Vivos Therapeutics, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. Although the request references 2020 Q4, this filing is an annual Form 10-K and reports full-year results, with a December 31, 2019 comparison. The filing was signed March 25, 2021.
Business Context
Vivos is a medical technology company focused on the Vivos System, customized oral appliances and treatment protocols for sleep-disordered breathing, including mild-to-moderate obstructive sleep apnea. Its primary commercialization model is the Vivos Integrated Practice program, which trains and supports dentists who prescribe the system. Revenue is generated principally from VIP enrollment and training, appliance sales, Billing Intelligence Services, and newer Medical Integration Division activities.
The company operated in one reportable segment, had 93 full-time and five part-time employees at December 31, 2020, and began trading on Nasdaq under the symbol VVOS on December 11, 2020.
Financial Performance and Liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $13.1 million | $11.4 million | 15% increase |
| Product revenue | $4.9 million | $4.3 million | $0.5 million increase |
| Service revenue | $8.2 million | $7.0 million | $1.1 million increase |
| Gross profit | $10.4 million | $8.7 million | $1.8 million increase |
| Gross margin | 80% | 76% | 4 percentage points increase |
| Operating loss | $12.0 million | $10.6 million | $1.5 million larger loss |
| Net loss | $12.1 million | $10.8 million | $1.3 million larger loss |
| Net loss attributable to common stockholders | $18.0 million | $11.8 million | Higher due to preferred-stock and warrant-related items |
| Net cash used in operating activities | $5.7 million | $5.3 million | $0.3 million higher use |
| Cash and cash equivalents at year-end | $18.2 million | $0.5 million | Substantial increase |
| Total debt at year-end | $1.3 million | $3.7 million | Decrease |
Revenue growth reflected 248 VIP enrollments generating $7.5 million, compared with 204 enrollments generating $6.7 million in 2019. Appliance arches sold increased to 8,135 from 4,696, generating $4.5 million versus $2.9 million. Billing Intelligence Services revenue increased to $620,094 from $256,415.
Operating expenses included $16.1 million of general and administrative expense, $2.3 million of sales and marketing expense, $717,865 of depreciation and amortization, and a $3.3 million settlement expense. The settlement involved issuing 300,000 common shares and warrants to purchase 325,000 common shares in connection with a shareholder demand.
Financing activities provided $23.5 million of cash, principally from the December 2020 initial public offering, which issued 4,025,000 shares at $6.00 per share and generated approximately $21.6 million of net proceeds. The company also received approximately $1.3 million under the Paycheck Protection Program and approximately $2.5 million from Series B preferred stock before its conversion in connection with the IPO.
Year-end current assets were $20.4 million versus current liabilities of $7.8 million. Contract liabilities were $2.9 million. The company stated that existing cash resources were expected to fund operations for at least the next 12 months, but also indicated that additional financing may be needed to fund growth and ongoing losses.
Material Changes Versus 2019
- Revenue increased 15%, driven by greater VIP enrollment, higher appliance volume, and growth in Billing Intelligence Services.
- Gross margin improved from 76% to 80%, partly because COVID-19 increased the relative mix of higher-margin service revenue while dental offices were closed.
- Net loss widened despite higher gross profit, primarily because of the $3.3 million shareholder settlement expense.
- Operating cash use increased modestly, while year-end cash rose sharply following the IPO and other financing transactions.
- Debt declined as convertible notes were converted, repaid, or exchanged for equity; remaining debt primarily consisted of the $1.3 million PPP loan and a $25,000 convertible note outstanding at year-end. The $25,000 note was repaid in January 2021.
- Series A preferred stock was redeemed in connection with the IPO; an additional $1.5 million redemption payment was made in January 2021.
- The company launched its Medical Integration Division in 2020 and opened its first Pneusomnia Center in Del Mar, California after year-end. The filing states that the financial impact of this initiative remained too early to predict.
- Vivos remained subject to a material weakness in internal control over financial reporting, involving documentation, journal-entry review, segregation of duties, and accounting guidance. Management began a remediation plan and hired an assistant controller in early 2021.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal revenue, earnings, or margin guidance. Management expects to expand the VIP network, increase dentist and physician awareness, develop the Medical Integration Division, commercialize VivoScore, pursue international opportunities, and invest in clinical studies and product development.
- Clinical and regulatory: The mRNA appliance had FDA 510(k) clearance for adult snoring, mild-to-moderate OSA, and sleep-disordered breathing. Additional FDA submissions for the DNA appliance and modified mmRNA appliance were pending or submitted in 2021. Approval and Medicare listing were uncertain.
- Evidence risk: The company relies substantially on retrospective studies, published articles, and patient reports. It acknowledged limited empirical evidence regarding long-term relapse or regression and limited evidence that patient compliance is superior to competing therapies.
- FDA history: A subsidiary received an FDA Warning Letter following a 2017 audit. Management believes the matter was addressed, but the filing states that the FDA had not issued a definitive statement confirming resolution.
- Funding and going concern: The company has a history of operating losses, accumulated deficit of $35.3 million, and negative operating cash flow. Management expects continued losses and may need additional financing, which could dilute shareholders or increase debt obligations.
- PPP loan: The company applied for forgiveness of the approximately $1.3 million PPP loan in January 2021, but stated that forgiveness was not assured. Any unforgiven balance would remain payable at 1% interest.
- COVID-19: Dental-office closures flattened revenue growth in March and April 2020 and may continue to affect demand, sales activity, suppliers, clinical operations, and regulatory timelines.
- Commercial adoption: The business depends heavily on dentist and physician adoption, patient willingness to pay, insurance reimbursement, and recurring sales of the Vivos System, its principal product.
- Competition and supply chain: The company competes with CPAP, mandibular advancement devices, surgery, and other sleep-apnea therapies, while relying on third-party manufacturers and suppliers without long-term supply contracts.
- Healthcare compliance: The VIP, Billing Intelligence Services, and Medical Integration Division models may implicate federal and state anti-kickback, Stark, false claims, healthcare privacy, professional-practice, and reimbursement laws.
- Litigation: Vivos was involved in litigation with Ortho-Tain concerning alleged false advertising, defamation, unfair business practices, and related claims. Management stated it believed the claims lacked merit and were not expected to materially affect operations, but the matters remained pending.
- Shareholder dilution and volatility: Approximately 7.0 million pre-IPO shares were subject to lock-ups expiring June 15, 2021. Outstanding options and warrants could result in additional dilution and selling pressure.
Investor Verification Priorities
- Verify the company’s current cash runway, operating cash burn, and whether additional equity or debt financing has been raised since the filing.
- Confirm the final disposition and accounting treatment of the PPP loan and the January 2021 preferred-stock redemption.
- Track remediation of the material weakness and whether subsequent filings report effective disclosure controls and internal controls.
- Check FDA decisions on the DNA and mmRNA appliance submissions, the status of the prior Warning Letter, and any changes to product labeling or permitted indications.
- Assess whether VIP enrollment, active VIP utilization, appliance volume, recurring BIS revenue, and gross margins continued to grow after 2020.
- Evaluate the clinical evidence supporting efficacy, durability, safety, and patient compliance relative to CPAP and competing oral appliances.
- Review the outcome of the Ortho-Tain litigation and any regulatory issues involving the Medical Integration Division or reimbursement practices.
- Measure dilution from outstanding options, warrants, settlement securities, and shares released from lock-up restrictions.