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Tuesday, January 5, 2016

InVivo Cleared To Start Pivotal Trial In Spinal Cord Injury

On January 4, 2016, InVivo Therapeutics (NVIV) announced the company had received approval from the U.S. FDA to transition the ongoing pilot study into a pivotal probable benefit study. We essentially already knew this news was coming, as the company announced in early December 2015 that it received conditional approval for INSPIRE ("InVivo Study of Probable Benefit of the Neuro-Spinal Scaffold for Safety and Neurologic Recovery in Subjects with Complete Thoracic AIS A Spinal Cord Injury”) and that final approval was pending a minor change to the informed consent form.

I view this as very good news for InVivo. In my article below I outline why I believe the hurdle for approval under INSPIRE is low and what InVivo may be worth based on approval and launch of the NSS under this expedited Humanitarian Device Exemption (HDE) pathway.

Handicapping INSPIRE 

InVivo will use "objective performance criterion" (OPC) to support the probable benefit claim of the Neuro-Spinal Scaffold (NSS). This will likely be an improvement of at least one grade on the American Spinal Injury Association Impairment Scale (AIS). As a reminder, all patients participating in INSPIRE must have a thoracic spinal cord injury graded as complete "A" on the AIS. More on the entry criteria can be learned on the website (NCT02138110).

One additional protocol amendment may be required to establish the probable benefit criteria. I suspect this may be some other performance scale, such as ISNCSCI sensory and motor scores, measures of bladder and bowel function, Spinal Cord Independence Measure (SCIM III), pain, Quality of Life, or MRI measures.

Regardless of the final OPC protocol, I believe the bar for approval has been set at an achieved level. As a reminder, the U.S. FDA defines "probable benefit" for an HDE as, "The device will not expose patients to an unreasonable or significant risk of illness or injury and the probable benefit to health from the use of the device outweighs the risk of injury or illness from its use, taking into account the probable risks and benefits of currently available devices or alternative forms of treatment.”

Three large natural history databases provide historical benchmarks for AIS conversion rates in patients with complete (AIS A) thoracic injury. These include:

1–European Multicenter Study about Spinal Cord Injury (EMSCI, Zariffa J, et al., 2011).
2–Spinal Cord Injury Model System (US database, Lee BA, et al., 2014).
3–Sygen clinical trial in spinal cord injury (Fawcett JW, et al., 2007).

Results from these three independent programs suggest the rate of spontaneous recovery from a complete thoracic AIS A spinal cord injury ranges between 12.9% and 15.6% at six months.

I believe this is a relatively low hurdle rate and should be easily achievable for InVivo based on the results from the first five patients enrolled in the pilot study, which will count as part of the full 20-patient dataset once the Humanitarian Use Device application is filed in 2017. Recall, two of the first five patients (40%) have improved from AIS A at six months so far in the study. Patient No. 1 improved to AIS C and patient No. 3 improved to AIS B after only one month post device implantation. Additionally, patient No. 2 has demonstrated marked sensory, bowel and bladder improvement on the ISNCSCI and SCIM III scales, as well as significant improvement quality of life.

No definitive OPC has been noted by InVivo management yet; . however, if we assume the range above is an acceptable benchmark, InVivo is almost already over the benchmark with two patients meeting the goal of the total 20 planned in INSPIRE. In fact, to achieve 15% recovery, InVivo would only need to demonstrate improvement in one more patients of the next 15 to be enrolled. If we use a more aggressive 25% responder rate, InVivo is still nicely ahead of the pace. To achieve 25% response, InVivo only needs three of the next 15 patients to show an improvement in AIS. A 30% responder rate, the rate in which the U.S. FDA typically seeks for pain drugs (e.g. Lyrica®, Cymbalta®), would require six of the planned 20 patients to have an improvement in AIS, or four of the next 15.

This should help put things into perspective for investors. The stock has sold off recently because investors are concerned patients 4 and 5 have yet to improve on the AIS, even though neither patient has made it to six months yet. That being said, it is completely unrealistic to assume a response rate of 100% for a device such as this. Spinal cord injuries are incredibly heterogeneous and even drug like Humira®, currently the world's best-selling drug, only works in about 50% of the patients that take it. Accordingly, I think investors should have a good sense of the approvability of the NSS under HUD by the middle of 2016 assuming we are well on target for a response rate above 25-30% at that time.

How Big is the NSS Under HUD?

