ITEM 1 - BUSINESS
Overview
We are dedicated to bringing to
market scientifically derived products designed to improve the health, condition and well-being of those who use them. The
Company is utilizing a cellulose-based live cell encapsulation technology, we refer to in this Report as “Cell
in-a-Box
®
,” to develop treatments for pancreatic cancer, breast cancer, brain cancer and diabetes. The
Company is currently preparing for a Phase 2b clinical trial with its pancreatic cancer treatment in patients with advanced,
inoperable pancreatic cancer that will be conducted in Australia and preclinical studies and clinical trials of that same
pancreatic cancer treatment to study its effects on major symptoms associated with pancreatic cancer. These latter studies
and trials will be conducted in the United States.
The Company operates independently
and through wholly-owned subsidiaries. The Company has three distinct segments. The first of these includes the
cellulose-based live cell encapsulation technology and all of its associated licenses. The second pertains to the work of our
subsidiary, Medical Marijuana Sciences, Inc. (“MMS”). MMS focuses on ways to exploit the benefits of the live
cell encapsulation technology in optimizing the anticancer effectiveness of constituents of
Cannabis
, known as
cannabinoids, against cancers while minimizing or outright eliminating the debilitating side effects usually associated with
cancer treatments. The third segment consists of the Company’s nutraceutical formulations and their associated product
names and information technology. The plan for this segment is to sell its names, nutraceutical formulations and associated
information technology to one or more third parties. The Company's current strategy is to focus on developing and marketing
products it believes have potential for long-term corporate growth solely in the area of biotechnology.
Cancer Treatments
The Cell-in-a-Box
®
encapsulation
of live cells capable of converting the anticancer prodrug (a prodrug requires conversion or “activation” for it to
be effective in killing or deleteriously affecting cancer cells) ifosfamide into its cancer-killing form will be performed at Austrianova
Singapore’s manufacturing facilities currently being constructed in Bangkok, Thailand. These facilities will adhere
to current Good Manufacturing Practices (“cGMP”) standards.
Inno Biologics Sdn. Bhd. (“Inno
Biologics”) in Malaysia was first contracted to do the initial cloning of the cells that will be encapsulated using the
Cell-in-a-Box
®
technology and then used together with ifosfamide as the Company’s pancreatic cancer treatment.
The goal was to produce up to 100 clones from which the 5-10 best would be selected for use in the encapsulation process. These
clones were then to be used for expanding (propagating) the cells to obtain the large numbers that needed for the preclinical
studies and clinical trials. The encapsulated cells were to have been stored for safekeeping around the globe or used for other
purposes. Due to a “potential” problem that occurred during the initial cloning process and which, upon rigorous inspection,
turned out not to be a problem at all, the Company decided that it was prudent for Inno Biologics to begin the cloning process
again but on a much smaller scale. This is now underway in accordance with the terms of a Master Services Agreement with us. In
order that a “fail-safe” mechanism for the cloning process be instituted, ViruSure GmbH (“ViruSure”) in
Vienna, Austria has been contracted to prepare a limited number of clones that can be stored for possible future expansion should
there be any “real” problems at Inno Biologics. ViruSure was also engaged to expand the clones of cells obtained from
Inno Biologics into a Master Cell Bank (“MCB”) and from that into a Working Cell Bank (“WCB”) to supply
the large numbers of cells needed for the preclinical studies, clinical trials and other purposes. Nuvilex has entered into a
Master Services Agreement with ViruSure to develop the MCB and the WCB.
The principal developers of the
Cell-in-a-Box
®
cellulose-based live cell encapsulation technology are Prof. Dr. Walter H. Günzburg
(“Dr. Günzburg”) and Dr. Brian Salmons (“Dr. Salmons”). Both are officers of SG Austria Pte Ltd
(“SG Austria”) and/or its wholly-owned subsidiary, Austrianova Singapore Pte Ltd (“Austrianova
Singapore”). The Company owns a 14.5% equity interest in SG Austria and has contractual relationships governing its
relationship with Austrianova Singapore. Dr. Günzburg and Dr. Salmons are intimately involved in the scientific
endeavors underway and being planned by the Company. These endeavors include work associated with the preclinical studies and
clinical trials to be conducted in the United States on behalf of the Company by Translational Drug Development
(“TD2”), one of the leading Contract Research Organizations (“CRO”) in the United States specializing
in oncology. These studies and trials involve determining the effectiveness of our pancreatic cancer treatment
in ameliorating the virtually untreatable and unbearable pain associated with advanced pancreatic cancer and the effects of
the treatment on the rate of accumulation of fluid in the abdomen, known as “Malignant Ascites”, because it
contains cancer cells that could “seed” and form new tumors in the body. Malignant Ascites occurs in patients
with pancreatic cancer and other cancer tumors in the abdomen. In addition, Dr. Günzburg and Dr. Salmons will be
intimately involved in the Company’s Phase 2b clinical trial that will be conducted in Australia by one of the foremost
CROs in that country, Clinical Network Services (CNS) Pty Ltd (“CNS”). This Phase 2b clinical trial, which can
be viewed as “mini” Phase 3 trial, will compare the Company’s treatment “head to head” with the
best available therapy which is currently Celgene’s drug Abraxane
®
in combination with gemcitabine (this
was the first drug approved by the FDA to treat pancreatic cancer; the trade name of gemcitabine is
“Gemzar
®
”) to treat advanced, inoperable pancreatic cancer. The participation of Dr. Günzburg
and Dr. Salmons is fortunate for the Company because, in addition to being architects of the Cell-in-a-Box
®
technology and of Nuvilex’s pancreatic cancer treatment, they: (i) were intimately involved in the original Phase 1/2
clinical trials in advanced, inoperable pancreatic cancer that were carried out several years ago in Europe; and (ii) are
exceedingly familiar with CNS and the personnel that will be involved in the Company’s Phase 2b clinical trial.
Dr. Matthias Löhr (“Dr. Löhr”),
a renowned European gastroenterologist/oncologist, will also play a major role in the development of the Company’s pancreatic
cancer treatment. Dr. Löhr, currently with the Karolinska Institute in Stockholm, Sweden, served as Principal Investigator
of the Phase 1/2 clinical trials of the combination of CapCell
®
(now known as Cell-in-a-Box
®
) with
low-dose ifosfamide in patients with advanced, inoperable pancreatic cancer. Dr. Löhr is exceedingly familiar with the use
of this combination treatment in a clinical setting and believes in the combination as a possible “first-line” treatment
(i.e. the initial treatment of choice) for the disease. Dr. Löhr is integrally involved in planning every aspect of the Phase
2b clinical trial and will oversee the trial that will be conducted in Australia by CNS.
Diabetes Studies
Diabetes is a major problem throughout
the world. Approximately 382 million cases have been diagnosed world-wide. It is estimated that this number will rise to 592 million
by 2035. Approximately 175 million have diabetes and do not know it. Diabetes caused 5.1 million deaths in 2013; every six seconds
a person dies from the complications caused by diabetes. Treatments for diabetes and its complications caused at least $580 billion
in health care expenditure in 2013. In 2013, more than 21 million live births were affected by diabetes during pregnancy.
Diabetes is caused by insufficient availability
of, or resistance to, the hormone insulin. Insulin is produced by the islet cells of the pancreas. Its function is to assist in
the transport of glucose (sugar) in the blood to the inside of most types of cells in the body where it is used as a source of
energy for those cells. In Type 1 diabetes, which usually begins at a young age, the islet cells of the pancreas have been destroyed,
usually by an autoimmune reaction. Type 1 diabetics require daily insulin administration through injection or through the use of
an insulin pump. Type 2 diabetes, which is more prevalent than Type 1, can be controlled by diet and exercise in its early stages.
As time goes by, it may be necessary to use antidiabetic drugs to control the diabetes. However, over time these too may lose their
effectiveness. Thus, even Type 2 diabetics may eventually need insulin administration.
Dr. Günzburg and Dr. Salmons are
also fulfilling a major role in the development of the Company’s treatment for diabetes that is based on the
Cell-in-a-Box
®
technology. Dr. Günzburg and Dr. Salmons have introduced the Company to the participants
and potential participants in the Company’s diabetes program in an attempt to develop a medical breakthrough in how
diabetes will be treated in the future throughout the world. Researchers at a major university in Australia have developed
insulin-producing cells from a human hepatocellular carcinoma cell line. These cells have been exhaustively tested
in
vitro
and found to be capable of producing insulin in direct correlation to the amount of glucose in their surroundings.
Negotiations are underway between Nuvilex and that university for an exclusive, worldwide license to use these
insulin-producing cells in combination with the Cell-in-a-Box
®
technology in developing a product for the
treatment of insulin-dependent diabetes. No assurance can be made that such a license will be entered into, however. Further,
the license is contingent on the insulin-producing cells passing a tumorigenicity test that will be conducted by the
University of Veterinary Medicine Vienna (“UVMV”) where Dr. Günzburg is a professor in the Department of
Virology. He will coordinate all of the work for the Company being done by UVMV. This test will show whether or not these
particular cells have the capacity to form tumors because they were developed from a liver cancer cell line. If they do not,
then preclinical animal studies will first be done with these cells. If the studies are successful, they will lead to
clinical trials. In the event that the cells are tumorigenic, then it will be necessary to develop another insulin-producing
cell line for encapsulation.
Since Dr. Günzburg and
Dr. Salmons have previously worked with these insulin-producing cells and have them in frozen storage at Austrianova
Singapore, the Australian university was approached to obtain permission for these stored cells to be used for the
tumorigenicity testing. Written authorization from the Australian university has been obtained for the use of these
insulin-producing cells for this testing. Since the tumorigenicity of the cells will be determined at the UVMV, the terms and
conditions of a Collaborative Research Agreement (“CRA”) between the Company and the UVMV has been agreed to between the parties.
The CRA is in the final stages of drafting. Once finalized and signed, the tumorigenicity studies will commence. However, no
assurance can be made that the CRA will be finalized between the parties.
In the majority of diabetes animal models
used by others, the diabetic condition is induced by employing drugs to destroy the normal insulin-producing capability of the
pancreas in those animals. The University of Munich (“UOM”) in Germany operates a €5-million animal farm that
houses animals for research purposes. Scientists at the UOM have developed unique transgenic mouse and pig models of diabetes.
Through the use of gene transfer technologies, mice and pigs that are diabetic at birth have been developed. These model systems
more closely mimic Type 1 diabetes in humans than any other model systems available world-wide. Through introductions by Dr. Günzburg
and Dr. Salmons, the investigators at UOM have agreed to join the Nuvilex team in its efforts to develop a treatment for diabetes
based on the Cell-in-a-Box
®
technology. The Company plans to enter into a research agreement with the UOM in the near term. However, no assurance
can be made that such an agreement will be entered into between the Company and the UOM.
The Company is in the process of developing
a diabetes consortium consisting of major universities, renowned scientists and physicians and CNS (“Diabetes Consortium”).
Executive officers of Nuvilex and the institutions identified above have already explored the possibility of joining the Diabetes
Consortium. These institutions will be part of the Diabetes Consortium, as will Dr. Gunzburg and Dr. Salmons through their consulting
company, Vin-de-Bona Trading Co. Pte Ltd (“Vin-de-Bona”). The consensus among individuals that could be involved is
that the formation of the Diabetes Consortium would be beneficial to all parties and may be a way of optimizing the development
of the Company’s treatment for diabetes given the free flow of ideas and communication that would occur within such a consortium.
Dr. Löhr has a great deal of interest and expertise in treating diabetes. Because of this, he will be assisting the Company
in the development of a treatment for diabetes that will employ the Cell-in-a-Box
®
cellulose-based live cell encapsulation
technology. If and when the Diabetes Consortium finally reaches fruition, Dr. Löhr is also expected to play a prominent role
in it.
In the areas of both cancer and diabetes,
Dr. Günzburg and Dr. Salmons have functioned as consultants to the Company through Vin-de-Bona. In addition, Dr. Salmons is
a member of the Scientific Advisory Board of MMS, the Company’s subsidiary whose initial goal is to use the Cell-in-a-Box
®
technology in combination with constituents of
Cannabis
to develop treatments for two of the deadliest forms of cancer -
pancreatic and brain cancer.
