of a Security Agreement entered into between us and the noteholders under the Purchase Agreements. As of March 30, 2021, $2,994,840 in Note principal has been converted into common shares.
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On November 12, 2020, we entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC, as representative of the several underwriters (the “Underwriters”), in connection with our public offering (the “Offering”) of 3,625,000 shares of common stock at a public offering price of $3.20 per share. The initial closing of the Offering for 3,625,000 shares of common stock took place on November 17, 2020. On November 18, 2020, the Underwriters exercised their option pursuant to the Underwriting Agreement to purchase an additional 528,750 shares of common stock (the “Option Shares”). The closing for the Option Shares took place on November 20, 2020 for which we received approximately $1.52 million in net proceeds after deducting underwriting discounts and commissions. With the exercise of the option to purchase the Option Shares, the total amount of shares of common stock sold in the Offering was 4,153,750 shares, we received aggregate net proceeds of approximately $11.8 million after deducting underwriting discounts and commissions and offering expenses.
Reverse Stock Splits
On December 16, 2019, our stockholders approved a reverse stock split at a ratio of between 1-for 5 and 1-for-25, with discretion for the exact ratio to be approved by our board of directors. On February 19, 2020, our board of directors approved a reverse stock split of the our common stock at a ratio of 1-for-20. On May 21, 2020, we filed a certificate of change (with an effective date of May 26, 2020) with the Nevada Secretary of State pursuant to Nevada Revised Statutes 78.209 to effectuate a 1-for-20 reverse stock split of our outstanding common stock. On May 22, 2020, we received notice from FINRA/OTC Corporate Actions that the reverse split would take effect at the open of business on May 26, 2020 and the reverse stock split took effect on that date.
On October 22, 2020, our board of directors approved a reverse stock split of our common stock at a ratio of 5-for-8 and also approved a proportionate decrease in our authorized common stock to 125,000,000 shares from 200,000,000. Pursuant to Nevada Revised Statutes, a company may effect a reverse split without stockholder approval if both the number of authorized shares of common stock and the number of outstanding shares of common stock are proportionally reduced as a result of the reverse split, the reverse split does not adversely affect any other class of stock of the company, and the company does not pay money or issue scrip to stockholders who would otherwise be entitled to receive a fractional share as a result of the reverse split. On November 5, 2020, we filed a certificate of change with the Nevada Secretary of State (with an effective date of November 9, 2020) pursuant to Nevada Revised Statutes 78.209 to (i) decrease the number of authorized shares of common stock from 200,000,000 to 125,000,000 shares and (ii) effectuate a 5-for-8 reverse stock split of the outstanding common stock. On November 6, 2020, we received notice from FINRA/OTC Corporate Actions that the reverse split would take effect at the open of business on November 9, 2020 and the reverse stock split took effect on that date.
The INVOcell® Technology
Our product, the INVOcell®, is the first in vivo Intravaginal Culture (“IVC”) system granted FDA clearance in the United States. This novel device and procedure provide a natural, safe, effective, efficient and economical fertility treatment option for patients. The patented INVOcell device is used for the incubation of eggs and sperm during fertilization and early embryo development. Unlike conventional infertility treatments such as IVF where the eggs and sperm develop into embryos in a laboratory incubator, the INVOcell utilizes the women’s vagina as an incubator to support a more natural fertilization and embryo development environment, and infertility treatment. The device promotes in vivo conception for early embryo development. In clinical studies, the INVO Procedure produced equivalent efficacy, safety and pregnancy rates to conventional IVF treatments.
The INVOcell system consists of the following components:
The INVOcell Culture Device is used in preparing, holding, and transferring human gametes or embryos during In Vitro Fertilization/Intravaginal Culture and Intra-cytoplasmic Sperm Injection Fertilization/Intravaginal Culture procedures. The INVOcell Culture Device is positioned in the INVOcell Retention Device prior to placement in the patient’s vaginal cavity.
The INVOcell Retention Device is used in conjunction with the INVOcell Culture Device to aid in retention of the INVOcell Device in the vaginal cavity during the incubation period. The INVOcell Culture Device is positioned in the INVOcell Retention Device prior to placement in the patient’s vaginal cavity.
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During an INVO Procedure, the patient undergoes an ovarian stimulation cycle. Once the eggs are retrieved and sperm is collected, they are placed into the single use INVOcell device. Sperm collection and preparation generally occur before egg retrieval. Culture medium (~1ml) is placed in the inner vessel of the INVOcell. Eggs and a low concentration of motile sperm are placed into the medium and the inner vessel is closed and secured in the protective outer vessel. The INVOcell device is then immediately positioned in the upper vaginal cavity for incubation, where natural fertilization and early development of the embryos take place for a period of 3-5 days. A retention system can be used to maintain the INVOcell system in the vagina during the incubation period. The retention system consists of a diaphragm type device with holes in the membrane to allow natural elimination of vaginal secretions. The INVOcell is designed so that no vaginal fluids penetrate the outer vessel thus ensuring that the inner vessel is not contaminated while allowing the necessary CO2 for fertilization to pass through.
After the three (3) to five (5) day incubation period, the patient returns to the physician’s office where the retention system and the INVOcell are removed. The protective outer vessel is discarded and the contents of the inner vessel are placed into a petri plate an embryologist can evaluate the best embryos for transfer. A trained clinician can readily identify the best embryos for transfer. The embryos to be transferred are aspirated into a standard transfer catheter for transfer into the patient’s uterus. The INVO Procedure can be performed in a physician’s office furnished with the necessary equipment.
Operations
We operate with a core internal team and outsource certain operational functions in order to help accelerate our efforts as well as reduce internal fixed overhead needs and in-house capital equipment requirements. Our most critical management and leadership functions are carried out by our core management team. We have contracted out the manufacturing, packaging/labeling and sterilization of the device to a contract medical manufacturing company that completes final product manufacturing as well as manages the gamma sterilization process at an FDA registered contract sterilization facility.
To date, we have completed a series of important steps in the development and manufacturing of the INVOcell:
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Market Opportunity
The global Assisted Reproductive Technology (“ART”) marketplace is a large, multi-billion industry growing at a strong pace in many parts of the world as increased infertility rates increased patient awareness, acceptance of treatment options, and improving financial incentives (insurance etc.) continues to drive demand. Additionally, the market remains vastly underserved as a very high percentage of patients (worldwide) in need of care continue to go untreated each year. The industry also remains capacity constrained thereby creating challenges in providing access to care to the volume of patients in need. According to the European Society for Human Reproduction (“ESHRE”) 2018 ART Fact Sheet, there were more than 150 million infertile couples in the world. While there have been large increases in the use of in-vitro fertilization (“IVF”), only ~2.5 million ART cycles, including IVF, intra uterine insemination (“IUI”) and other fertility treatments, are now performed globally each year, producing around ~550,000 babies. This amounts to less than 3% of the infertile couples worldwide being treated and only 1% having a child though IVF. A survey by “Resolve: The National Infertility Association,” indicates the two main reasons couples do not use IVF is cost and geographical availability (and/or capacity).
In the United States infertility according to the American Society of Reproductive Medicine (“ASRM”) (2017) affects an estimated 10%-15% of the couples of childbearing age. According to the Centers for Disease Control (“CDC”), there are approximately 6.7 million women with impaired fertility. Based on preliminary 2018 data from CDC’s National ART Surveillance System, approximately 306,000 IVF cycles were performed at 456 IVF centers, leaving the U.S. with a large, underserved patient market, similar to most other markets around the world.
Although the use of IVF is still relatively rare, as compared to demand, its use has doubled over the past decade. Today approximately 1.7% of the infants born in the United States every year are conceived through IVF.
IVF has long been, and continues to be, a standard (and effective) treatment option for many infertile couples. At the same time, the industry remains capacity constrained as there are a limited number of IVF clinics (e.g., a limited number of doctors, embryologists, lab incubators, lab space, etc.), which tend to be concentrated in higher population areas all of which helps contribute to keeping the cost of service and access to care out of reach for many in need. Our patented and proven INVOcell technology is a unique, effective, efficient and low cost fertility treatment that offers a more natural option compared to IVF. The procedure can also be provided without a more expensive IVF center and therefore can potentially be available in many more locations. Thus, we believe we are well positioned to capture a significant share of this unmet market and help open up access to care to those millions of infertile couples that go untreated each year.
We believe our Distribution Agreement with Ferring provides a significant opportunity to accelerate our goal of expanding INVOcell’s usage and help to solve the industry’s key challenges by providing access to care to a greater number of patients by lowering costs and alleviating capacity constraints while also delivering a treatment option with equivalent success rates to existing solutions. Ferring is a visionary, privately held biopharmaceutical company recognized around the world and a leader in women’s healthcare. Its mission is to help patients live better lives by researching, developing, manufacturing and marketing the most effective and innovative products in reproductive health, women’s health, urology, gastroenterology, endocrinology and orthopedics. Ferring makes their products available in over 100 nations with more than 5,000 employees’ worldwide. They have R&D facilities doing groundbreaking work in Denmark, Israel, Switzerland, China, India, Scotland and the U.S.A. To support the INVOcell initiative Ferring has a new U.S. Operations Center, on a sprawling 25-acre campus in Parsippany, NJ, which includes a state-of-the-art manufacturing suite, next-generation product development laboratories and a fully equipped education and training center.
Competition
The infertility industry is highly competitive and characterized by long-standing well entrenched procedures as well as technological improvements. The first IVF baby, Louise Brown, was born in 1977, making the IVF treatment over 40 years old. Our INVOcell device represents the first new advanced treatment alternative in 40+ years. The market for fertility treatment and devices is highly competitive in terms of pricing, functionality and service quality, the timing of development and introduction of new products and services and terms of financing. We face competition from all ART practitioners and device manufacturers. To date, most advancements in the ART market have been limited to incremental improvements to the various products designed to simply support conventional IVF. Our competitors may implement new technologies before we do, allowing them to offer more attractively priced or enhanced products, services or solutions. Our competitors may have greater resources in certain business segments or geographic markets than we have. We may also encounter increased competition from new market entrants or alternative ART technologies.