The inclusion criteria for INSPIRE allows for patients aged 16 to 7 that have had a complete injury scored as "A" on the AIS occurring between T3-T12/L1 within the past 4 days. The injury must be non-penetrating, no less than 4 mm diameter and limited to two contiguous vertebral levels. Based on my combing of the 2014 Annual Report of the National Spinal Cord Injury Statistical Center (NSCISC), I put the following "target population" data together.

As such, I think the target population under the existing HDE is approximately 2,700 patients. That being said, given the strong evidence that the NSS seems to be working, I think it is a very safe assumption that neurosurgeons will use InVivo's NSS in patient populations outside the narrow HDE criteria. There are another ~10,000 acute spinal cord injury patients in the U.S. each year that might benefit from InVivo's device. Some of these injuries are in the cervical region where surgeons might not be comfortable implanting the device, and some of these injuries are penetrating to the point where the spinal has been shredded and the device simply will not work; but, after looking at the 2014 NSCISC statistics, I think the target patient population for InVivo's device is at least another 3,000 to 5,000 patients once approved.

The table below is pulled from the 2014 National SCI "Facts and Figures" worksheet. It shows the average yearly health care and living expenses and the estimated lifetime costs that are directly attributable to SCI based on the severity of the injury. These figures do not include any indirect costs, such as losses in wages, fringe benefits, and productivity.

I present this data so that investors can get a good sense of what InVivo can charge for the NSS. For example, so far all patients enrolled in the INSPIRE study are paraplegia AIS A. In the first year of treatment, the average health care and living expense cost for this type of injury is $518,904. Each subsequent year this patient will incur an additional $68,739 in health care and living expense costs.

InVivo has shown that it can take a complete injury paraplegic patient with no motor function below the level of the injury and not only improve their AIS score but also return bowel and bladder function 40% of the time. The difference in cost between paraplegia AIS A/B/C and motor function AIS D is approximately $171,420 in health care and living expense costs for the first year. Each subsequent year this type of improvement would save $26,533.

To me, it seems clear that InVivo can go to hospitals, insurance companies, and patients, show them this data, and effectively negotiate a price of around $150,000 for a one-time implantation of the NSS. Based on InVivo's pilot study, two or three of the first five patients would already be on a path to recoup the majority of this cost in the first year, and then save tens of thousands of dollars each additional year of their life.

I also think, based on the existing clinical experience, implantation of the NSS will be very high penetration among the target patient group. If you had a severe thoracic spinal cord injury that left you completely paraplegic, why on earth would you not want to try this device? The safety to data has been outstanding and so far the efficacy looks solid. I'm modeling 75% penetration into the HDE market

Under these forecasts, InVivo's NSS should generate $500 million in annual sales by the eight year post-launch. I've plugged in some additional financial metrics into my DCF model to value InVivo. These include a 10% initial cost of good on the device, dropping to 6% at peak. I'm also assuming a model $50 million per year operating budget and 30% effective tax rate. I'm using a 15% discount rate on the future cash flows, 2% terminal growth rate, and then adjusting the entire thing down by 50% just to be ultra-conservative on the risk profile. Even at 50% probability, my DCF pegs the value of InVivo today, sans any sales of the NSS into off-label populations or the potential development of the NSS in combination with stem cells at over $14 per share.

The Upside is Tremendous

An HDE application allows for the sale of the NSS device to address a target population of 4,000 individuals in the U.S. Above I have pegged the on-label use of the NSS at about $500 million in peak sales. But as I've noted, this only address roughly 2,700 patients in the first year of the launch. There is off-label potential for the use of NSS in cervical patients or patients with a penetrating injury where the spinal surgeon still believes the device may help in recovery. Simply expanding the NSS ramp to max out the full 4,000 patients per year under HUD expands the peak sales estimate from $500 million to $665 million, and raises my target price from $14 to $24 per share.

I also note that the model I posted above does not include any sales of the NSS device seeded with human neural stem cells. Recall that in early December 2015, the company signed an agreement with the University of San Diego to exclusively license technology around, "Spinal Multisegmental Cell and Drug Delivery System" and the "Method and System for Cellular Transplantation in the Spinal Cord." InVivo also has filed a provisional application in support of the Bioengineered Neural Trails program titled "Methods and Systems for Delivery of a Trail of a Therapeutic Substance."