Current Business of the Company
In the fall of 2013, the Company
restructured its corporate operations in an effort to focus on its biotechnology core businesses, having been primarily a
nutraceutical products company in the recent past. Of the three segments that resulted from this restructuring, the first of
these that houses the cellulose-based live cell encapsulation technology is by far the most advanced, through its efforts to
use this technology for the development of treatments for pancreatic cancer and diabetes. The second segment consists of MMS
which focuses its efforts on ways to exploit the benefits of the Cell-in-a-Box
®
technology. In essence, it is
developing a “green” approach to treat cancer that combines the Cell-in-a-Box
®
technology with
constituents of
Cannabis
known as cannabinoids. MMS is targeting deadly cancers, such as those of the pancreas, brain,
breast and prostate, that affect hundreds of thousands of individuals worldwide every year. It may do so in a way that
optimizes the anticancer effectiveness of the cannabinoids while minimizing or outright eliminating the debilitating side
effects usually associated with cancer treatments. The third segment consists of the Company’s nutraceutical
formulations and their associated product names and information technology. This segment is presently “in
stasis,” as the Company seeks to sell the names, nutraceutical formulations and associated information technology to
one or more third parties.
The Company’s acquisition of a
14.5% equity interest in SG Austria and a 100% interest in Bio Blue Bird AG (“Bio Blue Bird”) that occurred in
June 2013 were the first acquisitions related to our biotechnology company. Bio Blue Bird holds the exclusive worldwide
licensing rights to the use of the cellulose-based live cell encapsulation technology for developing treatments for
pancreatic cancer and diabetes. The Company is working with SG Austria to advance the clinical research, development and
marketing of new biotechnologies and medical therapies in the oncology and diabetes arenas. As a result of the Bio Blue Bird
acquisition, the Company is now a biotechnology company with a specialty in developing treatments that are based on its live
cell encapsulation technology platform we refer to as “Cell-in-a-Box
®
.”
The Company’s approach to the development
of its treatment for advanced, inoperable pancreatic cancer is somewhat different from the development of many anticancer drugs
for this as well as other forms of cancer. Whereas the development of most anticancer agents is focused on the antitumor activity
of the drugs, this is not the case for the Company’s Cell-in-a-Box
®
/low-dose ifosfamide combination treatment.
Not only will the direct antitumor properties of the Company’s treatment be examined by the Phase 2b clinical trial to be
conducted in Australia, but also the effects of the treatment on symptoms associated with the disease will be examined by virtue
of the preclinical studies and subsequent clinical trials to be done by TD2 in the United States. These latter studies and trials
will, initially, examine the effectiveness of this treatment on two of the most debilitating and dangerous symptoms associated
with pancreatic cancer - namely the unbearable, virtually untreatable pain and the accumulation of Malignant Ascites in the abdomen.
Strategy
As one of our primary goals, we
have worked closely with the senior executives of SG Austria and Austrianova Singapore in a number of critical areas. The
senior executives of Nuvilex and SG Austria/Austrianova Singapore have succeeded in creating mechanisms and processes to
advance the interests of their respective companies, regardless of the economic conditions and challenges. The strong
collaboration between our companies is expected to remain since we have a 14.5% ownership interest in SG Austria and
Austrianova Singapore will be carrying out the cGMP manufacturing of encapsulated live cells for the Company in the areas of
pancreatic cancer and diabetes. In addition, the senior executives of SG Austria and Austrianova Singapore will be working
with us to develop new areas for the use of the live cell encapsulation technology, one example being the development of
a “breakthrough” treatment for breast cancer.
The Company's first vision is to ensure
that the success engendered in the previous Phase 1/2 pancreatic cancer clinical trials can be built upon and advanced. This occurred
with our acquisition of Bio Blue Bird. This acquisition enabled the Company to advance itself as a biotechnology company. Due
to the Company's extensive array of product candidates already in-house, Nuvilex exists as a biotechnology company with a broad
base - much like that of larger biotechnology or pharmaceutical companies after years of in-house advances, the purchasing of
products from third parties and even the acquisition of entire companies. Thus, with an overall goal of long-term growth, management
believes the Company is poised to be thrust into a very different position from that of one year ago, particularly as a result
of the stabilization of its financial condition that has been occurring over the past year.
Management believes its objective is to
have the Company become an industry-leading biotechnology company, with a multi-part, laser-focused strategy. Like those of larger
pharmaceutical companies, this strategy is expected to strengthen the Company's position in both the short and long term. The Company
will seek to raise capital to fund growth opportunities and provide for its working capital needs as the strategy of the Company
is executed. The Company's efforts to achieve financial stability and to enable it to carry out the strategy of the Company include
several primary components:
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The completion of the preparations for the Phase 2b clinical trial in advanced, inoperable pancreatic
cancer to be carried out in Australia;
|
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The conducting of preclinical studies
and clinical trials that will examine the effectiveness of the Company’s pancreatic cancer treatment in ameliorating the
pain and accumulation of Malignant Ascites fluid in the abdomen that are characteristic of pancreatic cancer. These studies and
trials will be conducted by TD2 in the United States;
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The enhancement of the Company’s
ability to expand into the biotechnology arena through further research and partnering;
|
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The acquisition of new contracts and revenue
utilizing both in-house products and the newly acquired biotechnology licensing rights;
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The further development of uses of the
Cell-in-a-Box
®
technology platform through contracts, licensing agreements and joint ventures with other companies;
and
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The completion of testing, expansion and
marketing of existing and newly derived product candidates.
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Cell Therapy Product Development
The Company is pursuing the
development of the Cell-in-a-Box
®
cellulose-based live cell encapsulation for use in creating treatments for
patients suffering from a number of diseases. Initially, focus will be placed on the preparations for a Phase 2b pancreatic
cancer clinical trial. These preparations will include the live cell encapsulation of cancer prodrug-activating cells. For
the Phase 2b clinical trial, as in the earlier Phase 1/2 clinical trials, cells expressing a cytochrome P450 isozyme (CYP2B1)
for use in cancer therapy will be utilized. These cells were used earlier in Phase 1/2 clinical trials in patients with
advanced, inoperable pancreatic cancer. These particular cells were developed so that they converted the cancer prodrug ifosfamide into its active cancer-killing form. When the encapsulated cells were placed in close proximity to the pancreas
(and hence in close proximity to the cancerous tumor) and then low-doses (one-third of normal) of the well-known anticancer
prodrug ifosfamide were administered, the passage of the ifosfamide through the capsules created an elevated local
concentration of active drug capable of stopping the growth of or killing the cancer cells. The results of this
“targeted chemotherapy” are discussed in detail below.
These same encapsulated drug-converting
cells may also play a significant role in the treatment of breast cancer. Recently, the results of a veterinary Phase 1/2 clinical
trial in dogs with spontaneously occurring mammary tumors were published. In this veterinary clinical trial, the same CYP2B1-expressing
cells as those that are part of the Company’s pancreatic cancer treatment were encapsulated using the Cell-in-a-Box
®
technology. However, in this clinical trial, ifosfamide was replaced by its “sister” prodrug cyclophosphamide because
the latter is often used to treat breast cancer. In fact, according to the American Cancer Society, cyclophosphamide is a component
of 9 of 10 commonly used combination chemotherapies for breast cancer. Cyclophosphamide is activated in the exact same way as ifosfamide.
The Cell-in-a-Box
®
live
cell encapsulation technology can be viewed as the equivalent to a modern computer operating system. We have created the hardware
and operating platform to envelop or encapsulate our own or other company's “software products,” or cells. These cells
are then packaged in our live cell encapsulation “operating system.”
Estimates indicate that, in approximately
25% of pancreatic cancer patients, the cancer is too advanced for any treatment due to late diagnosis and resulting short survival
times. In addition, the disease is typically operable in approximately only 10% of patients. Therefore, we believe the market for
the Company's product equates to approximately 68% of the incidence rate in industrialized countries or about 85,000 patients per
year. Due to the “unmet medical need” status of pancreatic cancer, the biotechnology and pharmaceutical sectors have
been working to discover a treatment for this disease and have invested significant levels of funding required for clinical discovery.
The Company believes there is no treatment comparable to
the Cell-in-a-Box
®
live cell encapsulation-based
treatment when survival rates and patients’ quality of life are compared, increasing the potential that the Company's product
candidate will be of value to the oncology community and to pancreatic cancer patients in particular.
Over the past year, the Company contracted
with ViruSure, a professional cell growing and adventitious agent (bacteria, mycoplasma, viruses and prions) testing company that
has had extensive experience with these CYP2B1-expressing cells, in order to recover them proficiently from frozen stocks and regenerate
new stocks for use by the Company going forward. ViruSure has already stored new cell stocks ready for our future work.
The
Cell-in-a-Box
®
encapsulation technology enables living cells to be used as miniature factories. The technology
results in the formation of pin-head sized cellulose-based capsules in which cells can be grown and maintained. In the
laboratory setting, which involves the large scale amplification and production of useful biotech products outside the body
of a person or animal, the proprietary live cell encapsulation technology creates a micro-environment in which delicate cells
survive and are protected from environmental challenges, such as the sheer forces associated with bioreactors, enabling
greater growth and production of the end product.
The aim is for production of biological
products inside the body of a person or an animal after the encapsulated live cells have been strategically placed there
.
The Company’s technology enables cells to survive in the human host and function like any other living cell in the body.
Since the capsule structure is permeable, small molecules (such as nutrients, oxygen, and waste products) pass through the pores
of the capsules enabling the encapsulated therapeutic cells to ‘live’ in the body, thereby behaving like new miniature
organs of the body.
We believe the live cell encapsulation
technology brings significant new advantages and opportunities to market for the Company in the following ways:
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The treatment of diseases by placing drug-converting
cells that make the active agent near the diseased tissue or organ;
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The confinement and maintenance of therapeutic
cells at the site of implantation at or near the cancerous tumor ensuring “targeted chemotherapy”;
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The increased efficacy of chemotherapeutic
drugs allowing for lower dosages and thus reduced side effects;
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The great potential for the treatment
of systemic diseases of numerous types, including diabetes;
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The provision of a safety mechanism for
regulating cells that are introduced that would be desired to be maintained at specific sites in the body as a part of therapy;
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The multi-layered patent protection and
marketing exclusivity for the technology that is being expanded;
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The capsules that prevent immune system
attack of functional cells without immunosuppressive drug therapy; and
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The safety
of the technology and the cells used that has already been shown in both human and canine clinical trials.
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Market Opportunity
and the Competitive Landscape
There is intense competition for the
use of the product candidates being developed by the Company for treating pancreatic cancer patients due to the number
of drugs already available and those in the pipelines of pharmaceutical companies worldwide, not the least of which is
the combination of the drugs gemcitabine and Abraxane
®
. This is the primary FDA approved combination of drugs
for treating pancreatic cancer. Some of the Company's competitive strengths include the patents and licensing
agreements described in this Report which protect the ability to utilize encapsulated cells as part of the driving force for
the Company's cancer and diabetes treatments being developed. Many of our competitors have substantially greater financial
and marketing resources than the Company, stronger name recognition, brand loyalty and long-standing relationships
with customers. The Company’s future success will be dependent upon the Company's ability to compete. Its failure to do
so could adversely affect the Company’s success. In many ways, the advantage of a smaller and more nimble company is
its ability to change quickly as and when needed, therefore providing the Company a competitive position in the
biotechnology sector that larger and well-funded biotechnology companies may not have.
Live Cell Encapsulation
Every year in the United States,
an estimated 45,220 patients will be diagnosed with pancreatic cancer and over 38,460 will pass away from the disease. In
our effort to bring potential treatments to bear on this and other diseases, the Company acquired Bio Blue Bird. This
subsidiary holds exclusive worldwide licenses to our unique cellulose-based live cell encapsulation technology for use in
oncology and diabetes. The capsules are comprised of cotton's natural component, bio-inert cellulose. Other materials used by
competitors include alginate, collagen, chitosan, gelatin and agarose. Cellulose appears to be the most robust of
these. This inherent strength provides the Cell-in-a-Box® capsules with advantages over the competition. For example,
the Cell-in-a-Box® capsules have remained intact for more than 2 years in humans and for several months in animals during
preclinical studies and clinical trials with no evidence of rupture, damage, degradation or an immune response of any kind.
In addition, the cells within the capsules remained alive during the course of the studies and trials. Other encapsulating
materials degrade over time in the human body. Immune response damage to surrounding tissues has also been reported to occur
over time with such materials.
The two areas the Company is currently
developing for live cell encapsulation-based treatments are cancer and diabetes. The field of diabetes cell therapy development
is competitive. There are a number of companies developing cell based therapies for diabetes. These competitors include Living
Cell Technologies, Viacyte, Cellmed, Microislet Sciences, Cerco Medical and BetaCell to name a few. Although competition exists,
we believe these other companies are developing live cell encapsulation-based treatments using encapsulation materials and methodologies
to produce capsules far less robust than the cellulose-based capsules that the Company is using.
The Cell-in-a-Box
®
based
cancer therapy has already shown promise through the completion of two Phase 1/2 clinical trials in advanced, inoperable pancreatic
cancer and the diabetes cell therapy has completed research studies which demonstrated positive responses in animal models. The
Company believes it is in a strong competitive position in light of its manufacturing contract with Austrianova Singapore which
will provide for cGMP manufacturing of the ifosfamide-converting encapsulated cells to be used in its clinical trials in advanced,
inoperable pancreatic cancer to be conducted in Australia and the United States.