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Competition in the area of infertility and ART services is also largely based on pregnancy rates and patient outcomes. Accordingly, the ability of our business to compete is largely dependent on our ability to achieve adequate pregnancy rates and patient satisfaction levels. The INVO Procedure offers an alternative treatment option to couples that may not have access currently due to cost or availability (capacity). We are not aware of any direct competitors to INVO Bioscience or the INVOcell device. However, there are existing infertility treatment regimens that the INVOcell will compete with when an infertile couple, in conjunction with their physician, is choosing the treatment method for their infertility. We believe that the menu of currently available clinical infertility treatment methods generally is limited to IUI and IVF.
Competing Treatments
Intra Uterine Insemination (IUI): In IUI treatments, ovarian stimulation protocols with induction of ovulation are frequently used to recruit several follicles and improve clinical pregnancy rates. When monitoring of ovulation indicates that the female patient is ready to ovulate, the male patient will produce a sperm sample in the fertility doctor’s office. The sperm is then prepared and delivered to the uterus through a catheter. Currently IUI can only treat approximately 40% of the causes of infertility. For example, IUI does not address infertility causes such as tubal disease and other conditions that are treatable by IVF and the INVOcell device and process. In addition, IUI does not produce the diagnostic information such as fertilization that an IVF or INVO cycle produces. Approximately 600,000 IUI cycles are performed annually. In Europe, approximately 220,000 IUI cycles are performed annually (ESHRE, 2016). The cost of a single IUI treatment can range from $500 to $4,000 per cycle in the U.S. and somewhat lower in Europe. The differences in cost primarily depends on the stimulation protocol and the ovulation monitoring used by the physician. Pregnancy success rates with IUI range from 5% to 15% in the U.S.
In Vitro Fertilization (IVF): IVF addresses tubal factor, ovulatory dysfunction, diminished ovarian reserve, endometriosis, uterine factor, male factor, unexplained infertility and other causes. IVF bypasses the function of the fallopian tube by achieving fertilization within a laboratory environment. Ovarian hyper-stimulation is common with IVF treatments to recruit numerous follicles to purportedly increase the chances for success. Follicles are retrieved trans-vaginally using a vaginal probe and ultrasound guidance. General anesthesia is frequently used due to the number of follicles retrieved and the resulting discomfort experienced by the patient. The eggs are identified in the follicular fluid and combined with sperm and culture medium in culture dishes, which are placed in an incubator with a temperature and gas environment designed to mimic the condition of the fallopian tubes. Once the embryos develop, typically over a 3-5 day period, they are transferred to the uterine cavity. According to the 2018 U.S. averages as reported by the Society for Assisted Reproductive Technology (“SART”), clinical pregnancy success rates averaged approximately 54% for IVF, with live birth rate success rates at approximately 43%.
The cost to the patient for a single IVF cycle (including drugs) is in the $12,000 - $15,000 range in the U.S. and can go as high as $30,000 depending on the IVF center and which optional add-on services the patient selects. The cost of drugs for an IVF cycle range from $2,500 to $4,000. The average cost per live birth using IVF can exceed $50,000 since a patient may require more than one cycle depending on their age. Many patients suitable for IVF are unable to access treatment because of the high cost and lack of insurance reimbursement. Additional obstacles to IVF often include significant distances to IVF clinics, travel costs and time off from work.
Competing Device
Our principal ART medical-device competitor is Anecova, a Swiss life sciences company with an intrauterine device, AneVivoTM, for infertility treatment. This device is a very small silicone tube with 360 micro perforations. Oocytes are fertilized outside the device and then placed in the tube, which is placed inside the woman’s uterus for early embryo development. Placing the device in the uterus is more invasive and increases the risk to patient compared to the INVOcell, which is placed in a natural orifice. After 1-5 days, the device is removed, and the best embryo(s) are transferred back into the woman’s uterus. We believe that the device is much more difficult to use than the INVOcell due to its size and the requirement to place the device in the uterus, a sterile environment. We expect that the precision manufacturing of the Anecova device will drive its cost higher than our price. The Anecova device would also only be available in hospitals and IVF Centers at a significantly higher cost than the INVOcell. Currently the Anecova device has obtained a CE Mark, however it does not have FDA approval.
Competitive Advantages
We believe that the INVOcell has the following key competitive advantages:
Lower cost than IVF with equivalent efficacy: The INVOcell can be offered for less than IVF due to lower cost of supplies, labor, capital equipment and general overhead. The laboratory equipment needed to perform an IVF cycle is expensive and requires ongoing costs (maintenance and calibration) as compared to what is required for an INVOcell cycle. As a result, we also believe INVOcell enables a clinic (and its laboratory) to be more efficient as compared to conventional IVF.
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The INVO Procedure is currently being offered at practicing clinics at a range of $5,000 - $11,000 per cycle inclusive of medications thereby making it more affordable than conventional IVF (which tends to average $12,000 to $16,000 per cycle or higher).
Improved efficiency providing for greater capacity and improved access to care and geographic availability: In many parts of the world, including the U.S., IVF clinics tend to be concentrated in higher population centers and are often capacity constrained in terms of how many patients a center can treat. With the significant number of untreated patients along with the growing interest and demand for services, the industry remains challenged to provide sufficient access to care and at an economical price. We believe INVOcell can play a significant role in helping to address these challenges. According to the 2018 CDC Report, there are approximately 456 IVF centers in the U.S. However, there are an estimated 5,000 Ob/Gyn offices in the U.S. that currently offer fertility services (which usually involves consultation and IUI, but not IVF). Since the INVOcell Procedure requires a much smaller lab facility, less equipment, and fewer specialized staff (as needed with IVF), INVOcell could potentially be offered in an Ob/Gyn office with proper training and a lighter lab infrastructure, thereby expanding the business for these physicians and allowing them to treat patients that are unable to afford conventional IVF. While INVOcell to date has been primarily offered in existing IVF centers (as an additional option for patients), the lower facility cost hurdles to provide our solution potentially opens the door to utilize the existing Ob/Gyn network of providers as well as establish new start-up clinics dedicated to providing INVOcell. Thus, in addition to lowering costs, we believe INVOcell can address a key industry challenge related to capacity through its ability to expand and decentralize the market and increase the number of points of care for patients. This powerful combination of lower cost and added capacity has the potential to dramatically open up access to care for patients around the world.
Greater patient involvement: With the INVO Procedure, the patient uses their own body as the incubation environment. This creates a greater sense of involvement, comfort and participation for patients with the fertilization happening within their own body. In some cases, this may also free a couple from ethical or religious concerns, or fears of laboratory mix-ups.
SALES AND MARKETING
Customers
Currently, our direct customers are the distributors and partners we have engaged in various countries, who in turn promote and sell the INVOcell Procedure to doctors and patients. Our focus is on finding the right partners in each region who we believe can best aid us in commercializing the INVOcell device. We actively support our partners to ensure doctors are properly trained on administering the INVOcell procedure. We typically train both a reproductive endocrinologist and an embryologist from a practice. Participating doctors will likely have to make medical and business adjustments as they introduce the INVOcell device and procedure to others within their offices and to prospective patients as they determine where we fit into their practice. Our business is dependent on the continuance of our distribution relationship with Ferring. In 2020, revenues related to our agreement with Ferring accounted for 98.3% of our total revenues.
Every center offering the INVO Procedure today is in their own stage of the integration process. Some centers have completely integrated the INVO Procedure into their product offering, while others are at the beginning stages of patient recruitment. As a result of our partnership with Ferring in early 2019, we continue to experience a growing number of U.S. clinics adopting and offering the INVOcell procedure with an increase of over 100% since the beginning of 2019.
During 2020, we expanded our sales efforts through the creation of several joint ventures designed to establish new, dedicated INVO clinics which will perform the INVO Procedure. As part of our ownership stake in these joint ventures, we expect to invest in the necessary upfront and operating costs to facilitate the clinics in getting the operations up and running and to reach profitability and intend to benefit from procedure revenue as well as device sales. None of the announced joint ventures began operations during 2020, but we anticipate such to occur in 2021.
Revenue and Product Pricing
We currently generate revenue primarily from product sales and the amortization of the upfront licensing fee received in connection with the 2019 Ferring Distribution Agreement. We have entered into additional distribution agreements for several international markets that we expect will begin to generate product sales in 2021. We are also actively pursuing opportunities in which to generate service revenue associated with the INVOcell procedure itself via our joint venture agreements to establish INVO clinics. For the U.S. market, under the terms of our agreement with Ferring (including the recent Amendment No. 1 to the Distribution Agreement), we are allowed to own/operate up to 7 dedicated INVO-only clinics whereby we would generate revenue by offering services. We have yet to open any U.S. clinics, but we are pursuing this initiative and recently entered into our first agreement to establish the first such clinic. Additionally, we recently entered into an agreement to form a joint-venture partnership for several international markets, including India, Mexico, Malaysia, and the Republic of North Macedonia, whereby we will be a partner in the joint ventures that plans to establish dedicated INVO-only clinics.
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For the various markets, we price the INVOcell Intravaginal Culture System technology based on discussions with our key partners that reflect the innovative features of the device, the savings in physician’s laboratory fixed costs and the billings the physician will receive from patients to perform the INVO Procedure. Our goal is to have the INVO Procedure offered to infertile couples at a lower cost alternative. While we attempt to keep our pricing consistent across markets, any variation may have an impact on our overall gross margins.
INVOcell Culture Device: For the U.S. market, our price for the INVOcell and retention devices has been agreed to with Ferring. Ferring has minimum quantities they must purchase from us on an annual basis in order to retain their exclusivity. In the international markets the price will be determined based on current offerings and discussions with key partners. IVF centers or Ob/Gyn groups purchasing a large number of devices and promoting the INVO Procedure may receive discounted prices and certain free advertising of their facility on our website. It is expected that the INVOcell may sell for different prices throughout the world as a reflection of different economies and typical pricing for existing treatment options within different regions.