It is clear that InVivo is moving forward into chronic spinal cord injury with the use of the NSS device seeded with stem cells. This would be to target spinal cord injury patients long after the injury, potentially using the device to seed and support neural stem cells that would sprout new axonal growth and re-connect the signal below the site of injury. The cartoon below depicts a very good representation of how this technology would work.


The chronic spinal cord injury market is approximately 25X the size of the acute injury market I discussed above. This presents tremendous upside to the InVivo story. That being said, I believe the bar for approval in the initial population under INSPIRE has been set at an achievable level, and with some conservative assumptions, the stock is worth $14 today. It could be worth $24 per share post-approval depending on the uptake of the device. I continue to be long InVivo today at $7.10 per share.


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  1. Hey Jason, great work! Do you think if patient 4 or 5, or say 6, 7, or 8 moves to ASIA-B and it is obvious that they will hit over 25% that they can stop the trial early?

    1. That is a very good question and I almost covered this topic in my article, but instead I left it out because as of right now I simply do not know the answer. I will reach out to InVivo management and ask, but it is likely that they will shy away from giving a definitive answer to this question until the answer is obvious. I think they would argue that is putting the "cart in front of the horse" at this stage.

  2. Another useful update on your ongoing analysis - Thanks! It appears your values are currently based entirely on the U.S. market, though NVIV has also begun some moves outside the states? Also, any thoughts on patient enrollment? 2015 saw five patients enrolled, though there were some initial limitations. Still, it seems it will take more than a year to enroll another 15.

    1. Certainly the opportunity outside the U.S. is significant, but until I see an application filed I'll keep my valuation US-based only.

      As for enrollment, I think that's the major issue right now. No patients have been enrolled in the past few months. It's a drag on the stock.

    2. One other thing that has been nagging me: In the most recent presentation by one of the surgeons it sounded like the surgical technique of opening the spinal cords dura to relieve pressure post injury was something of a novelty in it's own right. Is it possible that some of the benefit is from the surgical technique itself?

    3. Absolutely. If you watch the video on the first surgery NVIV did in pigs, it's amazing to see what happens when you cut open the dura. It was almost like a zit popping! Dr. Theodore believes all that pressure build up with "no place to go" is what causes the inflammation and damage to the neurons around the site of the injury. So a big part of NVIV's device is opening up the dura to release the pressure and then putting the device into the cavity to provide support and scaffolding for healthy and new neurons to grow. I don't think a neurosurgeon is just going to open up the dura and release the pressure unless they also have the device to then insert into the cavity. So the fear that the pressure release alone is the benefit and that there is no place for NVIV is misguided. It's a two-step process and the device is what bridges the gap between the acute injury and the long-term recovery.

      Thanks for your questions!

  3. 1. It is fair to say, that based on your PT of 24 after HDE (4,000) approval that under PMA (12,500) we could be looking at $72 after PMA approval?

    2. Based on my research, there is no HDE equivalent for devices in Europe. So it is fair to say that with European approval, NVIV gets access to the entire Acute market? European Acute Market of approximately 21,000 acute patients. e.g. 60% of X = 12,500 (U.S Acute Market).

    1. 1. 12,500 is the total number of acute SCI's in the U.S. Not all will make sense for InVivo's NSS. I don't think neurosurgeons would use in below L1 and I think it's too risky to cut into the dura above C6 or C7. I also don't think it will be used on anything less than AIS-B, and we already know that InVivo said the injury should not be penetrating because the spine needs to be generally intact beside the 1 or 2 vertebrae injury. So I'm not going to assume the market for the acute patient is any more than 4-5,000 even under PMA. The bigger market is getting into the chronic population, which is ~300,000 patients. For this, they will likely need to use cells.

      2. I'm not sure about how the EU works. I think NVIV would be best to try to find a partner over there - someone big and EU-based to tackle individual member state rules and regulations. EU does represent upside to my model. Just how much is hard to say because I really have not looked at the opportunity in Europe yet.

  4. Anonymous 2 question person again. What impact would the green monkey hemisection study have on your analysis? Functionally, wouldn't those monkeys be at least AIS C but more probably D? In either case of a C or D, we know the positive outcome that happened with the monkeys with scaffold no cells.
    Could that affect your PMA numbers?


    1. Yes, it absolutely could. I'm meeting with NVIV on Tuesday. Will bring this issue up. If you have any more questions you can email me. My email address is