The two earlier Phase 1/2 clinical trials
referred to above were carried out in Europe in the late 1990s-early 2000s and employed the combination of the cellulose-based
live cell encapsulation technology with low doses of the anticancer drug ifosfamide. The results of the first of the two studies
have appeared in the peer-reviewed scientific literature, but the report of the second has yet to be published. Accordingly, the
discussion below relates to the single clinical trial which has appeared in the scientific literature.
Dates
of Trial and Location
The trial was opened on July 28, 1998 and
closed on September 20, 1999. The trial was carried out at the Division of Gastroenterology, University of Rostock, Germany.
Identity
of Trial Sponsors
The trial
was sponsored by Bavarian Nordic GmbH (“Bavarian Nordic”).
Trial
Design
The trial
was an open-label, prospective, single-arm and single center study.
Patient
Information
A total of 17 patients were enrolled in
the trial (51 were screened). A total of 14 patients were treated because two of the original 17 patients developed severe infections
before the start of the trial and had to be treated by other means. For the other patient, an angiography was not successful, causing
the patient to be disqualified from the trial.
Trial
Criteria
Criteria for entering the study included
inoperable pancreatic adenocarcinoma stage III-IV (IUCC) as determined by histology and measured by CAT scan and with no prior
chemotherapy.
Duration
of Treatment and Dosage Information
On day 0, celiac angiography was performed
and 300 (in 13 patients, 250 in one) of the capsules containing the ifosfamide-activating cells were placed by supraselective catheterization
of an artery leading to the tumor. Each capsule (~0.8 mm in diameter) contained about 10,000 cells. The cells overexpressed an
enzyme, CYP2B1 (a variant of the cytochrome P450 system), which catalyzed the conversion of the anticancer drug ifosfamide (Holoxan
®
,
Ifex
®
) into its “cancer-killing” form.
On day 1,
patients were monitored for evidence of any clinically relevant adverse reactions, e.g. allergy and/or pancreatitis.
On days 2-4, each patient received low-dose
(1 g/m
2
body surface area) ifosfamide in 250 ml of normal saline was administered systemically as a 1-hour infusion.
This was accompanied by a 60% dose equivalent of the uroprotector MESNA given as three intravenous injections. This regimen was
repeated on days 23-25 for all but two patients who received only one round of ifosfamide. A total of two treatments with ifosfamide
were given.
Specific
Clinical Endpoints
Median survival time from the time of diagnosis,
the percentage of patients who survived one year or more and quality of life were examined in the trial.
Observational
Metrics Utilized and Actual Results Observed
Standard NCI criteria for evaluating tumor
growth were used to assess stable disease (“SD”; tumors 50-125% of initial size), partial remission (“PR”;
more than 50% reduction in tumor volume) and minor response (“MR”; tumor reduction of between 25% and 50%).
Effects of the treatment on tumor size
were measured by CAT scans. Control CAT scans were scheduled for weeks 10 and 20, respectively. During the final visit, a control
angiography was performed. On the initial CAT scan, the scan demonstrating the largest diameter of the primary tumor was identified
and the area measured. Using appropriate landmarks, an identical scan was used for comparison. CAT scans were evaluated by two
unrelated radiologists, one of whom was not involved in the study. After formally finishing the study, patients were followed on
an ambulatory basis with three-monthly visits.
Toxicity
was measured based on WHO/NCI guidelines on common toxicity criteria.
The
World Health Organization (“WHO”) and the National Cancer Institute (“NCI”) use standardized classifications
of the adverse events associated with the use of cancer drugs. In cancer clinical trials, these are used to determine if a particular
drug or treatment causes unwanted side effects (adverse events) when used under specific conditions. For example, the most commonly
used classification is known as the “Common Terminology Criteria for Adverse Events” (CTCAE v. 4.0) developed by the
NCI in the United States. Most clinical trials carried out in the United States and the United Kingdom code their adverse event
results according to this system which consists of five grades; these are: 1 = mild; 2 = moderate; 3 = severe; 4 = life-threatening;
5 = death. In the studies reported for the CapCell
®
plus low-dose ifosfamide combination in pancreatic cancer patients,
the study investigators noted 11 serious adverse events in 7 patients, none of which were believed to be treatment-related.
The
need for pain medication and quality of life (“QOL”) was monitored using a questionnaire established for pancreatic
diseases. A QOL questionnaire for cancer patients, QLQ-C30, had been validated in several languages, but the module for pancreatic
cancer
per se
was still under development at the time of the study with respect to reliability, sensibility against changes
and multicultural validation. Accordingly, a version of the core questionnaire and a German QOL scale (published in 1995) for pancreas
disease patients was used. QOL data were documented independently from safety and efficacy data by having patients complete an
independent questionnaire. Assessment of QOL data did not interfere with routine documentation of adverse events reported by the
patients. QOL questionnaires were analyzed according to criteria developed by the European Organization for Research and Treatment
of Cancer (“EORTC”).
As used in the description of the
QOL results discussed in the published report of the Phase 1/2 trial of the CapCell
®
plus low-dose ifosfamide combination
in pancreatic cancer patients, the questionnaire was used to assess the QOL of patients undergoing treatment. The QOL was analyzed
in a similar manner to the way that a QOL questionnaire developed by the EORTC is usually analyzed. This latter questionnaire is
known as EORTC QLQ-C30. QOL data were available from the baseline evaluation for 14 patients and for analysis of change for 8 patients.
A clinical benefit score based on
variables, including the “Karnofsky Score” and body weight, was determined. Pain and analgesic consumption were calculated from the QOL
questionnaires. The Karnofsky Score is a scale that is used to attempt to quantify a cancer patient’s general
well-being and activities of daily life. It is often used to judge the suitability of patients for inclusion into clinical
trials, i.e. whether the patient can receive chemotherapy and/or whether palliative care will be needed. As a clinical trial
progresses, a patient’s Karnofsky Score can change. It is also used to assess a patient’s QOL as a trial
progresses. The scale starts at 100 (normal, no complaints, no evidence of disease) and decreases in decrements of 10 down
through 50 (requires considerable assistance and frequent medical care) all the way to 10 (moribund, fatal processes
progressing rapidly) and finally to 0 (deceased). Pain intensity was measured on a visual analog scale ranging from 0 (no
pain) to 100 (the most intensive pain imaginable) in increments of 10. Analgesic consumption was assessed using a separate
scale in which 0 indicated no regular consumption of analgesic and 25, 50 and 100 indicated administration of non-steroidal
anti-inflammatory drugs or opiates several times per year, per month or per week, respectively.
The primary tumor did not grow in
any of the 14 patients. Two patients had a partial response (more than 50% reduction in tumor volume); 12 patients
exhibited stable disease (tumor size in the range of 50% to 125% of initial size); and two patients showed a minor response
(tumor reduction of between 25% and 50%).
Median survival
time of patients in this trial was 39 weeks. The one-year survival rate was 36%.
Within the 20-week study period, three
patients died from disease progression (on days 9, 85 and 132). Upon postmortem examination, the patient who died on day 9 from
recurrent pulmonary embolism was found to have extensive tumor necrosis.
The chemotherapy regimen was well tolerated
with no toxicity beyond Grade 2 being detected in any of the 14 patients; thus, there were no obvious specific treatment-related
risks.
Eleven serious adverse events (“SAEs”)
were seen in 7 patients during the study period. None of them were treatment-related (i.e. due to capsule implantation or ifosfamide
administration). These SAEs were attributed to underlying disease and/or the effects associated with the disease.
Implantation of the capsules did not result
in any obvious allergic or inflammatory response, and no patients developed pancreatitis during the clinical trial. Some patients
exhibited elevated amylase levels, presumably due to tumor infiltration of the pancreas and limited obstructive chronic pancreatitis.
But no further increase in amylase levels was seen after angiography and capsule placement.
Only one adverse event (increased lipase
activity on day 15 after installation of the capsules) “may” have been linked to capsule administration.
If a “clinical benefit” is
considered to be either no increase or a decrease in pain intensity, then 10 of 14 experienced such a benefit. For 7 of the patients,
this was confirmed by their analgesic consumption. None of these “benefited” patients registered an increase analgesic
usage both in terms of dosage or WHO levels.
None of the patients showed an increased
Karnofsky Score after treatment. However, 7 of the 14 patients had stable Karnofsky Scores at the week 10 assessment. For 4 of
these patients, their indices were still stable at the week 20 assessment.
One patient’s body weight increased
at both weeks 10 and 20 and another patient showed increased weight at week 10 (this patient withdrew from the study and no week
20 weight was obtained). Two patients showed stable body weights at week 10, one of whom dropped out of the study and the other
showed weight loss at week 20.
Two scenarios were used to establish the
overall integrative clinical benefit response, where each patient was given a +2 score for an improved value, a +1 score for a
stable value and a -1 score for a worsened value for each of four criteria (pain, analgesic consumption, Karnofsky Score and body
weight) as compared to the relevant week 0 values.
The “worst case scenario” required
a pain relief score of 20 points or more to be judged an improvement and a decrease in the Karnofsky Score of 10 points or more
to indicate worsening. Using this scenario, 50% or 7 of the treated patients experienced clinical benefit; 21.4% or 3 patients
were neutral (benefits were offset by impairments); and 28.6% or 4 patients had no clinical benefit. The latter included those
passing away before the median survival time.
In the “best case scenario,”
a pain relief score of 10 points or more was an improvement, and a decrease in Karnofsky Score of 20 points or more was considered
a worsening. In this scenario, 71.4% or 10 patients had clinical benefit, 14.2% of patients showed neither benefit nor deterioration
and 14.3% patients had no benefit.
Comparisons
to Standard of Care
At the time that the clinical trial was
conducted, only one FDA-approved treatment for advanced, inoperable pancreatic cancer was available; that was gemcitabine, an Eli
Lilly drug first approved by the FDA in 1996.
An examination of the
prescribing information for gemcitabine reveals that the median survival seen in the pivotal (Phase 3) pancreatic cancer
clinical trial for that drug was approximately 23 weeks (5.7 months). The percentage of one-year survivors was approximately
18%. In addition, in the pivotal (Phase 3) clinical trial of Celgene’s Abraxane
®
plus gemcitabine
combination that was approved by the FDA in September 2013 for the treatment of patients with advanced inoperable pancreatic
cancer, the median survival time for patients was about 8.5 months and the percentage of one-year survivors was approximately
35%. By comparison, corresponding values from the Phase 1/2 reported clinical trial of the CapCell
®
(now known
as Cell-in-a-Box
®
) plus ifosfamide combination were 39 weeks (approximately 9.8 months) and
36%, respectively.
The treatment with gemcitabine of patients
with pancreatic cancer is often associated with severe side effects. According to the prescribing information for gemcitabine,
for use against pancreatic cancer the recommended dose is 1000 mg/m
2
given intravenously over 30 minutes. The schedule
of administration is: weeks 1-8, weekly dosing for 7 weeks followed by one week rest and then after week 8, weekly dosing on days
1, 8 and 15 of 28-day cycles.
Reductions in the doses of gemcitabine
are necessitated by the occurrence of myelosuppression. Permanent discontinuation of gemcitabine is necessary for any of
the following:
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unexplained dyspnea or other evidence of severe pulmonary toxicity;
|
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hemolytic-uremic syndrome;
|
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capillary leak syndrome; and
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posterior reversible encephalopathy syndrome.
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Gemcitabine should be withheld or its dose
reduced by 50% for other severe (Grade 3 or 4) non-hematologic toxicity until that toxicity is resolved.
In contrast to the SAE’s seen with
gemcitabine, as noted above under
Observational Metrics Utilized and Actual Results Observed
, the use of the CapCell
®
plus ifosfamide combination in this Phase 1/2 clinical trial was not associated with any serious (Grade 3 or 4) treatment-related
side effects.
Conclusions
In the opinion of trial’s investigators
only, in the Phase 1/2 clinical trial the use of the combination of CapCell
®
plus low-dose ifosfamide is both safe
and efficacious. This assessment was not based on the opinion of any drug regulatory authority and does not guarantee that that
this assessment will be maintained in any late-phase clinical trial or that any drug regulatory authority will ultimately determine
that the CapCell
®
(now known as Cell-in-a-Box
®
) plus low-dose ifosfamide combination is safe and
effective for the purposes of granting marketing approval.
Because only 14 patients were treated in
this Phase 1/2 trial, no statistical parameters of the type used in larger clinical studies were used in determining either safety
or efficacy of the CapCell
®
plus ifosfamide combination in this trial.