INVOcell Retention Device: This is a single-use, modified diaphragm that includes holes to allow for natural drainage of vaginal fluids. The current model is an FDA cleared and CE Marked product purchased from a U.S. company. This retention device is sold in conjunction with the INVOcell device.
Fixed Laboratory Equipment: The equipment used in the INVO Procedure (microscope with video system, bench centrifuge, incubator without CO2, bench warmer and laminar flow hood) is readily available in the market. Existing IVF labs will generally already have the necessary equipment to perform an INVOcell Procedure. A new facility or non-IVF center can procure the necessary equipment for approximately $75,000-$150,000 (or less) depending on existing equipment they may already possess.
Sales Strategy
Our product commercialization efforts are focused on identifying distributors and partners within targeted geographic regions that we believe can best promote, market and sell the INVOcell device and INVO Procedure. We are also seeking partners that will contractually commit to meeting agreeable performance objectives that are consistent with our specific goals for the particular region. To date, we have entered into the major agreement with Ferring for the U.S. market, as well as distribution agreements in several other foreign markets, including Turkey, Jordan, Ethiopia, Sudan, Uganda, Nigeria, Malaysia, Mexico, Canada, Pakistan, and Iran as well as joint venture agreements in Mexico, India, Malaysia, and the Republic of North Macedonia. On March 10, 2021, our wholly-owned subsidiary, INVO Centers, LLC, entered into a limited liability company agreement with HRCFG, LLC to form a joint venture for the purpose of commercializing our technologies related to our INVOcell and INVO Procedure for an in vivo method of vaginal incubation at a dedicated INVO fertility clinic in Birmingham, Alabama.
Our sales and marketing activities are being led by our COO and VP of Business Development, Michael Campbell, who joined us in February of 2019. Mr. Campbell was previously the Vice President of IVF Americas Business Unit for Cooper Surgical, Inc., a wholly owned subsidiary of The Cooper Companies (NYSE: COO) and was previously a member of the board of directors for INVO Bioscience from October 2017 through November 2020. Mr. Campbell has substantial medical device sales, marketing and business development leadership experience within Global Fortune 500 and start-up company environments. During his 12-year career at Cooper Surgical, he was responsible for the IVF product portfolio sales globally including the U.S., Canada, Latin America, Europe, Middle East, Africa, and Asia Pacific regions. Throughout 2019 and 2020, we further enhanced our resources with the addition of several experienced international business development personnel, some of whom are located overseas. We may selectively add additional personnel to help support the growing, global interest in our technology during 2021.
Target Markets
Infertility is a global issue with the key industry challenges (cost, capacity, access to care, and a large percentage of patients going untreated each year) being similar across regions. Current treatment options, IUI and IVF, are also common around the world. With INVOcell being FDA cleared and CE Marked, our commercialization strategy is a global effort and approach.
Insurance Reimbursement for Infertility Treatment
In the United States, there is generally modest insurance coverage for infertility treatments, and what coverage there is varies on a state by state basis. As of August 2020, nineteen (19) states have passed fertility insurance coverage laws, with 13 of those laws including IVF coverage. In addition, under current fertility service insurance standards, many practices require an infertile patient have at least three IUI cycles before pursuing IVF. As a result, many patients are often referred to IVF when multiple IUI attempts have failed. Despite the limited overall insurance coverage, there continues to be improvement in the insurance arena. For example, there has been strong growth in private insurance options and a greater number of large corporations that are now offering added coverage to their employees in the U.S. We generally believe the market will continue to increase insurance coverage, which will further enhance the demand for service.
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Most European countries have some level of coverage for infertility treatment, but the level of coverage varies from country to country and even within countries. For example, the National Health Service in the U.K. covers 20% of most costs for infertility treatment. However, that standard is not applied universally throughout the U.K. and some counties provide almost no coverage. In 2010, in Canada, the Province of Quebec mandated the full payment of up to 3 ART cycles for residents; however, in November of 2016 they halted the program.
Branding and Promotion
We have a logo associated with the INVOcell device and have obtained U.S. trademark registrations for trademarked “INVO Bioscience”, “INVOCELL” and “INVO”. We also have pending U.S. applications to register “INVOBABY” and “INVO CENTER.” The “INVOCELL” and “INVO” trademarks are also covered by registrations with the World Intellectual Property Organization, the Canadian Intellectual Property Office, and the trademark office of Israel. Our website now refers patients in the U.S. to Ferring. We will continue to provide updated information to people looking for INVO in the U.S. to support Ferring and our own U.S. and international efforts as well as the comprehensive FAQ section.
REGULATION
Domestic Regulations
The manufacture and sale of our products are subject to extensive regulation by numerous governmental authorities, principally by the FDA in the U.S. and corresponding foreign agencies. The FDA administers the Federal Food, Drug and Cosmetic Act (“FDCA”) and the regulations promulgated thereunder. Unless an exemption applies, each medical device commercially distributed in the U.S. requires either FDA clearance of a 510(k) premarket notification, approval of a premarket approval (“PMA”) or issuance of a de novo classification The FDA classifies medical devices into one of three classes depending on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness generally can be assured by adherence to the FDA’s general controls, which include labeling, compliance with the Quality System Regulation (“QSR”), and registration and listing. Class II devices are subject to the FDA’s general controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. Special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents. While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA in order to obtain a 510(k) clearance for the device. Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or a device that was reclassified from Class III to Class II or I, or another commercially available device that was cleared through the 510(k) process or that was granted marketing authorization through the de novo classification process under section 513(f)(2) of the FDCA.
If the device is not “substantially equivalent” to a previously cleared device, the device is automatically placed into Class III. The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification into class I or class II in accordance with the de novo classification process, which is a route to market for medical devices that are low to moderate risk, but are not substantially equivalent to a predicate device. The granting of the de novo request permits the device to be marketed, creates a classification regulation for devices of this generic type, and allows the device to serve as a predicate device for subsequent 510(k) premarket notifications. If FDA does not grant the de novo request, the device remains in Class III. Class III devices require an approved PMA before they can be marketed, although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials.
In November 2015, FDA granted our petition for de novo classification of the INVOcell device. The INVOcell is intended for use in preparing, holding, and transferring human gametes or embryos during In Vitro Fertilization/Intra Vaginal Culture and Intra-cytoplasmic Sperm Injection Fertilization/Intravaginal Culture procedures. The special controls include clinical and non-clinical performance testing, biocompatibility, sterility and shelf-life testing, and labeling. These special controls also apply to competing products that seek 510(k) clearance under the classification regulation for Intravaginal Culture Systems.
After a device is cleared or approved or classified through the de novo process, numerous regulatory requirements continue to apply.
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These include:
● establishment registration and device listing;
Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. Medical device manufacturers are subject to periodic inspections by the FDA. If the FDA believes that a company may not be operating in compliance with applicable laws and regulations, the FDA and the Department of Justice can take a number of compliance or enforcement actions, including the following:
● issue a form 483 to initiate corrective actions by the company;
● issue a warning letter or untitled letter apprising of violative conduct;
● detain or seize products;
● mandate a recall;
● seek to enjoin future violations; and
We have successfully completed two comprehensive inspections by the FDA in January 2012 and November 2014 resulting in no action indicated (“NAI”). We are also a participant in the Medical Device Single Audit Program (“MDSAP”) and successfully completed our second MDSAP audit conducted in December 2020.
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Clinical Trials
All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption (“IDE”), regulations that govern investigational device labeling, prohibit promotion of the investigational device, and specify recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk,” as defined by the FDA, the agency requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials. The IDE will automatically become effective 30 days after receipt by the FDA, unless the FDA denies the application or notifies the company that the investigation is on hold and may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE that require modification of the study, the FDA may permit a clinical trial to proceed under a conditional approval. In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board (“IRB”), for each clinical site. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still comply with abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements.
International Regulations
We are subject to regulation in each of the foreign countries where our products are sold. Many of the regulations applicable to our products in such countries are similar to those of the FDA. The national health or regulatory organizations of certain countries require that our products be qualified before they can be marketed in those countries. Many of the countries we are targeting either do not have a formal approval process of their own or will rely on either FDA clearance or the European approval, the CE mark – although many of these countries do require specific registration processes in order to list the INVOcell and make it available for sale.
In particular, marketing of medical devices in the European Union (“EU”) is subject to compliance with Council Directive 93/42/EEC (“MDD”). Similar to the U.S. system, medical devices are classified into one of four classes: I, IIa, IIb and III, with class I representing the lowest risk products and class III the highest risk products. A medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured and packaged in a suitable manner. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts that relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body. Notified bodies are private entities that are authorized or licensed to perform such assessments by government authorities. The notified body must audit and examine a product’s technical dossiers and the manufacturers’ quality system. If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the. Once the product has been placed on the market in the EU, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device. The notified body has on-going audit rights and must be notified of all significant changes to the device or the manufacturer’s quality management system.
With our CE marking, we have the necessary regulatory authority to distribute our product, after registration, in the European Economic Area (i.e., Europe, Australia, and New Zealand). In addition, we will have the ability to market in various parts of the Middle East, Asia and South America. Every country has different regulatory and registration requirements, and we have begun or completed registrations in a number of countries. In general, we are registering the product based on the size of the market and our ability to service it given our resources as well as based on interest received from, and the execution of, agreements with distribution and joint venture partners.
In 2009, we received clearance from Health Canada to market, sell and train on the use of the INVOcell and INVO Procedure in Canada. Although the Canadian government approved the INVOcell, in Canada the local physician’s college must authorize the use of new products in each province. These governing colleges also want to see the product approved in the country of origin before moving forward in Canada. With the 2015 FDA approval, Effortless IVF, CA obtained approval of the local physician’s college, raised funds in 2016, and built an INVO center in Calgary Canada. This Calgary center operated on a limited basis initially and was then put on hold by its owner for reasons we believe are unrelated to any issues with INVOcell. We intend to focus our efforts in 2021 to cultivate and build the Canadian market.
