INVO Bioscience, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed March 30, 2021. This is an annual report, not a standalone fourth-quarter report. The filing identifies the registrant as INVO Bioscience, Inc.
Business context
INVO develops and commercializes INVOcell, an FDA-cleared and CE-marked device for intravaginal incubation in fertility treatment. U.S. commercialization is principally through exclusive distributor Ferring; the company is also pursuing international distribution and clinic joint ventures. The company had 10 full-time employees at year-end.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.037 million | $1.480 million |
| Product revenue | $323,000 | $765,927 |
| License revenue | $714,286 | $714,286 |
| Gross profit / margin | $948,526 / 91% | $1,340,543 / 91% |
| Operating expenses | $6.463 million | $3.129 million |
| Operating loss | $(5.515) million | $(1.788) million |
| Interest expense | $2.837 million | $387,646 |
| Net loss | $(8.347) million | $(2.168) million |
| Cash from (used in) operations | $(4.775) million | $1.371 million |
- Cash at year-end was $10.098 million, versus $1.239 million in 2019. Working capital was $8.255 million, versus $42,330; stockholders’ equity was $5.743 million, versus a $3.714 million deficit.
- 2020 financing provided $13.822 million net cash, including approximately $11.8 million from the public offering and approximately $3.0 million net from convertible notes. Investing used $187,254.
- At year-end, convertible notes had $1.7 million principal outstanding, carried at $536,063 net of discounts and costs. The notes bear 10% interest, are convertible, and mature in 2021. The balance sheet also reported a $157,620 PPP loan and $81,341 of lease liabilities.
- Deferred revenue from the Ferring license totaled $3.571 million at year-end. The original $5 million license payment is recognized over the seven-year agreement.
Material changes and notable developments
- Revenue fell about 30%, primarily because product sales to Ferring declined; product revenue fell about 58%, while license revenue was unchanged. Ferring represented 98.3% of 2020 revenue.
- SG&A rose about 94% to $6.065 million, driven by personnel, stock compensation, marketing, legal and other corporate costs. Approximately $1.757 million of the increase was non-cash stock compensation and option expense. R&D began in 2020, including work on a five-day incubation label expansion.
- Net loss widened by $6.180 million. Management attributed the increase principally to higher operating and interest expense; much of the increase in interest expense reflected non-cash debt discounts, issuance costs and financing-related charges.
- In November 2020, the company listed on Nasdaq and sold 4,153,750 shares in an underwritten offering, receiving approximately $11.8 million net. The company also completed two reverse stock splits during 2020.
- International distribution and joint venture agreements were added, including arrangements involving Malaysia, Mexico, India and North Macedonia. These ventures were still in development at year-end and had not begun operations.
Outlook, risks and contingencies
- Management expected continued losses in 2021 while investing in U.S. and international clinics and expansion. It stated that available liquidity was sufficient for at least 12 months, but longer-term funding depends on sales, the Ferring milestone or additional financing. The company cautions that further capital may not be available on acceptable terms.
- A potential $3 million Ferring payment depends on obtaining FDA clearance for a five-day label enhancement, among other contractual conditions. COVID-19 paused recruitment in the prospective trial; the company was pursuing a 510(k) submission using retrospective real-world data and was evaluating whether to complete the trial separately. Failure to secure the label expansion could also delay or eliminate the milestone payment.
- In March 2021, Ferring agreed to buy $501,000 of product, which the parties said would satisfy the 2020 minimum annual purchase target. The agreement amendment also increased the number of initially permitted company-owned U.S. clinics and removed certain geographic requirements.
- COVID-19 disrupted fertility clinics and could continue to affect patient access, partner activity and clinical work. Other key risks include dependence on Ferring, competition, reimbursement uncertainty, regulatory compliance, reliance on a single manufacturer, limited operating history, recurring losses, dilution and thinly traded shares.
- The company is defending a dispute with related party James Bowdring over repayment and conversion rights on older notes; the counterclaim alleges breach of contract and other claims. Management did not expect a material adverse effect. The company also reported that the $157,620 PPP loan was potentially forgivable and that it had applied for full forgiveness.
- The auditor issued an unqualified opinion on the financial statements and reported no going-concern paragraph after evaluating management’s plans. The audit did not include an auditor opinion on internal controls. Management said a prior-year material weakness was remediated by year-end 2020.
Most important facts for investors to verify
- Whether Ferring’s purchase targets and the March 2021 $501,000 order translated into sustained sales, and whether U.S. revenue concentration declines.
- Progress and FDA outcome for the five-day label expansion, including whether the conditions for the $3 million milestone payment are met.
- Cash burn and runway against management’s 12-month liquidity assessment, including further financing needs and the status of the PPP loan forgiveness application.
- Convertible-note conversions, remaining debt obligations, potential share dilution and subsequent share issuances.
- Whether the announced joint ventures and clinic plans began operating, attracted patients and generated revenue; also monitor the Bowdring litigation and related-party exposure.