If the cancer treatment were approved by
the Regulatory Agencies (defined below), it could provide a significant benefit to those with this devastating and deadly disease,
not only in terms of life-span but also in terms of increased quality of life. In addition, success of the live cell encapsulation
technology in the pancreatic cancer setting may lead to its successful use in developing treatments for other forms of cancer after
preclinical studies and clinical trials dealing with each form.
Manufacturing
The Company is outsourcing all cell growth, processing and encapsulation
services needed in connection with its future clinical trials of the ifosfamide-converting encapsulated cell cancer treatment pursuant
to our Manufacturing Framework Agreement with Austrianova Singapore.
Medical Marijuana
The Company formed MMS in early 2013.
With 23 states and the District of Columbia approving the use of marijuana, commonly referred to in the scientific community as
“
Cannabis
” for medicinal purposes, a plethora of medical marijuana companies have emerged. Most of these involve
production and distribution of
Cannabis
in its various forms, such as liquid extracts and pills, as well as
Cannabis
delivery systems - such as vapor pens. Very few are focused on using constituents of
Cannabis
for the treatment of
specific diseases.
The Company’s major competitors for
the development of
Cannabis
-based treatments for cancer are Cannabis Science, Inc. (“CSI”), GW Pharmaceuticals
(“GWP”) and Medical Marijuana, Inc. (“MMI”). CSI plans to use complex extracts of
Cannabis
to develop
treatments for basal and squamous cell (skin) carcinomas and Kaposi's sarcoma. GWP is developing a product portfolio of cannabinoid
prescription medicines. MMI is a company that has proprietary cannabinoid delivery methods. It is also a source for some of the
108 identified cannabinoids, one of the most important being cannabidiol or CBD.
In contrast to the work being done by these
companies, Nuvilex plans to develop treatments for two of the deadliest forms of cancer - brain and the pancreatic - rather than
Kaposi’s sarcoma and skin cancer. Nuvilex also plans to focus initially on developing specific treatments based on carefully
chosen molecules rather than using complex
Cannabis
extracts. Targeted cannabinoid-based chemotherapy utilizing Cell-in-a-Box
®
cellulose-based live cell encapsulation technology offers a "green" approach to treating solid-tumor malignancies.
Cannabis
has provided a sustainable source of fiber, food, energy and medicine for thousands of years. The plant’s constituents, such
as ∆
9
-tetrahdyrocannabinol and cannabidiol, have been well-documented to have broad anti-inflammatory, antioxidant,
analgesic, nerve protecting and antineoplastic abilities, among many other therapeutic properties. An understanding of the chemical
and biochemical processes involved in the interaction of substances derived from
Cannabis
with live cell encapsulation provides
the opportunity to develop "green" approaches to treating cancers (pancreatic, brain, breast and prostate to name a few)
that affect hundreds of thousands of individuals worldwide every year. The Company believes that MMS is in a unique position among
medical marijuana and pharmaceutical companies to develop cannabinoid-based therapies utilizing our proprietary live cell encapsulation
technology as the platform.
The Company has entered into a Research
Agreement with the State of Colorado, acting on behalf of the Board of Trustees of the University of Northern Colorado. The goal
of the current study is to develop methods for the identification, separation and quantification of constituents (pro-drugs) of
Cannabis
that may be used in combination with the Company’s Cell-in-a-Box
®
technology. Initial studies
have been undertaken using non-cannabinoid model compounds to identify the appropriate cell type that can convert the selected
cannabinoid pro-drugs into metabolites with antineoplastic activity. Once identified, the selected cells or cells transfected with
the gene(s) for the appropriate enzyme(s) will be encapsulated using the Company’s Cell-in-a-Box
®
technology.
The encapsulated cells and cannabinoid pro-drugs identified by these studies will then be combined and used for future studies
to evaluate their antineoplastic effectiveness.
Government Regulations
The United States’ Food and Drug
Administration (“FDA”), Europe’s European Medicines Agency (“EMA”), Australia’s Therapeutic
Goods Administration (“TGA”) and other country specific regulatory agencies around the world (collectively “Regulatory
Agencies”) ensure the safety of the entire community through their regulations pertaining to new drugs. Regulation by governmental
authorities plays a significant factor in the manufacture and marketing of pharmaceuticals and in our ongoing research and development
activities. Our therapeutic products require regulatory approval by the Regulatory Agencies. Human therapeutic products are subject
to rigorous preclinical testing and clinical trials and other pre-marketing and post-marketing approval requirements of the Regulatory
Agencies. In the United States, various federal and, in some cases, state statutes and regulations also govern or impact the manufacturing,
testing for safety and effectiveness, labeling, storage, record-keeping and marketing of such products. The lengthy process of
seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure
of substantial resources. Regulatory approval, if and when obtained, may be limited in scope which may significantly limit the
uses for which a product may be placed into the market. Further, approved drugs, as well as their manufacturers, are subject to
ongoing post-marketing review, inspection and discovery of previously unknown problems with such products or the manufacturing
or quality control procedures used in their production, which may result in restrictions on their manufacture, sale or use or in
their withdrawal from the market. Any failure or delay by us, our suppliers of manufactured drug product, collaborators or licensees
in obtaining regulatory approvals could adversely affect the marketing of our products and our ability to receive product revenue,
license revenue or profit sharing payments. For more information, see Item 1A. “Risk Factors.”
Clinical Development
Before a product may be administered
to human subjects, it must undergo preclinical testing. Preclinical tests include laboratory evaluation of a product
candidate's chemistry and biological activities and animal studies to assess potential safety and efficacy. The results of
these studies must be submitted to the Regulatory Agencies as part of an Investigational New Drug
(“IND”) application which must be reviewed by the Regulatory Agencies for safety and other considerations before
clinical trials in humans can begin.
Typically, clinical trials in humans involve
a three-phase process. We devote significant resources to research and development programs in an effort to discover and develop
potential future product candidates. The product candidates in our pipeline are at various stages of preclinical and clinical development.
The path to regulatory approval includes three phases of clinical trials in which we collect data to support an application to
Regulatory Agencies to allow us to market a product for treatment of a specified disease. There are many difficulties and uncertainties
inherent in research and development of new products, resulting in a high rate of failure. To bring a drug from the discovery phase
to regulatory approval, and ultimately to market, takes many years and significant cost. Failure can occur at any point in the
process, including after the product is approved, based on post-marketing factors. New product candidates that appear promising
in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns,
inability to obtain necessary regulatory approvals, limited scope of approved uses, reimbursement challenges, difficulty or excessive
costs of manufacture, alternative therapies or infringement of the patents or intellectual property rights of others. Uncertainties
in the approval process of the Regulatory Agencies can result in delays in product launches and lost market opportunities. Consequently,
it is very difficult to predict which products will ultimately be submitted for approval, which have the highest likelihood of
obtaining approval and which will be commercially viable and generate profits. Successful results in preclinical or clinical studies
may not be an accurate predictor of the ultimate safety or effectiveness of a drug or product candidate.
Phase 1 Clinical
Trials
: Phase 1 clinical trials begin when regulatory agencies allow initiation of clinical investigation of a
new drug or product candidate. The clinical trials study a drug's safety profile and may include a preliminary determination
of a drug or product candidate's safe dosage range. The Phase I clinical trial also determines how a drug is absorbed,
distributed, metabolized and excreted by the body and, therefore, the potential duration of its action. Phase 1 clinical
trials generally take from one to three years to complete.
Phase 2 Clinical
Trials
: Phase 2 clinical trials are conducted on a limited number of subjects with the targeted disease. An
initial evaluation of the drug's effectiveness on subjects is performed and additional information on the drug's safety and
dosage range is obtained. For many diseases, Phase 2 clinical trials normally include up to several hundred subjects and
may take as many as two to three years to complete.
Phase 3 Clinical
Trials
: Phase 3 clinical trials are typically controlled multi-center trials that involve a larger target
patient population that can consist of from several hundred to thousands of subjects to ensure that study results are
statistically significant. During Phase 3 clinical trials, physicians monitor subjects to determine efficacy and to
gather further information on safety. These trials are designed to generate all of the clinical data necessary to submit an
application for marketing approval to regulatory agencies. Phase 3 testing varies by disease state, but can often last
from two to four years or more.
Regulatory Review
: If a
product candidate successfully completes Phase 3 clinical trials and is submitted to governmental regulators, such as the
FDA in the United States and the EMA in Europe, the time to final marketing approval can vary from six months to several years,
depending on a number of variables. These variables can include such things as the disease type, the strength and complexity of
the data presented, the novelty of the target or compound, risk-management approval and whether multiple rounds of review are
required for the agency to evaluate the submission. There is no guarantee that a potential treatment will receive marketing approval
or that decisions on marketing approvals or treatment indications will be consistent across geographic areas. In some cases, further
studies beyond the three-phase clinical trial process described above are required as a condition for approval of a New Drug Application
(“NDA”), a Marketing Authorization Application (“MAA”) or a Biologics License Application (“BLA”).
The Regulatory Agencies require monitoring of all aspects of clinical trials and reports of all adverse events must be made. The
Regulatory Agencies may also require the conduct of pediatric studies for the drug and indication either before or after submission
of a NDA or a BLA.
Review and Approval by Regulatory
Agencies
The results of the preclinical testing,
production parameters, and clinical trials are submitted to the Regulatory Agencies as part of a NDA or a BLA for evaluation to
determine if there is substantial evidence that the product is sufficiently safe and effective to warrant approval. In responding
to a NDA or a BLA, the Regulatory Agencies may grant marketing approval, deny approval or request additional information, including
data from new required clinical trials.
Expedited Programs for Serious Conditions
Regulatory Agencies have developed distinct
approaches to make new drugs available as rapidly as possible in cases where there is no available treatment or there are advantages
over existing treatments. For example, the FDA may grant “accelerated approval” to products that have been studied
for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit
to patients over existing treatments. For accelerated approval, the product must have an effect on a surrogate endpoint or an intermediate
clinical endpoint that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on irreversible
morbidity and mortality. When approval is based on surrogate endpoints or clinical endpoints other than survival or morbidity,
the sponsor will be required to conduct additional post-approval clinical studies to verify and describe clinical benefit. These
studies are known as confirmatory trials. Approval of a drug may be withdrawn or the labeled indication of the drug changed if
these trials fail to verify clinical benefit or do not demonstrate sufficient clinical benefit to justify the risks associated
with the drug.
The FDA may grant “fast track”
status to products that treat serious diseases or conditions and fill an unmet medical need. Fast track is a process designed
to facilitate the development and expedite the review of such products by providing, among other things, more frequent meetings
with the FDA to discuss the product's development plan, more frequent written correspondence from the FDA about trial design,
eligibility for accelerated approval if relevant criteria are met and rolling review, which allows submission of individually
completed sections of a NDA or a BLA for Regulatory Agency review before the entire submission is completed. Fast track status
does not ensure that a product will be developed more quickly or receive Regulatory Agency approval.
The FDA’s “Breakthrough
Therapy” designation for a drug is designed to expedite the development and review of drugs that are intended to treat
a serious condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over
available therapy on a clinically significant endpoint. For drugs and biologics that have been designated as Breakthrough
Therapies, robust FDA-sponsor interaction and communication can help to identify the most efficient and expeditious path for
clinical development while minimizing the number of patients placed in ineffective control regimens.
The FDA may grant “priority review”
status to products that, if approved, would provide significant improvement in the safety or effectiveness of the treatment, diagnosis
or prevention of serious conditions. Priority review is intended to reduce the time it takes for the FDA to review a NDA or a BLA,
with the goal to take action on the application within six months.
Orphan Drug Status
In accordance with laws and regulations
pertaining to the Regulatory Agencies, a sponsor may request that the Regulatory Agencies designate a drug intended to treat a
“rare disease or condition” as an “orphan drug.” For example, in the United States a “rare disease
or condition” is defined as one which affects less than 200,000 people in the United States, or which affects more than 200,000
people but for which the cost of developing and making available the product is not expected to be recovered from sales of the
product in the United States. Upon the approval of the first NDA or BLA for a drug designated as an orphan drug for a specified
indication, the sponsor of that NDA or BLA is entitled to seven years of exclusive marketing rights in the United States unless
the sponsor cannot assure the availability of sufficient quantities to meet the needs of persons with the disease. In Europe this
exclusivity is 10 years, and in Australia it is 5 years. However, orphan drug status is particular to the approved indication and
does not prevent another company from seeking approval of an off-patent drug that has other labeled indications that are not under
orphan or other exclusivities. Orphan drugs may also be eligible for federal income tax credits for costs associated with such
as the disease state, the strength and complexity of the data presented, the novelty of the target or compound, risk-management
approval and whether multiple rounds of review are required for the agency to evaluate the submission. There is no guarantee that
a potential treatment will receive marketing approval or that decisions on marketing approvals or treatment indications will be
consistent across geographic areas.