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In 2012 we received Brazil’s National Health Surveillance Agency (“ANVISA”) clearance approving the sale and use of the INVOcell throughout Brazil. The approval opens the door for us to a large and fast growing economy with over 190 million people. In 2016 we completed a new registration with a Brazilian Authorization Holder (“BAM”) that allows flexibility within the distribution channel which was approved by ANVISA in 2017.
In 2020, we completed registrations in Turkey, Jordan and Malaysia, all of which are markets where we have recently established distribution agreements and expect to begin sales shortly with these partners.
In February 2021, we completed registration in Mexico, where we recently entered into a joint venture to establish dedicated INVO clinics with a local partner.
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection for our products and technologies. Our goal is to develop a strong intellectual property portfolio that enables us to capitalize on the research and development that we have performed to date and will perform in the future, particularly for each of the products that we commercialize such as the INVOcell. We rely on a combination of patent, copyright, and trademark laws in the United States and other countries to obtain and maintain our intellectual property. We protect our intellectual property by, among other methods, filing patent applications with the U.S. Patent and Trademark Office and its foreign counterparts on inventions that are important to the development of our business.
Our product development process has resulted in the development of one (1) patent currently live and in good standing covering the INVOcell device, which is set to expire on July 14, 2024 (US Pat. No. 7,759,115). We completed a redesign of the INVOcell device as well as process improvements on the INVO Procedure, which supported a new patent application that was filed on November 11, 2020 and is currently pending. We also filed a PCT (Patent Cooperation Treaty) application for the new U.S. application on January 18, 2021 to further expand patent protection in strategic locations across the globe.
Our portfolio of U.S. registered trademarks includes:
• Registration Nos. 6146631 and 3757982 for INVOCELL
• Registration No. 4009827 for INVO
• Registration No. 4009828 for INVO BIOSCIENCE
We also have pending U.S. applications to register the trademarks INVOBABY (App. No. 88804749) and INVO CENTER (App. No. 88564596)
Employees
As of December 31, 2020, we had ten full time employees. We also engage key consultants to further support our operations.
Available Information
We maintain an internet website at www.invobioscience.com. We make available, free of charge through our website, our annual report on Form 10-K, current reports on Form 8-K, quarterly reports on Form 10-Q and each amendment to these reports. Each such report is posted on our website as soon as reasonably practicable after such report is filed with the SEC via the EDGAR system.
The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered a part of this Annual Report. Our website address is included in this Annual Report as an inactive textual reference only.
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Item1A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information in this report on Form 10-K, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report on Form 10-K occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
The following is a summary of certain important factors that may make an investment in our company speculative or risky. You should carefully consider the full risk factor disclosure set forth in Item 1A of this Annual Report, in addition to the other information herein, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes.
● Our business is subject to significant competition.
● We are subject to risks associated with doing business globally.
● We do not expect to pay any dividends to shareholders.
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Risks Relating to OurBusiness
Our business has posted net operating losses, has a limited operating history, and needs additional capital to grow and finance its operations.
From the inception of our consolidated subsidiary BioXcell Inc. on January 5, 2007 through December 31, 2020, we had an accumulated net loss of $32,236,082. We have a limited operating history and is essentially an early-stage operation. We will continue to be dependent on having access to additional new capital or generating positive operating cash flow primarily through increased sales in order to finance the growth of our operations. Continued net operating losses together with limited working capital make investing in our common stock a high-risk proposal. Our limited operating history may make it difficult for management to provide effective insight into future activities, marketing costs, and customer acquisition and retention. This could lead to INVO missing targets for the achievement of profitability, which could negatively affect the value of your investment.
We may require additional capital to continue as a going concern and to continue executing our business plan, which if not obtained could result in a need to curtail operations.
As reflected in the accompanying financial statements for the year ended December 31, 2020, we continue to make progress toward commercialization of our INVOcell device, although revenues are not yet sufficient to cover our current operations. Longer term, based on our projected cash needs, we will be dependent on generating sufficient sales, entering into new distribution agreements, receiving a milestone payment under the Ferring Distribution Agreement or raising additional debt or equity capital to support our operations. No assurance can be given that we will meet the Distribution Agreement milestone or be successful in raising capital in the amounts or at the rates required to continue operations, or that such capital, if available, will be available on terms acceptable to us. If we are not able to meet the Distribution Agreement milestone or otherwise raise additional capital at the rate and in the amounts needed, our business may be significantly impacted, which could materially adversely affect the value of your investment.
Our business is subject to significant competition.
The infertility industry is highly competitive and characterized by well entrenched and long-standing practices as well as technological improvements and advancements. New Assisted Reproductive Technology (“ART”) services, devices and techniques may be developed that may render the INVOcell obsolete. Competition in the areas of infertility and ART services is largely based on pregnancy rates and other patient outcomes. Accordingly, the ability of our business to compete is largely dependent on our ability to achieve adequate pregnancy rates and patient satisfaction levels. Our business operates in highly competitive areas that are subject to change. New health care providers and medical technology companies entering the market may reduce our market share, patient volume and growth rates, and could force us to alter our planned pricing. Additionally, increased competitive pressures may require us to commit more resources to our marketing efforts, thereby increasing our cost structure and affecting our ability to achieve, or the timing of achieving, profitability. There can be no assurance that we will not be able to compete effectively nor can there be any assurance that additional competitors will not enter the market. Such competition may make it more difficult for us to enter into additional contracts with fertility clinics or open profitable INVOcell clinics.
Under the terms of 2018 Distribution Agreement, Ferring is currently handling all sales and marketing activities for the U.S. market. The Distribution Agreement, as amended on March 2, 2021, provides that we will be allowed to initially open and operate seven (7) dedicated INVO clinics. There can be no assurances that Ferring’s or our commercial activities will be successful. Additionally, pursuant to the Distribution Agreement, Ferring will have the ability to elect to distribute and commercialize competitive products. The development and commercialization of such competitive products could reduce our U.S. market share. Ferring may also terminate the Distribution Agreement at any time without cause, which termination may have a material adverse impact on our domestic commercial activities.
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We are subject to risks associated with doing business globally.
Our operations, both inside and outside the United States, are subject to risks inherent in conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. Our operations outside the United States are subject to special risks and restrictions, including, without limitation: fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the U.S. Foreign Corrupt Practices Act and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control. Acts of terror or war may impair our ability to operate in particular countries or regions, and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell at competitive prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates may affect our net earnings, the book value of our assets outside the United States and our stockholders’ equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations.
Failure to comply with the United States Foreign Corrupt Practices Act or similar laws could subject us to penalties and other adverse consequences.
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies, including their suppliers, distributors and other commercial partners, from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the countries in which we distribute products. We have adopted formal policies and procedures designed to facilitate compliance with these laws. If our employees or other agents, including our distributors or suppliers, are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
We need to manage growth in operations, and we may not be successful in implementing our growth strategy.
In order to maximize potential growth in our current and potential markets, we believe we must expand the scope of our services in the medical device/bioscience industry. We also intend to seek additional market strategies to increase the adoption of INVOcell, which includes helping to establish stand-alone INVO-only clinics and attempting to bring the technology into the existing OB/Gyn infrastructure. Such expansion will place a significant strain on our management, operational and sales systems. As a result, we plan to continue to improve our INVOcell technology, operating procedures and management information systems. We will also need to effectively train, motivate and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating revenues at the levels we expect.
Many factors including, but not limited to, increased competition from similar businesses, unexpected costs, costs associated with marketing efforts and maintaining a strong client base may interfere with our ability to expand successfully. Our inability to implement our internal strategy successfully may have a negative impact on our growth, future financial condition, results of operations and/or cash flows.
Our products incorporate intellectual property rightsdeveloped by us thatmay be difficult to protect ormay be found to infringe on the rights of others.
While we currently own U.S. and international patents, these patents may be challenged, invalidated or circumvented. In addition, the rights granted under these patents may not provide the competitive advantages we currently anticipate. Certain countries, including the United States or Europe, could place restrictions on the patentability of various medical devices which may materially affect our business and competitive position. Additionally, the laws of some foreign countries, in particular China and India, do not protect our proprietary rights to the same extent or in the same manner as U.S. laws, and we may encounter significant problems in protecting and defending its proprietary rights in these countries. In addition to relying on patent, copyright and trademark laws, we also utilize a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements to protect our intellectual property rights. However, these measures may not be adequate to prevent or deter infringement or other misappropriation. Further, our intellectual property rights may be found to infringe on intellectual property rights of third parties. Moreover, we may not be able to detect unauthorized use or take appropriate and timely steps to establish and enforce our proprietary rights. Existing laws of some countries in which we conduct business offer only limited protection of our intellectual property rights, if at all. As the number of market entrants as well as the complexity of the technology increases, the possibility of functional overlap and inadvertent infringement of intellectual property rights also increases.
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We may be forced to defend our intellectual property rights from infringement through expensive legal action.
Third parties may in the future assert claims against us alleging infringement on their intellectual property rights. Defending such claims may be expensive, time consuming and divert the efforts of our management and/or technical personnel. Because of litigation, we could be required to pay damages and other compensation, develop non-infringing products or enter into royalty and/or licensing agreements. However, we cannot be certain that any such licenses, will be made available to us on commercially reasonable terms.
We regard our trade secrets, patents and similar intellectual property as critical to our successful operations. To protect our propriety rights, we rely on intellectual property and trade secret laws, as well as confidentiality and license agreements with certain employees, customers and third-parties. No assurance can be given that our intellectual property will not be challenged, invalidated, infringed or circumvented. If necessary, we intend to defend our intellectual property rights from infringement through legal action, which could be very costly and could adversely affect our ability to achieve and maintain profitability. Our limited capital resources could put us at a disadvantage if we are required to take legal action to enforce our intellectual property rights.