Patents, Intellectual Property and Trade
Secrets
We have determined that intellectual property
(“IP”) and patent protection are of paramount importance to our business. Although the Company believes it takes reasonable
measures to protect its IP, the Company cannot guarantee it will be able to protect and enforce its IP or obtain international
patent protection for its products as needed. Nuvilex and its subsidiaries license patents and trademarks and have exclusive worldwide
licensing rights to numerous patents in multiple countries over three technical areas: (i) live cell encapsulation; (ii) treatment
of solid tumors, including pancreatic cancer; and (iii) encapsulation of cells for producing retroviral particles for gene therapy.
In addition, Nuvilex and its subsidiaries collectively have exclusive worldwide licensing rights to patents, trademarks and know-how
using Cell-in-a-Box
®
technology in the diabetes field. Litigation may be required to enforce the Company's products,
IP rights, trade secrets or determine the validity and scope of the proprietary rights of others. Maintenance of these utilizes
financial and operational resources. In addition, the possibility exists that the Company's IP could be discovered to be owned
by others, be invalid or be unenforceable, potentially bringing unforeseen challenges to the Company.
Patents and Intellectual Property
Agreements
The following patents and agreements constitute
the material IP of the Company:
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License Agreement Relating to Encapsulated
Cells Producing Viral Particles and Encapsulated Cells Expressing Biomolecules (“Bavarian Nordic/GSF License”).
The licensors are Bavarian Nordic and GSF – Forschungszentrum fur Umwelt u. Gesundheit GmbH. The licensee is Bio Blue
Bird. The License Agreement was signed in July 2005. The Licensors have rights to terminate the license in the event that the annuity
and upkeep fees are not paid to Bavarian Nordic, there is not proper reporting or there is not a clearly documented effort to commercialize
this technology
;
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The Bavarian Nordic/GSF License relates
to the patent US 6893634 B1 that claims "A capsule comprising a porous membrane formed by a polyelectrolyte complex which
encapsulates cells which express cytochrome P450 as a cell membrane bound protein, wherein the porous membrane of the capsule is
permeable to prodrug molecules and the cells are retained within the capsule" and further claims based on this;
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The Company has an exclusive license to
the US Patent US 6,776,985 B1 that claims "Encapsulated retroviral packaging cells producing retroviral vectors, comprising
capsules having a porous capsule wall which is permeable to said retroviral particles" and further claims based on this.
This patent would be broadly applicable to the delivery of retroviral vectors by encapsulated packaging cells for a variety of
indications;
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Third Addendum to Asset Purchase Agreement
between the Company and SG Austria effective as of June 25, 2013 (“Third Addendum”). The Third Addendum resulted in
the Company acquiring 100% ownership of Bio Blue Bird, the licensee of the patents identified above; and
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Licensing Agreement between the Company
and Austrianova Singapore effective as of June 25, 2013 relating to diabetes. The Company has an exclusive license world-wide to
use the Cell-in-a-Box
®
technology with genetically modified or non-modified non-stem cell lines and IPS stem
cells specifically designed to produce insulin or other critical components for the treatment of diabetes. The Company must enter
into a research program involving European academic research partners providing a total funding of at least US$400,000 within three
years of June 25, 2013 and must enter clinical trials within 7 years of June 25, 2013 to retain the exclusive world-wide license.
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Third Addendum to Asset Purchase
Agreement with SG Austria
On May 26, 2011, the Company entered into
an Asset Purchase Agreement with SG Austria (“SG Austria APA”). As a result, Austrianova Singapore and Bio Blue Bird
were to become wholly owned subsidiaries of the Company on the condition that the Company pay SG Austria $2.5 million and 100,000,000
shares of the Company’s common stock and for the Company to receive 100,000 shares of Austrianova Singapore’s common
stock and nine Bio Blue Bird bearer shares.
In June 2011, the Company and SG Austria
entered into a First Addendum to the SG Austria APA to extend the due date for the sums to be paid to SG Austria. In June 2012,
the Company and SG Austria entered into the Second Addendum to the SG Austria APA for the same purpose. In June 2013, the Company
and SG Austria entered into the Third Addendum.
Under the terms of the Third Addendum,
the transaction contemplated by the SG Austria APA was materially changed. The Third Addendum provided that the Company was to
acquire 100% of the equity interests in Bio Blue Bird and receive a 14.5% equity interest in SG Austria. In addition, the Company
received nine bearer shares of Bio Blue Bird representing the 100% ownership. Under the Third Addendum, the Company paid: (i) $500,000
to retire all outstanding debt of Bio Blue Bird; and (ii) $1.0 million to SG Austria. The Company paid SG Austria $1,572,193 in
cash in exchange for its 14.5% equity interest. The Third Addendum returned the original 100,000,000 shares of common stock to
the Company treasury and the 100,000 Austrianova Singapore shares to SG Austria.
The acquisition of Bio Blue Bird provided
the Company with exclusive, worldwide licenses to use a proprietary cellulose-based live cell encapsulation technology for the
development of treatments for all forms of cancer with a right to sublicense. These licenses enable the Company to carry out the
research and development of cancer treatments that are based upon the live cell encapsulation technology known as “Cell-in-a-Box
®
.
The license relates in general terms to encapsulation of cells that: (i) produce viral particles; (ii) express biomolecules; or
(iii) convert molecules from one form to another pursuant to a License Agreement from Bavarian Nordic/GSF as the licensor and Bio
Blue Bird as the licensee, as amended by an Amendment to License Agreement between the same parties.
The Third Addendum requires the Company
to make the following payments for the purchased assets, which payments were timely made in full under the payment deadlines set
forth in the Third Addendum:
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A $60,000 payment due under the SG
Austria APA;
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A payment of Stamp Duty estimated to be
$10-17,000 to the Singapore Government
;
|
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$500,000 to be used to pay off the existing
debt of Bio Blue Bird; and
|
The Third Addendum provides that if the
payments listed above are insufficient or fail to meet specified payment deadlines, the Third Addendum and the SG Austria APA automatically
terminate and will be deemed null and void.
The Third Addendum requires the Company
to pay SG Austria, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup fee in the amount
of $633,144.05 of which 50% is required to be paid on the signing of the manufacturing agreement and 50% is required to be paid
three months later. In addition, the Third Addendum requires the Company to pay a fee for producing the final encapsulated cell
product of $633.14 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box
®
product.
The Third Addendum is an outright purchase.
The Third Addendum requires the Company to make future royalty and milestone payments as follows:
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Two percent royalty on all gross sales
received by the Company or its affiliates;
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Ten percent royalty on gross revenues
received by the Company or its affiliates from any sublicense or right to use the patents or the licenses granted by the Company
or its affiliates;
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Milestone payments of $100,000 due 30 days after enrollment of the first human patient in the first clinical
trial for each product; $300,000 due 30 days after enrollment of the first human patient in the first Phase 3 clinical trial for
each product; and $800,000 due 60 days after having a NDA or a BLA approved by the FDA or a MAA approved in Europe or its equivalent
based on the country in which it is accepted for each product; and
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Milestone payments of $50,000 due 30 days after enrollment of the first veterinary patient in the first
trial for each product and $300,000 due 60 days after having a BLA, a NDA or a MAA or its equivalent approved based on the country
in which it is accepted for each veterinary product.
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The Third Addendum granted to Nuvilex a right of first refusal
with respect to any offers made by SG Austria related to the granting of a license with respect to any patents or technologies
related to live cell encapsulation that can be applied to use the Cell-in-a-Box
®
technology to create products in
the following areas: (i) dermal fillers; (ii) medical marijuana; (iii) diabetes; and (iv) virally caused infectious diseases.
Diabetes Licensing Agreement
The Company acquired from Austrianova Singapore
the exclusive license worldwide to use the cellulose-based live cell encapsulation technology for the development of a treatment
for diabetes and the use of Austrianova Singapore’s “Cell-in-a-Box
®
” trademark for this technology
with a right to sublicense. The licensed rights pertain to genetically modified or non-modified non-stem cell lines and certain
stem cells specifically designed to produce insulin or other critical components for the treatment of diabetes.
Under its Licensing Agreement with Austrianova
Singapore (“Diabetes Licensing Agreement”), the Company is required to make a payment of $2,000,000 in two equal payments
of $1,000,000 each. The Company made its first $1,000,000 payment on October 30, 2013. The second payment of $1,000,000 was made
on February 25, 2014.
The Diabetes Licensing Agreement requires
the Company to pay Austrianova Singapore, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup
fee in the amount of $633,144, of which 50% is required to be paid on the signing of a manufacturing agreement and 50% is required
to be paid three months later. In addition, the Diabetes Licensing Agreement requires the Company to pay a fee for producing the
final encapsulated cell product of $633.14 per vial of 300 capsules after production with a minimum purchased batch size of 400
vials of any Cell-in-a-Box
®
product.
The Diabetes Licensing Agreement requires
the Company to make future royalty and milestone payments as follows:
|
·
|
Ten percent royalty of the gross sale
of all products sold by the Company;
|
|
·
|
Twenty percent royalty of the amount actually
received by the Company from sub-licensees on sub-licensees’ gross sales value; and
|
|
·
|
Milestone payments of $100,000 within 30 days of beginning the first pre-clinical experiments using the
encapsulated cells; $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; $800,000 within
30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and $1,000,000 due 60 days after having
a NDA or a BLA approved at the FDA or a MAA approved in Europe or its equivalent based on the country in which it is accepted
for each product.
|
The license under the Diabetes Licensing
Agreement may be terminated and all rights will revert to Austrianova Singapore if any of the following milestone events do not
occur within the following timeframes:
|
·
|
If the Company does not enter into a research
program with technology in the scope of the license involving European academic university partners providing a total funding equal
to or greater than $400,000 within three years of the effective date of the Diabetes Licensing Agreement; or
|
|
·
|
If the Company does not enter into a clinical
trial or its equivalent for a product within seven years of the effective date of the Diabetes Licensing Agreement.
|
Set forth in the table below is information
regarding the relevant Intellectual Property described above:
Encapsulated Cells Producing Cytochrome P450 (for treating
solid tumors, e.g. pancreatic cancer)
Claims cover capsules encapsulating a cell expressing cytochrome
P450 and treatment methods using same.
There are no contested proceedings or third party claims known
to the Company.
All major countries provide for patent term extension.
The Company has an exclusive license from joint patent owners
Bavarian Nordic/GSF.
Pat No.
|
|
Expiration Date
|
|
Country
|
US 6,540,995
|
|
03/27/2017
|
|
US
|
US 6,893,634
|
|
03/27/2017
|
|
US
|
AU 713382
|
|
03/27/2017
|
|
Australia
|
EP 892852
|
|
03/27/2017
|
|
Switzerland
|
EP 892852
|
|
03/27/2017
|
|
Germany
|
EP 892852
|
|
03/27/2017
|
|
Spain
|
EP 892852
|
|
03/27/2017
|
|
France
|
EP 892852
|
|
03/27/2017
|
|
Great Britain
|
EP 892852
|
|
03/27/2017
|
|
Italy
|
IL 125795
|
|
03/27/2017
|
|
Israel
|
JP 4229982
|
|
03/27/2017
|
|
Japan
|
Encapsulated Cells Producing Retroviral Particles
Claims cover capsules which have walls that are permeable to
retroviral particles, methods for producing same and methods of using same for gene therapy in countries where this protection
is available.
There are no contested proceedings or third party claims known
to the Company.
All major countries provide for patent term extension.
The Company has an exclusive license from joint patent owners
Bavarian Nordic/GSF.
Pat No.
|
|
Expiration Date
|
|
Country
|
US 6,776,985
|
|
06/24/2016
|
|
US
|
AU 708273
|
|
06/24/2016
|
|
Australia
|
EP 835137
|
|
06/24/2016
|
|
Switzerland
|
EP 835137
|
|
06/24/2016
|
|
Germany
|
EP 835137
|
|
06/24/2016
|
|
Spain
|
EP 835137
|
|
06/24/2016
|
|
France
|
EP 835137
|
|
06/24/2016
|
|
Great Britain
|
EP 835137
|
|
06/24/2016
|
|
Italy
|
IL 122119
|
|
06/24/2016
|
|
Israel
|
JP 4119852
|
|
06/24/2016
|
|
Japan
|
JP 4848348
|
|
06/24/2016
|
|
Japan
|
KR 484883
|
|
06/24/2016
|
|
South Korea
|
Sources and Availability of Raw Materials
As for the encapsulation and
the cells for the oncology and diabetes based treatment, the entire encapsulation process is to be carried out by
Austrianova Singapore. They are responsible for acquiring the necessary raw materials including the cellulose sulfate
necessary for encapsulating the live cells. In 2012, as part of our pre-planning, we had the cells, a critical raw material,
contracted through SG Austria to have the initial production, by ViruSure, of cells for future use. Thus, since
all raw materials in our products could at any time in the future be difficult to obtain in large quantities, this could have
a potential negative impact on the Company and or its subsidiaries.
Employees
As of April 30, 2014, the Company had four
full-time employees. The Company primarily utilizes independent contractors in their respective capacities as scientists and physicians
and in the areas of finance, accounting and technical support.
Available Information
Our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as well as other documents
we file with the SEC, are available free of charge through the Investor Relations section of our web site
(http://client.irwebkit.com/Nuvilex) as soon as reasonably practicable after such material is electronically filed with or
furnished to the SEC. The public can obtain documents that we file with the SEC at www.sec.gov. This Report includes
trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names
included in this Report are the property of their respective owners.
ITEM 1A. RISK FACTORS
You should carefully consider these
factors that may affect future results, together with all of the other information included in this Form 10-K, in evaluating
the business and the Company. The risks and uncertainties described below are those that the Company currently believes may materially
affect its business and results of operations. Additional risks and uncertainties that the Company is unaware of or that
it currently deems immaterial also may become important factors that affect its business and result of operations. The Company's
common shares involve a high degree of risk and should be purchased only by investors who can afford a loss of their entire investment.
Prospective investors should carefully consider the following risk factors concerning the Company's business before making
an investment.
In addition, you should carefully consider
these risks when you read “forward-looking” statements elsewhere in this Report. These are statements that relate to
the Company's expectations for future events and time periods. Generally, the words “anticipate”, "expect",
“intend", and similar expressions identify forward-looking statements. Forward-looking statements involve risks and
uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements.
Risks Related to the Company’s Financial Position,
Need for Additional Capital and Overall Business
The Company has a Short Operating History, a Relatively
New Business Model and Has Not Produced Any Revenues in Our Current Business Model. This makes it Difficult to Evaluate
Our Future Prospects and Increases the Risk that We Will Not be Successful.
We have a short operating history with
our current business model. Our current operations have produced no revenues and may not produce significant revenues in the
near term or at all, which may harm our ability to obtain additional financing and may require us to reduce or discontinue our
operations. If we create significant revenues in the future, we will derive most of such revenues from the sale of product
candidates. You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage
biotech company in a new and rapidly evolving business sector. We may not be able to successfully address these risks and
difficulties, which could significantly harm our business, operating results and financial condition.
The Company has a History of Losses from Operations
which May Continue and which May Harm Our Ability to Obtain Financing and Continue Our Operations.
Our
operations are subject to the risks and competition inherent in a company that moved from the development stage to an operating
company. We may not generate sufficient revenues from operations to achieve or sustain profitability on a quarterly, annual
or any other basis in the future. Our revenues and profits, if any, will depend upon various factors, including whether our
existing products and services or any new products and services we develop will achieve any level of market acceptance. If
we continue to incur losses, our accumulated deficit will continue to increase which might significantly impair our ability to
obtain additional financing. As a result, our business, results of operations and financial condition would be significantly
harmed, and we may be required to reduce or terminate our operations.
The Company is an Early Stage Company with the Generation
of No Revenues.
The Company is an early stage, pre-revenue
company. An investor cannot readily determine if the Company will become profitable. The Company is likely to continue to experience
financial difficulties during this early revenue stage and beyond. The Company may be unable to operate profitably, even if it
generates revenues. The Company may not obtain the necessary working capital to continue developing and marketing its products.
Furthermore, the present products may not receive sufficient interest to generate revenues or achieve profitability.
The Company Needs Additional Capital to Continue
its Business Plans.
The Company will need additional capital
to continue its operations. There can be no assurance that the Company will generate revenues or obtain sufficient capital on acceptable
terms, if at all. Failure to obtain such capital or generate such operating revenues would have an adverse impact on the Company's
financial position, operations and ability to continue as a going concern. The Company's operating and capital requirements during
the next fiscal year and thereafter will vary based on a number of factors, including the level of sales and marketing activities
for its products. There can be no assurance that additional private or public financing, including debt or equity financing, will
be available as needed or if available, on terms favorable to the Company. Additionally, any future equity financing may be dilutive
to stockholders’ present ownership levels and such additional equity securities may have rights, preferences, or privileges
that are senior to those of the Company's existing common stock.
Furthermore, debt financing, if available,
may require payment of interest and potentially involve restrictive covenants that could impose limitations on the flexibility
of the Company to operate. The Company's difficulty or failure to successfully obtain additional funding may jeopardize its ability
to continue the business and its operations.
The Company’s Future
Revenues are Unpredictable Which Causes Potential Fluctuations in Operating Results.
As a result of the Company's limited operating
history as a biotech company; the Company is currently unable to accurately forecast its revenues. Future expense levels will likely
be based largely on the Company's marketing and development plans and estimates of future revenue. Any sales or operating results
will likely generally depend on volume and timing of orders and on the Company's ability to fulfill such orders, both of which
may not occur. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in revenues in relation to planned expenditures could have an immediate adverse effect on
the Company's business, prospects, financial condition and results of operations. Further, as a strategic response to changes in
the competitive environment, Nuvilex may from time to time make certain pricing, service or marketing decisions that could have
a material adverse effect on its business, prospects, financial condition and results of operations.
The Company may experience significant
fluctuations in future operating results due to a variety of factors, many of which are outside the Company's control. Factors
that may affect operating results include: (i) ability to obtain and retain customers; (ii) attract new customers at a steady
rate and maintain customer satisfaction with products; (iii) the announcement or introduction of new products by the Company
or its competitors; (iv) price competition; (v) the level of use and consumer acceptance of its products; (vi) the amount
and timing of operating costs and capital expenditures relating to expansion of the business, operations and infrastructure; (vii) governmental
regulations; and (viii) general economic conditions.
The Company Faces Substantial Competition, Which May Result
in Others Discovering, Developing or Commercializing Competing Products Before or More Successfully than the Company Does.
The development and commercialization of
new drug products is highly competitive. We face competition with respect to our current product candidates, and will face competition
with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies,
specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology
companies that currently market and sell products or are pursuing the development of products for the treatment of the disease
indications for which we are developing our product candidates. Some of these competitive products and therapies are based on scientific
approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors
also include academic institutions, government agencies and other public and private research organizations that conduct research,
seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Specifically, there are a large number
of companies developing or marketing treatments for cancer and diabetes, including many major pharmaceutical and biotechnology
companies. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that
are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products
that we may develop. Our competitors also may obtain regulatory approval for their products more rapidly than we may obtain approval
for ours, which could result in our competitors establishing a strong market position before we are able to enter the market and
or slow our regulatory approval.
Many of the companies against which we
are competing or against which we may compete in the future have significantly greater financial resources and expertise in research
and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved
products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources
being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies. These third parties compete
with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Development of Brand Awareness is Critical to the Success
of the Company.
For certain market segments that the Company
plans to pursue, the development of its brand awareness is essential for it to reduce its marketing expenditures over time and
realize greater benefits from marketing expenditures. If the Company's brand-marketing efforts are unsuccessful, growth prospects,
financial condition and results of operations would be adversely affected. The Company's brand awareness efforts have required,
and will most likely continue to require, additional expenses and time of the current senior management team.
Any Weakness in the Company’s
Internal Controls Could Have a Material Adverse Effect on the Company.
As discussed in “Item 9A-Controls
and Procedures,” the management of the Company has identified material weaknesses in our internal controls over financial
reporting and cannot assure you that additional material weaknesses will not be identified in the future. The Company cannot assure you that these steps will be successful in preventing material
weaknesses or significant deficiencies in its internal controls over financial reporting in the future. In addition, any such failure
could adversely affect its ability to report financial results on a timely and accurate basis, which could have other material
effects on its business, reputation, results of operations, financial condition or liquidity. Material weaknesses in internal controls
over financial reporting or disclosure controls and procedures could also cause investors to lose confidence in the Company's reported
financial information which could have an adverse effect on the trading price of its securities.
The Success of MMS Depends on Additional
States Legalizing Medical Marijuana.
Continued development of the medical marijuana
market is dependent upon continued legislative authorization of marijuana at the state level for medical purposes. Any number of
factors could slow or halt the progress. Further, progress, while encouraging, is not assured and the process normally encounters
set-backs before achieving success. While there may be ample public support for legislative proposal, key support must be created
in the legislative committee or a bill may never advance to a vote. Numerous factors impact the legislative process. Any one of
these factors could slow or halt the progress and adoption of marijuana for medical purposes, which would limit the market for
our products and negatively impact the business of MMS.
The Alternative Medicine Industry
Faces Strong Opposition.
It is believed by many that well-funded,
significant businesses may have a strong economic opposition to the medical marijuana industry. Lobbying by groups within the pharmaceutical
industry or changes in the regulation of marijuana-based therapies could affect MMS’s ability to develop and market cannabinoid-based
cancer therapies.
Marijuana Remains Illegal under Federal
Law.
Marijuana remains illegal under federal
law. It is a Schedule-I controlled substance. Even in those jurisdictions in which the use of medical marijuana has been legalized
at the state level, its prescription is a violation of federal law. The United States Supreme Court has ruled in
United States
v. Oakland Cannabis Buyers' Coop. and Gonzales v. Raich
that it is the federal government that has the right to regulate and
criminalize
Cannabis
, even for medical purposes. Therefore, federal law criminalizing the use of marijuana trumps state
laws that legalize its use for medicinal purposes. The Obama administration has made a policy decision not to prosecute anyone
operating in accordance with applicable state law, but a new administration could introduce a less favorable policy. Changes in
federal policy could adversely affect the business of MMS.
The Insurance Coverage and Reimbursement Status of Newly-Approved
Products is Uncertain. Failure to Obtain or Maintain Adequate Coverage and Reimbursement for New or Current Products Could Limit
Our Ability to Market those Products and Decrease the Company’s Ability to Generate Revenue.
The availability and extent of reimbursement
by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of our product
candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates
will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed
by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement
is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates.
Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing
sufficient to realize a sufficient return on our investment.
There is significant uncertainty related
to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement
for new medicines are typically made by the Centers for Medicare & Medicaid Services (“CMS”), an agency within
the United States Department of Health and Human Services. CMS decides whether and to what extent a new medicine will be covered
and reimbursed under Medicare. Private payers tend to follow CMS to a substantial degree. It is difficult to predict what CMS will
decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices
and precedents for these new products. Reimbursement agencies in the Europe may be more conservative than CMS. For example, a number
of cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement in certain
European countries. Outside the United States, international operations are generally subject to extensive governmental price controls
and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other
countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices
of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices
of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their
own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing
regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the
United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate
commercially reasonable revenues and profits.
Moreover, increasing efforts by governmental
and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit
both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment
for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates,
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative
changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other
treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into
the healthcare market.
In addition to CMS and private payors,
professional organizations such as the National Comprehensive Cancer Network and the American Society of Clinical Oncology can
influence decisions about reimbursement for new medicines by determining standards for care. Many private payors may also contract
with commercial vendors who sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement
for, certain products deemed to provide limited benefit to existing alternatives. Such organizations may set guidelines that limit
reimbursement or utilization of our products.
Product Liability Lawsuits against
the Company Could Cause us to Incur Substantial Liabilities and to Limit Commercialization of any Products that the Company May
Develop.
We face an inherent risk of product liability
exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially
sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or
products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may
result in:
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Decreased demand for any product candidates or products that we may
develop;
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Injury to our reputation and significant negative media attention;
|
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Withdrawal of clinical trial participants;
|
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Significant costs to defend the related litigation;
|
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Substantial monetary awards to trial participants or patients;
|
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Reduced resources of our management to pursue our business strategy;
and
|
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The inability to commercialize any products that we may develop.
|
We currently do not have product liability
insurance because we do not have any products to market. We will need such insurance as we commence our clinical trials or if we
commence commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain
insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks
Related to Regulatory Approval and The Company’s Product Candidates and Other Legal Compliance Matters
If the Company is Unable to obtain,
or if there Are Delays in Obtaining, Required Approval from the Regulatory Agencies, the Company Will Not be Able to Commercialize
its Product Candidates and the Company’s Ability to Generate Revenue Will be Materially Impaired.
Our product candidates must be
approved by the Regulatory Agencies. The process of obtaining marketing approvals in the countries in which we intend to sell
and distribute our product candidates, is expensive and takes many years, if approval is obtained at all. This process can
vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates
involved. Failure to obtain marketing approval for a product candidate will prevent us from commercializing that product
candidate. We have not received approval to market any of our product candidates from Regulatory Agencies in any
jurisdiction. We have no experience in filing and supporting the applications necessary to gain marketing approvals and
expect to rely on third-party CROs to assist us in this process. Securing marketing approval requires the submission of
extensive preclinical and clinical data and supporting information to the Regulatory Agencies for each product candidate to
establish the product candidate's safety and efficacy. Securing marketing approval also requires the submission of
information about the product manufacturing process to, and inspection of manufacturing facilities by, the Regulatory
Agencies.