We face potential liability as a provider of a medical device.These risks may be heightened in the area of artificial reproduction.
The provision of medical devices entails the substantial risk of potential tort injury claims. We do not engage in the practice of medicine or assume responsibility for compliance with regulatory requirements directly applicable to physicians. We currently utilize product liability insurance to provide coverage against potential tort injury claims. However, there can be no assurance such coverage will provide adequate protection against any potential claims. Furthermore, any claim asserted against us could generate costly legal fees, consume management’s time and resources, and adversely affect our reputation and business, regardless of the merit or eventual outcome of such claim.
There are inherent risks specific to the provision of infertility and ART services. For example, the long-term effects on women of the administration of fertility medication, integral to most infertility and ART services, are of concern to certain physicians and others who fear the medication may prove to be carcinogenic or cause other medical problems. Additionally, any ban or other limitation imposed by the FDA or other foreign regulatory department on fertility medication and services could have a material adverse effect on our business. Any such action would likely adversely affect the value of your investment.
If we fail to maintain adequate quality standards for our products, our reputation and business may be adversely affected and harmed.
Our customers are expecting that our products will perform as marketed and in accordance with industrial standards. We rely on third-party manufacturing companies and their packaging processes in connection with the production of our products. A failure to maintain product quality standards in accordance with our customer’s expectations could result in the loss of demand for our products. Additionally, delays or quality lapses in our production lines could result in substantial economic losses to us. Although we believe that our current quality control procedures adequately address these risks, there can be no assurance that we will not experience occasional or systemic quality lapses in our manufacturing and service operations. Currently, we have limited manufacturing capabilities as we rely on a single manufacturing provider regarding our production process. In the event our manufacturer is unable to produce an adequate supply of products at appropriate quality levels, our growth could be limited and our business may be harmed. If we experience significant or prolonged disturbance in our quality standards, our business and reputation may be harmed, which may result in the loss of customers, our inability to participate in future customer product opportunities and reduced revenue and earnings.
We heavily rely on third party package delivery services, and a significant disruption in these services or significant increases in prices may disrupt our ability to import or export materials, increase our costs and negatively affect our ability to achieve and maintain profitability.
We ship a significant portion of our products to our customers through independent package delivery companies. If any of our key third party package delivery providers experience a significant disruption such that any of our products, components or raw materials cannot be delivered in a timely fashion or such that we incur additional shipping costs that we are unable to recoup, our costs may increase and our relationships with certain customers may be adversely affected. In particular, if our third-party package delivery providers increase prices and we are not able to find comparable alternatives or adjust our delivery network, our profitability could be adversely affected.
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We may not be able to develop or continue our business if we fail to retain key personnel.
We substantially rely upon the efforts and abilities of our executive management and directors. The loss of any of our executive officers and/or directors services could potentially have a material adverse effect on our business, operations, revenues and/or prospects. If one or more of these persons were to become unable or unwilling to continue in their present positions, we may not be able to replace them readily or timely, if at all. We do not maintain key man life insurance on the lives of any of our executive management or directors.
We will need additional, qualified personnel in order to expand our business.Without additional personnel, we will not be able to expand our business.
Expanding our business requires increasing the number of persons engaged in activities for the sale, marketing, administration and delivery of our products as well as clinical training personnel for the proper training of the INVO Procedure. Our ability to attract and hire personnel to fulfill these efforts is dependent on our ability to attract and retain potential employees with the proper background and training matching the skills required for the positions. In addition, we may not be able to attract personnel who will be able to successfully implement our business operations and growth strategy in the manner that we currently anticipate.
Currency exchange rate fluctuations may affect the results of our operations.
We intend to distribute our INVOcell product internationally with all sales, domestic and international, in U.S. dollars. As a result, our operations could be impacted by fluctuations in currency exchange rates, although we attempt to mitigate such risk by invoicing only in U.S. dollars. In spite of this, our operations may still be negatively impacted by foreign currency exchange rates in the event the U.S. dollar strengthens and the local currency where the product is being sold weakens. In the event such international patients are unable to afford the associated increase costs, international doctors and clinics may not be able to offer the INVOcell product and procedure. As we expand our international footprint with joint ventures, these joint ventures will likely have a functional currency based on their location and as a result, if we are required to consolidate these financial results it may create currency fluctuations. Additionally, as an international business we may be susceptible to adverse foreign currency fluctuations unconnected to the U.S. dollar.
We are subject to risks in connection with changes in international, national and local economic and market conditions.
Our business is subject to risks in connection with changes in international, national and local economic and market conditions, including the effects of global financial crises, effects of terrorist acts, war and global pandemics. Such economic changes could negatively impact infertile couples’ ability to pay for fertility treatment around the world.
We anticipate that eventually international sales will account for a meaningful part of our revenue. We will experience additional risks associated with international sales, including:
● political and economic instability;
● export controls;
● changes in international legal and regulatory requirements;
● changes in tax laws, duties and tariffs.
Any of these factors could have a material adverse effect on our business, results of operations and financial condition. From 2011 through 2020, we sold products in certain international markets mainly through independent distributors, and we anticipate maintaining a similar sales strategy along with our recent joint venture activity for the foreseeable future. In the event a distributor fails to meet annual sales goals, we may be required to obtain a replacement distributor, which may be costly and difficult to locate. Additionally, a change in our distributors may increase costs, and create a substantial disruption in our operations resulting loss of revenue.
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We sell directly to Ferring in the U.S., and if we cease selling to Ferring it may be difficult and expensive to find a replacement.
We sell our products directly to Ferring in the United States market, which accounted for 98.3% of total 2020 revenues. If Ferring fails to meet its milestones, it may be difficult and costly to locate an acceptable substitute partner. The process of searching for an acceptable substitute may divert significant management attention away from executing our commercial growth strategy, which could have a material adverse impact on our business and results of operations.
The coronavirus pandemic could have a significant negative impact on our business, revenues, financial condition and results of operations.
The persistence of the coronavirus pandemic has severely depressed the level of economic activity around the world. Many businesses and governments have taken preventative or protective actions, including restrictions on travel and business operations, and advising or requiring individuals to limit or forego their time outside of their homes. Temporary closures of many businesses have been ordered and numerous other businesses have temporarily closed voluntarily. Further, individuals' ability to travel has been curtailed through mandated travel restrictions, voluntary or mandated closures of travel-related businesses, as well as quarantines, shelter-in-place/stay-at-home and social distancing orders.
In particular, our sales and marketing efforts with the INVOcell and INVOcell Procedure could be adversely affected by recently implemented protocols for screening and restricting outside visitors and vendors. The COVID-19 pandemic created substantial disruption within the infertility care marketplace as many clinics ceased performing new procedures for a period of time. We believe that disruption has impacted our key partners, and although it may be temporary in nature and many clinics have already returned to performing new procedures, there can be no assurance that the pandemic will not have long term adverse effects on the industry and our business. Additionally, officially imposed quarantines and self-quarantines could interfere with patients’ ability to see a health care provider and obtain our INVOcell and INVOcell Procedure.
The spread of coronavirus has also caused us to modify our business practices, and we may take further actions as may be required by government authorities or that we determine are necessary or advisable. Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our business, which could have an adverse effect on our operations. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions. In addition, work-from-home and related business practice modifications present significant challenges to maintaining our corporate culture, including employee engagement and productivity, both during the immediate pandemic crisis and as we make additional adjustments in the eventual transition from it. Implementing new business practices in order to protect employees, vendors and other parties with whom we interact may result in increased costs. Furthermore, even if we follow what we believe to be best practices, there can be no assurance that our measures will prevent the transmission of COVID-19 between employees. Any incidents of actual or perceived transmission may expose us to liability claims, adversely impact employee productivity and morale, and result in negative publicity and reputational harm.
The degree to which coronavirus impacts our results will continue to depend on future developments that are highly uncertain and cannot be predicted, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development, rollout and availability of effective treatments and vaccines, the imposition of protective public safety measures, and how quickly and to what extent normal economic and operating conditions can resume, if at all. These uncertainties may result in delays or modifications to our plans, initiatives and results.
Risks Related to Our Industry
We are subject to significant domestic and international governmental regulation.
Our business is heavily regulated domestically in the United States and internationally. In the United States the FDA, and other federal, state and local authorities implement various regulations that subject us to civil and criminal penalties, including cease of operations, in the event we fail to comply. Any such actions could severely curtail our sales and business reputation. In addition, additional restrictive laws, regulations or interpretations could be adopted, making compliance with such regulations more difficult or expensive. While we devote substantial resources to ensure our compliance with laws and regulations, we cannot completely eliminate the risk that we may be found non-compliant with applicable legal and regulatory requirements.
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We believe that the healthcare industry will continue to be subject to increased regulation as well as political and legal action, as future proposals to reform the health care system are considered by Congress and state legislatures. We do not know of, nor do we have any control over, future changes to health care laws and regulations which may have a significant impact on our business.
The FDA regulatory review process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing our products.
Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval of a premarket approval (“PMA”), or issuance of a de novo classification order. The FDA clearance, de novo classification, and approval processes for medical devices are expensive, uncertain and time-consuming.
Future modifications to the INVOcell that was classified through de novo may require a 510(k) clearance. We may make changes to the INVOcell without seeking clearance for the modifications if we determine such clearances are not necessary and document the basis for that conclusion. However, the FDA may disagree with our determination or may require additional information, including clinical data, to be submitted before a determination is made, in which case we may be required to delay the introduction and marketing of our modified products, redesign our products, conduct clinical trials to support any modifications, or we may be subject to enforcement actions. In addition, the FDA may not clear the modified INVOcell for the indications that are necessary or desirable for successful commercialization.
There is no assurance that we will be able to obtain the necessary clearances on a timely basis or at all. Further, the FDA may change its policies, adopt additional regulations or revise existing regulations, or take other actions which may impact our ability to modify the INVOcell on a timely basis, and may prevent or delay clearance of future products. Delays in receipt of, or failure to obtain clearances for any product modifications or future products we may develop would result in delayed or no realization of revenue from such products and in substantial additional costs, which could decrease our profitability.