Our product candidates may not be effective,
may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics
that may preclude our obtaining marketing approval or prevent or limit commercial use. Regulatory Agencies have substantial discretion
in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and
require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical
and clinical testing could delay, limit or prevent marketing approval of a product candidate. Changes in marketing approval policies
during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review
for each submitted product application, may also cause delays in or prevent the approval of an application. New cancer drugs frequently
are indicated only for patient populations that have not responded to an existing therapy or have relapsed. If we experience delays
in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates
may be harmed and our ability to generate revenues will be materially impaired.
Clinical Drug Development Involves
a Lengthy and Expensive Process with an Uncertain Outcome. We May Incur Additional Costs or Experience Delays in Completing or be Unable to Complete the Development and Commercialization of the Company’s Product Candidates.
Our encapsulated live cell/ifosfamide product
is in mid-stage clinical development, and the risk of its failure is high. It is impossible to predict when or if our encapsulated
live cell/ifosfamide product or any other product candidate will prove effective or safe in humans or will receive regulatory approval.
Before obtaining marketing approval from Regulatory Agencies for the sale of any product candidate, we must complete preclinical
development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.
A failure of one or more clinical trials can occur at any stage of testing. The clinical development of our product candidates
is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate efficacy in a
clinical trial or across a broad population of patients, the occurrence of severe or medically or commercially unacceptable adverse
events, failure to comply with protocols or applicable regulatory requirements and determination by the Regulatory Agencies that
a drug product is not approvable. It is possible that even if one or more of our product candidates has a beneficial effect, that
effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size,
duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical
trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any.
Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, or mistakenly
believe that our product candidates are toxic or not well tolerated when that is not in fact the case.
The outcome of preclinical studies and
early and mid-phase clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical
trial do not necessarily predict final results. Many companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we cannot be certain
that we will not face additional setbacks.
The design of a clinical trial can determine
whether its results will support approval of a product; however, flaws in the design of a clinical trial may not become apparent
until the clinical trial is well advanced or completed. We have limited experience in designing clinical trials and may be unable
to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible
to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical
studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe
that the results of clinical trials for our product candidates warrant marketing approval, the Regulatory Agencies may disagree
and may not grant marketing approval of our product candidates.
In some instances, there can be significant
variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors,
including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes
in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Any Phase 1, Phase
2, Phase 3 or other clinical trials that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory
approval to market our product candidates.
We Intend to Conduct
Clinical Trials for Certain of the Company’s Product Candidates at Sites Outside of the United States, and the United
States Regulatory Agencies May Not Accept Data from Trials Conducted in Such Locations.
We intend to conduct one or more of our
clinical trials outside of the United States. Although the FDA may accept data from clinical trials conducted outside the United
States, acceptance of this data is subject to certain conditions imposed by the Regulatory Agencies outside of the United States.
For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with
ethical principles. The trial population must also adequately represent the population in the country in which the clinical trial
is being conducted. The data must be applicable to the United States population and medical practice in the United States in ways
that the FDA deems clinically meaningful. Generally, the patient population for any clinical trials conducted outside of the United
States must be representative of the population for whom we intend to seek approval in the United States. In addition, while these
clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination
that the trials also complied with all applicable United States laws and regulations. There can be no assurance that the FDA will
accept data from trials conducted outside of the United States. If the FDA does not accept the data from any of our clinical trials
that we determine to conduct outside the United States, it would likely result in the need for additional trials that would be
costly and time-consuming and delay or permanently halt our development of the product candidate.
In addition, the conduct of clinical trials
outside the United States could have a significant impact on us. Risks inherent in conducting international clinical trials include:
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Foreign regulatory requirements that could restrict or limit our ability to conduct our clinical trials;
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Administrative burdens of conducting clinical trials under multiple foreign regulatory schema;
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Foreign exchange fluctuations; and
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Diminished protection of intellectual property in some countries.
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If Clinical Trials of the Company’s
Product Candidates Fail to Demonstrate Safety and Efficacy to the Satisfaction of the Regulatory Agencies, the Company May Incur
Additional Costs or Experience Delays in Completing or be Unable to Complete the Development and Commercialization of These Product
Candidates.
We are not permitted to commercialize,
market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable
regulatory authorities outside of the United States, such as the EMA, impose similar restrictions. We may never receive such approvals.
We must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates
in humans before we will be able to obtain these approvals.
Clinical testing is expensive, difficult
to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted
a NDA, a BLA or a MAA to Regulatory Agencies for any of our product candidates.
Any inability to successfully complete
preclinical and clinical development could result in additional costs to us and impair our ability to generate revenues from product
sales, regulatory and commercialization milestones and royalties. In addition, if: (i) we are required to conduct additional clinical
trials or other testing of our product candidates beyond the trials and testing that we contemplate; (ii) we are unable to successfully
complete clinical trials of our product candidates or other testing; (iii) the results of these trials or tests are unfavorable,
uncertain or are only modestly favorable; or (iv) there are unacceptable safety concerns associated with our product candidates,
we, in addition to incurring additional costs, may:
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Be delayed in obtaining marketing
approval for our product candidates;
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Not obtain marketing approval
at all;
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Obtain approval for indications
or patient populations that are not as broad as we intended or desired;
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Obtain approval with labeling
that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
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Be subject to additional
post-marketing testing or other requirements; or
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Be required to remove the
product from the market after obtaining marketing approval.
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If the Company Experiences
any of a Number of Possible Unforeseen Events in Connection with Clinical Trials of Our Product Candidates, Potential Marketing
Approval or Commercialization of our Product Candidates Could be Delayed or Prevented.
We may experience numerous unforeseen events
during, or as a result of, clinical trials that could delay or prevent marketing approval of our product candidates, including:
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Clinical trials of our product candidates
may produce unfavorable or inconclusive results;
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We may decide, or regulators may require us, to conduct additional
clinical trials or abandon product development programs or candidates;
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The number of patients required for clinical trials of our product candidates may be larger than we anticipate, patient enrollment
in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate
than we anticipate;
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Our third party contractors, including those manufacturing our product candidates or components or ingredients thereof or conducting
clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a
timely manner or at all;
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Regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct
a clinical trial at a prospective trial site;
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We may experience delays in reaching or failing to reach agreement on acceptable clinical trial contracts or clinical trial protocols
with prospective trial sites;
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Patients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical
trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the
clinical trial or extend the clinical trial’s duration;
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We may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that
the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of
a product candidate;
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Regulatory Agencies or institutional review boards may require that we or our investigators suspend or terminate clinical research
for various reasons, including noncompliance with regulatory requirements or their respective standards of conduct, a finding that
the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of
the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar drug or drug candidate;
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Regulatory Agencies may disagree with our clinical trial design or our interpretation of data from preclinical studies and
clinical trials;
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Regulatory Agencies may fail to approve or subsequently find fault with the manufacturing processes or facilities of third
party manufacturers with which we enter into agreements for clinical and commercial supplies;
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The supply or quality of raw materials or manufactured product candidates or other materials necessary to conduct clinical
trials of our product candidates may be insufficient, inadequate, delayed, or not available at an acceptable cost, or we may experience
interruptions in supply; and
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The approval policies or regulations of the Regulatory Agencies may significantly change in a manner rendering our clinical
data insufficient to obtain marketing approval.
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Product development costs for us will increase
if we experience delays in testing or pursuing marketing approvals and we may be required to obtain additional funds to complete
clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical studies
or clinical trials will begin as planned, will need to be restructured or will be completed on schedule or at all. Significant
preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize
our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully
commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that
cause, or lead to, clinical trial delays may ultimately lead to the denial of marketing approval of any of our product candidates.
If the Company Experiences Delays
or Difficulties in the Enrollment of Patients in Clinical Trials, We May Not Achieve Our Clinical Development Timeline and our
Receipt of Necessary Regulatory Approvals Could be Delayed or Prevented.
We may not be able to initiate or continue
clinical trials for our encapsulated live cell/ifosfamide product or any other product candidates if we are unable to locate and
enroll a sufficient number of eligible patients to participate in clinical trials. Patient enrollment is a significant factor in
the timing of clinical trials, and is affected by many factors, including:
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The size and nature of the patient population;
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The severity of the disease under investigation;
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The proximity of patients to clinical
sites;
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The eligibility criteria for the trial;
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The design of the clinical trial;
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Efforts to facilitate timely enrollment;
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Competing clinical trials; and
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Clinicians’ and patients’
perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including
any new drugs that may be approved for the indications we are investigating.
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Our inability to enroll a sufficient number
of patients for our clinical trials could result in significant delays or may require us to abandon one or more clinical trials
altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, delay
or halt the development of and approval processes for our product candidates and jeopardize our ability to achieve our clinical
development timeline and goals, including the dates by which we will commence, complete and receive results from clinical trials.
Enrollment delays may also delay or jeopardize our ability to commence sales and generate revenues from our product candidates.
Any of the foregoing could cause the value of our company to decline and limit our ability to obtain additional financing, if needed.
Positive Results in Previous
Clinical Trials of Our Encapsulated Live Cell/Ifosfamide Product May Not be Replicated in Future Clinical Trials Which Could Result
in Development Delays or a Failure to Obtain Marketing Approval.
Positive results in the previous Phase
1/2 clinical trials of the encapsulated live cell/ifosfamide combination may not be predictive of similar results in future clinical
trials. Also, interim results during a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical
and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results
in early-stage development. Our clinical trials may produce negative or inconclusive results and we may decide, or Regulatory Agencies
may require us, to conduct additional clinical trials. Moreover, clinical data are often susceptible to varying interpretations
and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical
trials have nonetheless failed to obtain the approval for their products by the Regulatory Agencies.
We May Request Priority Review
for Our Product Candidates in the Future. The Regulatory Agencies May Not Grant Priority Review for any of Our Product Candidates.
Moreover, even if the Regulatory Agencies Designated such Products for Priority Review, that Designation May Not Lead to a Faster
Regulatory Review or Approval Process and, in any Event, Would Not Assure Approval by the Regulatory Agencies.
We may be eligible for priority review
designation for our product candidates if the Regulatory Agencies determine such product candidates offer major advances in treatment
or provide a treatment where no adequate therapy exists. A priority review designation means that the time required for the Regulatory
Agencies to review an application is less than the standard review period. The Regulatory Agencies have broad discretion with
respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate
is eligible for such designation or status, the Regulatory Agencies may decide not to grant it. Thus, while the Regulatory Agencies
have granted priority review to other oncology and diabetes products, our product candidates, should we determine to seek priority
review of them, may not receive similar designation. Moreover, even if one of our product candidates is designated for priority
review, such a designation does not necessarily mean a faster regulatory review process or necessarily confer any advantage with
respect to approval compared to conventional procedures of the Regulatory Agencies. Receiving priority review from the Regulatory
Agencies does not guarantee approval within an accelerated timeline or thereafter.
We Believe the Company May
in Some Instances be Able to Secure Approval from the Regulatory Agencies to Use Accelerated Development Pathways. If the Company
is Unable to Obtain such Approval, the Company May be Required to Conduct Additional Preclinical Studies or Clinical Trials Beyond
Those That We Contemplate Which Could Increase the Expense of Obtaining and Delay the Receipt of Necessary Marketing Approvals.
We anticipate that we may seek an accelerated
approval pathway for certain of our product candidates. Under the accelerated approval provisions or their implementing regulations
of the Regulatory Agencies, they may grant accelerated approval to a product designed to treat a serious or life-threatening condition
that provides meaningful therapeutic benefit over available therapies upon a determination that the product has an effect on a
surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The Regulatory Agencies
consider a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease,
such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as
a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is
not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier
than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity
or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug
over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and
public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct,
in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. If
such post-approval studies fail to confirm the drug’s clinical benefit, the Regulatory Agencies may withdraw their approval
of the drug.
Prior to seeking such accelerated approval,
we will seek feedback from the Regulatory Agencies and will otherwise evaluate our ability to seek and receive such accelerated
approval. There can also be no assurance that after our evaluation of the feedback and other factors we will decide to pursue
or submit a NDA, a BLA or a MAA for accelerated approval or any other form of expedited development, review or approval. Similarly,
there can be no assurance that after subsequent feedback from the Regulatory Agencies that we will continue to pursue or apply
for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so.
Furthermore, if we decide to submit an application for accelerated approval or under another expedited regulatory designation
(such as the breakthrough therapy designation), there can be no assurance that such submission or application will be accepted
or that any expedited development, review or approval will be granted on a timely basis or at all. The Regulatory Agencies could
also require us to conduct further studies prior to considering our application or granting approval of any type. A failure to
obtain accelerated approval or any other form of expedited development, review or approval for any of our product candidates that
we determine to seek accelerated approval for would result in a longer time period to commercialization of such product candidate,
could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.