In addition, we are required to continue to comply with applicable FDA and other regulatory requirements following de novo classification or clearance. The failure to comply with existing or future regulatory requirements could have a material adverse effect on our business.
Improper marketing and promotion or off-label use of our product could lead to investigations and enforcement by governmental bodies, may harm our reputation and business, and could result in product liability suits.
If the FDA or any foreign regulatory entity determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions. These enforcement actions could include, for example, a warning letter or untitled letter, injunction, seizure, civil fine or criminal penalties. We cannot, however, prevent a physician from using the INVOcell off-label, when in the physician’s independent professional medical judgement, he or she deems it appropriate. There may be increased risk of injury to patients if physicians attempt to use the INVOcell off-label, or the INVOcell may not be as effective, which could harm our reputation.
If we fail to comply with the FDA’s Quality System Regulation (QSR) or comparable EU requirements, the FDA or EU competent authorities could take various enforcement actions, including halting our manufacturing operations, and our business would suffer.
In the United States, as a manufacturer of a medical device, we are required to demonstrate and maintain compliance with the FDA’s QSR. The QSR covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of medical devices. The FDA enforces the QSR through periodic inspections and unannounced “for cause” inspections. Outside the United States, our products and operations are also required to comply with national requirements and also standards set by industrial standards bodies, such as the International Organization for Standardization. Foreign regulatory bodies may evaluate our products or the testing that our products undergo against these standards. The specific standards, types of evaluation and scope of review differ among foreign regulatory bodies. Our failure to comply with FDA or foreign quality requirements, or failure to take satisfactory and prompt corrective action in response to an adverse inspection, could result in enforcement actions, including a warning letter, adverse publicity, a shutdown of or restrictions on our manufacturing operations, a recall or seizure of our products, fines, injunctions, civil or criminal penalties, or other sanctions, any of which could cause our business and operating results to suffer.
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We are subject to continuing regulation by the FDA, and failure to comply may materially harm our business.
We are subject to Medical Device Reporting (“MDR”) regulations, which require us to report to the FDA if we become aware of information that reasonably suggests our product may have caused or contributed to a death or serious injury or has malfunctioned and the device or a similar device we market would likely cause or contribute to a death or serious injury if the malfunction were to recur. We may fail to report adverse events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event. If we fail to comply with our medical device reporting obligations, the FDA could issue warning letters or untitled letters, take administrative actions, commence criminal prosecution, impose civil monetary penalties, request or require a product recall, seize our products, or delay the clearance of our future products. We must report corrections and removals to the FDA where the correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug, and Cosmetic Act, or FDCA, caused by the device that may present a risk to health.
Our failure to comply with these or other applicable regulatory requirements could result in enforcement actions by the FDA which may include untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; customer notifications or repair, replacement or refunds; and criminal prosecution.
Our products are generally subject to regulatory requirements in foreign countries in which we sell those products. We will be required to expend significant resources to obtain regulatory approvals or clearances of our products, and there may be delays and uncertainty in obtaining those approvals or clearances.
In order to sell our products in foreign countries, generally we must obtain regulatory approvals and comply with the regulations of those countries. These regulations, including the requirements for approvals or clearances and the time required for regulatory review, vary from country-to-country.
The EU requires that manufacturers certify compliance of medical devices with Council Directive (93/42/EEC) (“MDD”), as amended, and affix the CE mark before selling such devices in member countries of the EU or European Economic Area (“EEA”). The CE mark is an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the authorization to affix the CE mark to products, a manufacturer must certify that its product complies with the applicable directive, which may include a requirement to obtain certification that its processes and products meet certain European quality standards.
In May 2017, the EU adopted Regulation (EU) 2017/745 (“MDR”), which will repeal and replace the MDD with effect from May 26, 2021. Under transitional provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2021 may continue to be placed on the market for the remaining validity of the certificate, until May 27, 2024 at the latest. After the expiry of any applicable transitional period, only devices that have been CE marked under the MDR may be placed on the market in the EU (or EEA). The MDR includes increasingly stringent requirements in multiple areas, such as pre-market clinical evidence (some of which are now in effect), review of high-risk devices, labeling and post-market surveillance. Under the MDR, pre-market clinical data will now be required to obtain CE Mark approval for high-risk, new and modified medical devices. We believe these new requirements have the potential to be expensive and time-consuming to implement and maintain.
Complying with and obtaining regulatory approval in foreign countries, including compliance with the MDR, have caused and will likely continue to cause us to experience more uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could have a material adverse impact on our net sales, market share and operating profits from our international operations.
Our planned additional clinical trial and 510(k) efforts may prove unsuccessful.
We intend to pursue our label expansion effort and corresponding 510(k) submission utilizing real-market usage (retrospective) data. We may also conduct an additional prospective clinical trial related to the expansion of INVOcell’s indications to include 5-day incubation. While we anticipate a positive outcome of this effort, an unsuccessful trial or insufficient retrospective data could adversely impact our ability to receive FDA clearance for the particular indication related to 5-day incubation, impact our ability to expand into potential markets, and delay or eliminate our ability to receive the $3 million milestone payment under the Ferring agreement.
Our revenues and operating results could fluctuate significantly from quarter to quarter, which may cause our stock price to decline.
Since our inception, we have not generated significant revenues. Our results from year-to-year and from quarter-to-quarter have, and are expected to continue to, vary significantly based on ordering cycles of distributors and partners. As a result, we expect period-to-period comparisons of our operating results may not be meaningful as an indication of our future performance for any future period.
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Changes in the healthcare industry may require us to decrease the selling price for our products or could result in a reduction in the available market size.
Governmental and private sector initiatives in the U.S. and abroad involving trends toward managed healthcare and cost containment could place an emphasis on our ability to deliver more cost-effective medical therapies. The development of other cost-effective devices could eventuality adversely affect the prices and/or sales of our products. Companies in the healthcare industry are subject to various existing and proposed laws and regulations, in both domestic and international markets, regulating healthcare pricing and profitability. Additionally, there have been third-party payer initiatives to challenge the prices associated with medical products, which if successful, could affect our ability to sell products on a competitive basis in the future.
In the United States, there has been a trend of consolidation among healthcare facilities and purchasers of medical devices, allowing such purchasers to limit the number of suppliers from whom they purchase medical products. As result, it is unknown whether such purchasers will decide to stop purchasing our products or demand discounts on our prices. Any pressure to reduce our product prices in response to these industry trends and the decrease in market size could adversely affect our anticipated revenues and profitability of our sales, creating a material adverse effect on our business.
If third-party payers do not provide adequate coverage and reimbursement for INVOcell and the INVO Procedure, we may be unable to generate significant revenues.
Our success in marketing and commercializing INVOcell and the INVO Proceduremay depend in part on whether private health insurers and other payer organizations provide adequate coverage and reimbursement. If physicians or insurers do not find our clinical data compelling or wish to wait for additional studies, they may choose not to use or provide coverage and reimbursement for INVOcell and the INVO Procedure. We cannot provide assurance that data we or others may generate in the future will be consistent with that observed in our existing clinical studies, or that our current or future published clinical evidence will be sufficient to obtain adequate coverage and reimbursement for our products. Moreover, if we cannot obtain adequate coverage for and reimbursement of the cost of our products, we cannot provide assurance that patients will be willing to incur the full cost of INVOcell and the INVO Procedure.
Third-party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for INVOcell and the INVO Procedure exists among third-party payers. Therefore, coverage and reimbursement for INVOcell and the INVO Procedure may differ significantly from payer to payer. In addition, payers continually review new technologies for possible coverage and can, without notice, deny coverage for these new products and procedures. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of INVOcell and the INVO Procedure to each payer separately, with no assurance that coverage and adequate reimbursement will be obtained or maintained if obtained.
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before it can be approved for sale in that country. Further, many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures. In most markets, there are private insurance systems as well as government-managed systems. If sufficient and timely coverage and reimbursement is not available for our current or future products, in either the United States or internationally, the demand for our products and our revenues may be adversely affected.
Recenteconomictrendscouldadverselyaffect ourfinancialperformance.
Economic downturns and declines in consumption in the healthcare market may affect the levels of both our sales and profitability. If a downturn in economic conditions occurs, or if there is deterioration in financial markets and major economies, our financial performance could be adversely affected. The tightening of credit in financial markets may adversely affect the ability of our customers and suppliers to obtain financing, which could result in a decrease in, or deferrals or cancellations of, the sale of our products and services. In addition, weakening economic conditions may result in a decline in spending for ART and fertility assistance that could adversely affect our business operations and liquidity. We are unable to predict the likely duration and severity of any disruption in the domestic and global financial markets.
Social media platforms present risks and challenges.
The unauthorized use of certain social media vehicles could result in the improper collection and/or dissemination of personally identifiable information causing brand damage and various legal implications. In addition, negative or inaccurate social media posts or comments about us on any social networking site could damage our brand, reputation, and goodwill.
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Risks Related toOur Common Stock
The significant number of common shares issuable upon conversion of outstanding notes could adversely affect the trading price of our common shares.
The sale of substantial amounts of our common stock at any particular time could cause the trading price of our common stock to decline significantly. In July 2020, we registered 1,220,722 shares of common stock issuable under convertible notes, units and warrants and on September 16, 2019, we registered 1,278,328 shares of common stock for resale. As of December 31, 2020, we had $1,700,000 of Notes outstanding, which are convertible into 536,302 shares of our common stock and at March 19, 2021, we had $500,000 of Notes outstanding, which are convertible into 160,504 shares of our common stock. In the event the Notes are converted into shares of common stock, the issuance of shares of our common stock upon such conversion will result in dilution of ownership to existing stockholders. If our existing stockholders sell substantial amounts of our common stock under either registration statement, including the shares issued upon the conversion of the notes, in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.
Our common stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.
Under a Securities and Exchange Commission (“SEC”) rule known as “Rule 144”, a person who has beneficially owned restricted securities of an issuer and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been met. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company or that has been at any time previously a shell company. The SEC defines a shell company as a company that has no or nominal operations and either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents, or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets. We are a former shell company.
The SEC has provided an exception to this unavailability if and for as long as the following conditions are met: (a) the issuer of the securities that was formerly a shell company has ceased to be a shell company; (b) the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; (c) the issuer of the securities has filed all Exchange Act reports and materials required to be filed, as applicable during the preceding 12 months, other than certain Current Reports on Form 8-K; and (d) at least one (1) year has elapsed form the time the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that it is not a shell company.
Because of our prior history as a shell company, stockholders who receive our restricted securities will only be able to sell them pursuant to Rule 144 without registration for only as long as we continue to meet the requirements set forth above. No assurance can be given that we will meet these requirements going forward. Furthermore, any non-registered securities we sell in the future or issue will have limited or no liquidity until and unless such securities are registered with the SEC and/or until we comply with the foregoing requirements.
As a result, it may be harder for us to raise funding through the sale of debt or equity securities unless we agree to register such securities with the SEC, which could require us to deploy additional resources. In addition, if we are unable to attract additional capital, it could have an adverse impact on our ability to implement our business plan and/or sustain our operations. Our status as a former “shell company” could prevent us from raising additional funds to develop additional technological advancements, which could cause the value of our securities to decline in value.
A portion of the ownership of our common stock is concentrated in a small number of investors, some of whom are affiliated with our Board of Directors and management.
Our management and board of directors own approximately 5.2% of our issued and outstanding shares of common stock. By virtue of such holdings, they have the ability to exercise influence over our business and affairs, including matters requiring approval by our stockholders including but not limited to the following actions:
● the election of the Board of Directors;
● amending our Articles of Incorporation or bylaws; and
● approving a merger, sale of assets, or other corporate transaction.
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Our directors have the right to authorize the issuance of shares of our preferred stock and additional shares of our common stock.
Our directors, within the limitations and restrictions contained in our Articles of Incorporation and without further action by our shareholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative conversion and voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series. While we have no intention of issuing shares of preferred stock at the present time, we may seek to raise capital through the sale of our securities and may issue shares of preferred stock in connection with a particular investment. Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock.
Should we issue additional shares of our common stock, each investor’s ownership interest in our stock would be proportionally reduced.
The indemnification rights provided to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against its directors, officers and employees.
Our Articles of Incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the costs of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and resultant costs may also discourage us from brining a lawsuit against out directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directs or officer even though such actions, if successful, might otherwise benefit us and our stockholders.
Our shares of common stock are thinly traded, and the price may not reflect our value; there can be no assurance that there will be an active market for our shares now or in the future.
We have a trading symbol for our common stock (“INVO”) and our common stock is currently quoted on the Nasdaq Capital Market.
Our shares of common stock are thinly traded, and as such the price, if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on, among other things, the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated or, if given, that it will be positive.
Consequently, investors may not be able to liquidate their investment or may be able to liquidate it only at a price that does not reflect the value of the business. If a more active market should develop, the price may be highly volatile. Due to the possibility of our common stock being priced lower than its actual value, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price.
Our failure to meet the continued listing requirements of the Nasdaq Stock Market could result in a delisting of our common stock.
We are required to satisfy the continued Nasdaq listing requirements. If we fail to satisfy the continued listing requirements of the Nasdaq Stock Market, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
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We have convertible notes outstanding.
The Notes contain customary triggering events including but not limited to (i) failure to make payments when due and (ii) our bankruptcy or insolvency. If a triggering event occurs, each holder may require us to redeem all or any portion of the Notes (including all accrued and unpaid interest thereon), in cash. Further, the Notes are secured by the proceeds from the $3 million milestone payment that we are eligible to receive in connection with the Distribution Agreement with Ferring. The occurrence of a triggering event under the Notes could cause a material adverse effect on our business and results of operations, which could materially reduce the value of your investment.
We are currently involved in a dispute with an existing noteholder over the appropriate value of the notes he holds.
On August 7, 2019, we sent James Bowdring, a related party, a check in the amount of $65,197 as full and final payment under those certain promissory notes dated April 8, 2011 and November 9, 2011. On August 8, 2019, Mr. Bowdring’s legal counsel returned the check. A basis for returning the check was a claim that the interest due under the Notes called for compounded interest and not per annum interest. In addition, the letter rejecting the tender of the payment in full check alleged Mr. Bowdring was considering a future intention to convert his Promissory Notes into shares of our common stock. Mr. Bowdring, through his counsel, indicated that such future intention to convert the Notes to common stock were contingent upon Mr. Bowdring addressing certain personal issues which were not disclosed by his counsel in the correspondence returning the checks. We do not believe that Mr. Bowdring has the right to seek conversion of the Notes once payment for the Notes has been tendered. In order to resolve the issue of our tender of payment in full versus Mr. Bowdring’s assertion that he can reject tender and seek conversion, we filed an action in the Suffolk Superior Court in Boston seeking Declaratory Judgment and Judgment for Breach of Contract.
Our common stock may be subject to the “penny stock” rules of the SEC, which will make the shares of our common stock more difficult to sell.
Our shares of common stock are subject to the “penny stock” rules of the Exchange Act. The Exchange Act defines “penny stock” as any equity security that has a market price of less than $5.00 per share, subject to certain restrictions. We anticipate our common stock may continue to be considered a penny stock in the future.
The penny stock rules require broker-dealers to deliver to potential investors a standardized risk disclosure document prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the potential investor current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the investor’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the potential investor orally or in writing prior to completing the transaction and must be given to the potential investor in writing before or with the investor’s confirmation.
In addition, the penny stock rules require that prior to a transaction the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
The market for penny stocks has experienced numerous frauds and abuses, which could adversely affect investors in our stock.
We believe that the market for penny stocks has suffered from patterns of fraud and abuse. We believe that many of these abuses have occurred with respect to the promotion of low-price stock companies that lacked experienced management, adequate financial resources, an adequate business plan and/or marketable and successful business or product. Because our shares are penny stocks, the share price for our common stock may be adversely affected such frauds and abuses involving other penny stocks.
We do not expect to pay any dividends to shareholders.
To date, we have never declared or paid any dividends to our stockholders. Our board of directors does not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial conditions, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid to stockholders. In the event dividends are paid to stockholders, there is no assurance with respect to the amount of any such dividend.
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We may have difficulty raising necessary capital to fund operations because of the thin market and market price volatility for our shares of common stock.
Throughout 2020, there has been a thin market for our shares, and the market price for our shares has been volatile. In recent years, the securities markets in the U.S. and around the world have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, we expect our shares of common stock may also be subject to volatility resulting from market forces over which we will have no control. The success of our products and services may be dependent upon our ability to obtain additional financing through debt and equity or other means. The thin market for our shares, and the volatility in the market price for our shares, may adversely affect our ability to raise needed additional capital.
General Risk Factors
Shareholders may be diluted significantly through our efforts to obtain financing and from issuance of additional shares of our common stock, including such issuances of shares for services.
To satisfy certain financial obligations, we have issued and may continue to issue shares of our common stock and we have incurred and may continue to incur debt, which may be convertible into shares of our common stock. We may attempt to raise capital by selling shares of our common stock, possibly with warrants, which may be issued or exercised at a discount to the market price for our common stock. These actions would result in dilution of the ownership interests of existing shareholders, and may further dilute the common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to control us as the shares may be issued to our officers, directors, new employees, or other related parties.
We are subject to the reporting requirements of U.S. federal securities laws, which can be expensive.
We are a public reporting company and accordingly subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002. We are required to prepare and file annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports. Compliance with such reporting requirements is both time-consuming and costly for us. We may need to hire additional financial reporting, internal control, and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures.
In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules implemented by the SEC and the securities exchanges, require certain corporate governance practices for public companies. Our management and other personnel have devoted and expect to continue to devote a substantial amount of time to public reporting requirements and corporate governance. These rules and regulations have significantly increased our legal and financial compliance costs and made some activities more time-consuming and costly. If these costs are not offset by increased revenues and improved financial performance, our financial condition and results of operations may be materially adversely affected. These rules and regulations also make it more difficult and more expensive for us to obtain director and officer liability insurance in the future. Additionally, we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified personnel to serve on our board of directors or as executive officers.
Failure to comply with internal control attestation requirements could lead to loss of public confidence in our financial statements and negatively impact our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to conduct an annual management assessment of the effectiveness of our internal controls over finical reporting. If we fail to timely develop our internal controls, and management is unable to make this assessment, or, once required, if the independent registered public accounting firm cannot timely attest to this assessment, we could be subject to regulatory sanctions. As a result, a loss of public confidence in our financial controls and the reliability of our financial statements may develop ultimately negatively impacting our stock price and our ability to raise additional capital when and as needed.
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Item 1B. Unresolved Staff Comments.
None.
Item2. Properties
We currently do not own any real property and operate from leased facilities. Our principal executive office is located at 5582 Broadcast Court Sarasota, Florida 34240. The lease is for one 5-year term, with option to extend for one 3-year term. We lease approximately 1,223 square feet in the Sarasota facility, pursuant to a May 2019 lease with a 3% annual rent increase. We believe that our facilities are adequate to meet our needs.
Item3. Legal Proceedings
See Note 13 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
Item4. Mine Safety Disclosures.
Not Applicable
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Part II
Item5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Trading of our shares of our common stock is on the Nasdaq Capital Market under the symbol “INVO.” Prior to November 12, 2020, our common stock was traded on the OTC QB Venture Market tier of the over-the-counter (“OTC”) market.
As of December 31, 2020, and 2019, there were 9,639,268 and 4,884,879 shares of registrant’s common stock outstanding, respectively.
Information required with respect to Equity Compensation Plans in this Item 5 is included in Item 11 on page 43 of this report on Form 10-K.
Stockholders
As of December 31, 2020, and 2019, there were approximately 172 and 168 stockholders of record of our common stock, respectively. However, we estimate that we have a significantly greater number of beneficial holders of our common stock because a number of shares are held of record by broker-dealers for their customers in street name.
Dividend Policy
We have never declared or paid a dividend on our common stock. We intend to retain future earnings (if any) to fund development and growth of our business, rather than to pay them as dividends, for the foreseeable future.
Recent Sales of Unregistered Securities
In March 2021, we issued 11,098 shares of our common stock upon conversion of $35,513.60 of accrued interest under certain of our convertible notes. We did not receive any proceeds upon conversion. We relied on the exemption from registration provided by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
In March 2021, we issued 85,568 shares of our common stock upon exercise of outstanding unit purchase options. The unit purchase options were issued to purchase 131,114 shares and were exercised in full on a cashless basis and accordingly 45,546 shares were withheld by us at the market price of $9.20 per share less the exercise price of $3.20 per share to fund the exercise price. We relied on the exemption from registration provided by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
In March 2021, we issued 131,114 warrants upon the exercise in full of 131,114 unit purchase options. We did not receive any proceeds upon exercise. We relied on the exemption from registration provided by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
In March 2021, we issued 90,748 shares of our common stock upon exercise of outstanding warrants. The warrants were issued to purchase 139,056 shares and were exercised in full on a cashless basis and accordingly 48,308 shares were withheld by us at the market price of $9.20 per share less the exercise price of $3.20 per share to fund the exercise price. We relied on the exemption from registration provided by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
In November 2020, pursuant to Section 4(a)(2) of the Securities Act, we issued 109 shares of common stock in consideration of consulting services rendered. We did not receive any proceeds from the issuance.
In November 2020, pursuant to Section 3(a)(9) of the Securities Act, we issued 453,699 shares of common stock with fair value of $1,366,249 are the result of the conversion of notes payables and accrued interest.
In November 2020, pursuant to Section 4(a)(2) of the Securities Act, we issued 22,250 shares of common stock with a fair value of $70,562 in consideration of consulting services rendered. We did not receive any proceeds from the issuance.
Purchase of Equity Securities
No repurchase of equity securities were made during the fiscal year.
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Item 6. Selected Financial Data
No longer required.
Item 7.Management s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This discussion includes certain forward-looking statements about our business and our expectations, including statements relating to revenues, international revenues, revenue growth rates, gross margin, operating expenses, amortization expense, earnings per share, available cash and operating cash flow. Any such statements are subject to risk that could cause the actual results to vary materially from expectations. For a further discussion of the various risks that may affect our business and expectations, see the section titled “Risk Factors” contained in Item 1A of Part I of this Annual Report on Form 10-K. The risks and uncertainties discussed therein do not reflect the potential future impact of any mergers, acquisitions or dispositions. In addition, any forward-looking statements represent our estimates only as of the day this Annual Report was filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.
Background
We were formed on January 5, 2007 under the laws of the Commonwealth of Massachusetts under the name Bio X Cell, Inc. to acquire the assets of Medelle Corporation (“Medelle”). Dr. Claude Ranoux purchased all of the assets of Medelle, and then he contributed those assets, including four patents relating to the INVOcell technology, to Bio X Cell, Inc. upon its formation in January 2007.
On December 5, 2008, Bio X Cell, Inc., doing business as INVO Bioscience, and each of the shareholders of INVO Bioscience entered into a share exchange agreement and consummated a share exchange with Emy’s Salsa AJI Distribution Company, Inc., a Nevada corporation (“Emy’s”). Upon the closing of the share exchange on December 5, 2008, the INVO Bioscience shareholders transferred all of their shares of common stock in INVO Bioscience to Emy’s. In connection with the share exchange, Emy’s changed its name to INVO Bioscience, Inc. and Bio X Cell, Inc. became a wholly owned subsidiary of Emy’s (re-named INVO Bioscience, Inc.).
The share exchange described immediately above was accounted for as a “reverse merger” because the former Bio X Cell shareholders owned a majority of the outstanding shares of common stock of Emy’s immediately following the share exchange. Bio X Cell was deemed the acquirer in the reverse merger. The financial results included in this Annual Report on Form 10-K are based on our audited balance sheet as of December 31, 2020 and 2019 and related audited statements of operations and stockholders’ deficiency and statements of cash flows for the periods ended December 31, 2020 and 2019, respectively.
Overview
We are a medical device company focused in the Assisted Reproductive Technology (“ART”) marketplace. Our mission is to increase access to care and expand fertility treatment and patient care across the globe. Our patented device, the INVOcell, is the first Intravaginal Culture (“IVC”) system in the world used for the natural in vivo incubation of eggs and sperm during fertilization and early embryo development. INVOcell was granted clearance in the United States by the U.S. Food & Drug Administration (“FDA”) in November 2015, received the CE mark in October 2019, and is now positioned to help provide millions of infertile couples across the globe access to a new infertility treatment option. We believe this novel device and procedure provides a more natural, safe, effective, efficient and economical fertility treatment compared to current infertility treatments, including in-vitro fertilization (“IVF”) and intrauterine insemination (“IUI”). Unlike conventional infertility treatments such as IVF where the eggs and sperm develop into embryos in a laboratory incubator, the INVOcell utilizes the women’s vaginal cavity as an incubator to support a more natural fertilization and embryo development environment. As such, this novel device promotes in vivo conception and early embryo development.
In both commercial utilization of the INVOcell and in clinical studies, the INVO Procedure has proven to have equivalent pregnancy success and live birth rates as IVF. Additionally, we believe there are emotional benefits with the mother’s participation in fertilization and early embryo development by vaginal incubation compared to that of conventional IVF treatment by offering patients a more connected and personalized method to achieve pregnancy.
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For many couples struggling with infertility, access to treatment is often not available. Financial challenges (cost of treatment) and limited availability (or capacity) of fertility medical care are two of the main challenges in the ART marketplace that contribute to the large percentage of untreated patients. Religious, social and cultural roadblocks can also prevent hopeful couples from realizing their dream to have a baby with conventional IVF. We believe INVOcell can address many of the key challenges in the ART market, particularly patient cost and infrastructure capacity constraints. The many benefits to the INVO solution include:
● Promotes greater involvement by couples in the treatment and conception.
In the second quarter of 2016, the first U.S. baby from the INVOcell and INVO Procedure following FDA clearance was born in Texas.
Sales and Marketing
Our product commercialization efforts are focused on identifying distributors and partners within targeted geographic regions that we believe can best promote, market and sale the INVOcell device and process to assist infertile couples in having a baby. We believe that our proven INVOcell procedure is an effective low-cost treatment option which can also be offered without the need for a more expensive IVF lab facility. We have been authorized to sell the INVOcell device in the United States since November 2015 after receiving de novo class II clearance from the US Food & Drug Administration (“FDA”). As a result of our January 2019 exclusive sales, marketing and distribution agreement with Ferring for the U.S., our primary focus will be on supporting Ferring and establishing INVO-clinics within the U.S. as well as developing key international markets around the world.
We anticipate that we will experience quarterly fluctuations in our revenues as a result of our efforts to expand the sales of the INVO technology to new markets. We expect international sales will increase moving forward as we continue to expand our efforts to expand INVOcell globally. We will continue to seek out partners that will contractually commit to meeting agreeable performance objectives that are consistent with our goals and objectives.
On November 12, 2018, we entered into a U.S. Distribution Agreement (the “Distribution Agreement”) with Ferring International Center S.A. (“Ferring”), which closed on January 14, 2019. Pursuant to the Distribution Agreement, among other things, we granted Ferring an exclusive license in the United States (the “Territory”) with rights to sublicense under patents related to our proprietary INVOcellTM intravaginal culture device together with the retention device and any other applicable accessories (collectively, the “Licensed Product”) to market, promote, distribute and sell the Licensed Product with respect to all therapeutic, prophylactic and diagnostic uses of medical devices or pharmaceutical products involving reproductive technology (including infertility treatment) in humans (the “Field”). Ferring is responsible, at its own cost, for all commercialization activities for the Licensed Product in the United States. We retained a limited exception to the exclusive license granted to Ferring allowing us, subject to certain restrictions, to establish up to establish up to five clinics that will commercialize INVO cycles in the U.S. This agreement was amended on March 2, 2021 to provide for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements. We retained all commercialization rights for the Licensed Product outside of the United States. We believe the strategic partnership with a strong reproductive organization such as Ferring has provided us with the necessary sales and marketing resources and overall market credibility to help execute our goal to expand the INVOcell device around the world.
The Ferring license was deemed to be a functional license that provides the counterparty with a “right to access” to our intellectual property during the subscription period and accordingly, revenue is recognized over a period of time, which is generally the subscription period. During the twelve months ended December 31, 2020, we recognized $714,286, related to the Ferring license agreement.
As of December 31, 2020, we had deferred revenues of $3,571,429 relating to the Distribution Agreement with Ferring.
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On March 2, 2021, we entered into Amendment No. 1 to the Distribution Agreement (the “Amendment”) with Ferring. Pursuant to the Amendment, Ferring agreed to purchase a 2,004 count of product for $501,000 pursuant to the Distribution Agreement in March 2021, at which point the minimum annual target for 2020 set forth in Section 2.4 of the Distribution Agreement will be deemed to be satisfied in full as a result of such purchase. The Amendment provides for added flexibility by increasing the number of INVO company-owned clinics initially allowable under the agreement and removing certain geographical requirements.
Operations
We operate with a core internal team and outsource certain operational functions in order to help accelerate our efforts as well as reduce fixed internal overhead needs and in-house capital equipment requirements. Our most critical management and leadership functions are carried out by our core management team. We have contracted out the manufacturing, assembly, packaging, labeling and sterilization of the device to a medical manufacturing company and to a sterilization specialist to perform the gamma sterilization process.