We May Seek Orphan Drug Exclusivity for Some of Our Product
Candidates, and the Company May be Unsuccessful.
Regulatory Agencies may designate drugs
for relatively small patient populations as orphan drugs. Under the standards and requirements of the Regulatory Agencies, they
may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition. In the United States,
this is generally defined as a disease with a patient population of fewer than 200,000 individuals. If a product with an Orphan
Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the product
is entitled to a period of marketing exclusivity, which precludes the EMA or FDA from approving another marketing application for
the same drug for the same indication during the period of exclusivity. The applicable period is seven years in the United States
and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for
Orphan Drug Designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.
Orphan Drug Exclusivity may be lost if
the Regulatory Agencies determine that the request for designation was materially defective, if the manufacturer is unable to assure
sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. Even if we obtain Orphan Drug
exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because
different drugs can be approved for the same condition. Even after an orphan drug is approved, the Regulatory Agencies can subsequently
approve a different drug for the same condition if they conclude that the later drug is clinically superior in that it is shown
to be safer, more effective or makes a major contribution to patient care.
A Fast Track Designation by
the Regulatory Agencies, even if Granted for any of the Company’s Product Candidates, May Not Lead to a Faster Development
or Regulatory Review or Approval Process and Does Not Increase the Likelihood that the Company’s Product Candidates Will
Receive Marketing Approval.
We do not currently have Fast Track designation
for any of our product candidates but intend to seek such designation. If a drug is intended for the treatment of a serious or
life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug
sponsor may apply for Fast Track designation. The Regulatory Agencies have broad discretion whether or not to grant this designation.
Even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the Regulatory Agencies
would decide to grant it. Even if we do receive Fast Track designation, we may not experience a faster development process, review
or approval compared to conventional procedures adopted by the Regulatory Agencies. In addition, the Regulatory Agencies may withdraw
Fast Track designation if they believe that the designation is no longer supported by data from our clinical development program.
Many drugs that have received Fast Track designation have failed to obtain drug approval.
A Breakthrough Therapy Designation
by the Regulatory Agencies, even if Granted for any of the Company’s Product Candidates, May Not Lead to a Faster Development
or Regulatory Review or Approval Process and Does Not Increase the Likelihood that the Company’s Product Candidates Will
Receive Marketing Approval.
We do not currently have Breakthrough
Therapy designation for any of our product candidates but may seek such designation. A “Breakthrough Therapy” is defined
as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease
or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies
on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
For drugs that have been designated as Breakthrough Therapies, interaction and communication between the Regulatory Agencies and
the sponsor can help to identify the most efficient path for development.
Designation as a Breakthrough Therapy is
within the discretion of the Regulatory Agencies. Accordingly, even if we believe, after completing early clinical trials, that
one of our product candidates meets the criteria for designation as a Breakthrough Therapy, the Regulatory Agencies may disagree
and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for a product
candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional
procedures of the Regulatory Agencies and does not assure their ultimate approval. In addition, even if one or more of our product
candidates qualify as Breakthrough Therapies, the Regulatory Agencies may later decide that such product candidates no longer meet
the conditions for qualification.
Failure to Obtain Marketing
Approval in International Jurisdictions Would Prevent the Company’s Product Candidates from being Marketed Abroad.
In order to market and sell our products
in Europe and many other jurisdictions, we or our third-party collaborators must obtain separate marketing approvals and comply
with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing.
The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval
process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many
countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved
for sale in that country. We or these third parties may not obtain approvals from regulatory authorities outside the United States
on a timely basis, if at all. Approval by FDA does not ensure approval by regulatory authorities in other countries or jurisdictions,
and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other
countries or jurisdictions or by FDA. We may not be able to file for marketing approvals and may not receive necessary approvals
to commercialize our products in any market.
Any Product Candidate for Which
the Company Obtains Marketing Approval Will be Subject to Extensive Post-Marketing Regulatory Requirements and Could be Subject
to Post-Marketing Restrictions or Withdrawal from the Market, and the Company May be Subject to Penalties if the Company Fails
to Comply with Regulatory Requirements or if the Company Experiences Unanticipated Problems with its Products, when and if any
of the Company’s Product Candidates Are Approved.
Our product candidates and the activities
associated with their development and commercialization, including their testing, manufacture, recordkeeping, labeling, storage,
approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the Regulatory Agencies. These
requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements,
current good manufacturing practices (“cGMP”), requirements relating to manufacturing, quality control, quality assurance and corresponding
maintenance of records and documents, including periodic inspections by the Regulatory Agencies, requirements regarding the distribution
of samples to physicians and recordkeeping.
In addition, the Regulatory Agencies may
impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of
a product candidate. The Regulatory Agencies closely regulate the post-approval marketing and promotion of drugs to ensure drugs
are marketed only for the approved indications and in accordance with the provisions of the approved labeling. They also impose
stringent restrictions on manufacturers' communications regarding use of their products. If we promote our products beyond their
approved indications, we may be subject to enforcement action for off-label promotion. Violations of the laws relating to the promotion
of prescription drugs may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well
as state consumer protection laws.
Also, later discovery of previously unknown
adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory
requirements, may yield various results, including:
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Restrictions on such products, manufacturers or manufacturing processes;
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Restrictions on the labeling or marketing of a product;
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Restrictions on product distribution or use;
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Requirements to conduct post-marketing studies or clinical trials;
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Warning or untitled letters;
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Withdrawal of the products from the market;
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Refusal to approve pending applications or supplements to approved
applications that we submit;
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Fines, restitution or disgorgement of profits or revenues;
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Suspension or withdrawal of marketing approvals;
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Refusal to permit the import or export of our products;
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Injunctions or the imposition of civil or criminal penalties.
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Non-compliance with European requirements
regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric
population, can also result in significant financial penalties. Similarly, failure to comply with the Europe's requirements regarding
the protection of personal information can also lead to significant penalties and sanctions.
The Company’s Relationships
with Customers and Third-Party Payors Will be Subject to Applicable Anti-Kickback, Fraud and Abuse and other Healthcare Laws and
Regulations, Which Could Expose the Company to Criminal Sanctions, Civil Penalties, Contractual Damages, Reputational Harm and
Diminished Profits and Future Earnings.
Healthcare providers, physicians and third-party
payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing
approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and
other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which
we market, sell and distribute any products for which we obtain marketing approval. Restrictions under applicable healthcare laws
and regulations include the following:
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The federal Anti-Kickback Statute prohibits,
among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or
indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase,
order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare
and Medicaid;
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The federal False Claims Act imposes criminal
and civil penalties, including civil whistleblower or
qui tam
actions, against individuals or entities for knowingly presenting,
or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement
to avoid, decrease or conceal an obligation to pay money to the federal governments; and
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The federal Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) imposes criminal and civil liability for executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters. HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory
contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
federal law requires applicable manufacturers of covered drugs to report payments and other transfers of value to physicians and
teaching hospitals, which includes data collection and reporting obligations. The information is to be made publicly available
on a searchable website in September 2014; and analogous state and foreign laws and regulations, such as state anti-kickback and
false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental third-party payors, including private insurers.
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Some state laws require pharmaceutical
companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government and may require drug manufacturers to report information related to payments and other transfers of value
to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security
of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted
by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs,
such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare
providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject
to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Recently Enacted and Future Legislation Could Increase
the Difficulty and Cost for the Company to Obtain Marketing Approval of and Commercialize our Product Candidates and Affect the
Prices the Company May Obtain.
In the United States and some foreign jurisdictions,
there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could
prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability
to profitably sell any product candidates for which we obtain marketing approval.
In the United States, the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for pharmaceutical
products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology
based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the
number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation
could decrease the coverage and price that we receive for any approved products. While the MMA only applies to drug benefits for
Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement
rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private
payors.
In March 2010, President Obama signed into
law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act
(collectively, “PPACA”), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth
of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health
insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions
of the PPACA of importance to our potential product candidates are the following:
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An annual, nondeductible fee on any entity
that manufactures or imports specified branded prescription drugs and biologic agents;
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An increase in the statutory minimum rebates
a manufacturer must pay under the Medicaid Drug Rebate Program;
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Expansion of healthcare fraud and abuse
laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers and enhanced penalties
for noncompliance;
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A new Medicare Part D coverage gap
discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices;
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Extension of manufacturers' Medicaid rebate
liability;
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Expansion of eligibility criteria for
Medicaid programs;
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Expansion of the entities eligible for
discounts under the Public Health Service pharmaceutical pricing program;
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New requirements to report financial arrangements
with physicians and teaching hospitals;
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A new requirement to annually report drug
samples that manufacturers and distributors provide to physicians; and
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A new Patient-Centered Outcomes Research
Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such
research.
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In addition, other legislative changes
have been proposed and adopted since the PPACA was enacted. These changes included aggregate reductions to Medicare payments to
providers of up to 2% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer
Relief Act of 2012, which, among other things, reduced Medicare payments to several providers and increased the statute of limitations
period for the government to recover overpayments to providers from three to five years. These new laws may result in additional
reductions in Medicare and other healthcare funding.
We expect that the PPACA, as well as other
healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward
pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government
programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or
other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.
Legislative and regulatory proposals have
been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot
be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be
changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,
increased scrutiny by the United States Congress of FDA's approval process may significantly delay or prevent marketing approval
in the United States, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Governments outside the United
States Tend to Impose Strict Price Controls, which may Adversely Affect the Company’s Revenues, if any.
In some countries, particularly the countries
of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To
obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness
of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Risks Related to the Commercialization of Our Product Candidates
Serious Adverse Events or Undesirable
Side Effects or Other Unexpected Properties of the Company’s Encapsulated Live Cell/Ifosfamide Product or any of the Company’s
other Product Candidates May be Identified During Development that Could Delay or Prevent the Product Candidate’s Marketing
Approval.
Serious adverse events or undesirable side
effects caused by, or other unexpected properties of, our product candidates could cause us, an institutional review board or Regulatory
Agencies to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive
label or the delay or denial of marketing approval by the Regulatory Agencies. If any of our product candidates is associated with
serious adverse events or undesirable side effects or has properties that are unexpected, we may need to abandon development or
limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics
are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise
in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further
development of the compound.
Even if One of the Company’s
Product Candidates Receives Marketing Approval, it May Fail to Achieve the Degree of Market Acceptance by Physicians, Patients,
Third Party Payors and Others in the Medical Community Necessary for Commercial Success and the Market Opportunity for the Product
Candidate May be Smaller than Estimated by the Company.
We have never commercialized a drug product.
Even if our encapsulated live cell/ifosfamide product or any of our other product candidates is approved by the one or more of
the Regulatory Agencies for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients,
third party payors and others in the medical community. For example, physicians are often reluctant to switch their patients from
existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often
acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products
or they are required to switch therapies due to lack of reimbursement for existing therapies.
Efforts to educate the medical community
and third party payors on the benefits of our product candidates may require significant resources and may not be successful. If
any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant
revenues and we may not become profitable. The degree of market acceptance of our encapsulated live cell/ifosfamide product or
any of our other product candidates, if approved for commercial sale, will depend on a number of factors, including:
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The efficacy and safety of the product;
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The potential advantages of the product
compared to alternative treatments;
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The prevalence and severity of any side
effects;
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The clinical indications for which the
product is approved;
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Whether the product is designated under
physician treatment guidelines as a first-line therapy or as a second- or third-line therapy;
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Limitations or warnings, including distribution
or use restrictions, contained in the product’s approved labeling;
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Our ability to offer the product for sale
at competitive prices;
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Our ability to establish and maintain
pricing sufficient to realize a meaningful return on our investment;
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The product’s convenience and ease
of administration compared to alternative treatments;
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The willingness of the target patient
population to try, and of physicians to prescribe, the product;
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T
he
strength of sales, marketing and distribution support;
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The approval of other new products for
the same indications;
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Changes in the standard of care for the
targeted indications for the product;
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The timing of market introduction of our
approved products as well as competitive products and other therapies;
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Availability and amount of reimbursement
from government payors, managed care plans and other third party payers;
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Adverse publicity about the product or
favorable publicity about competitive products; and
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Potential product liability claims.
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The potential market opportunities for
our product candidates are difficult to estimate precisely. Our estimates of the potential market opportunities are predicated
on many assumptions, including industry knowledge and publications, third party research reports and other surveys. While we believe
that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our
management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source.
If any of the assumptions proves to be inaccurate, the actual markets for our product candidates could be smaller than our estimates
of the potential market opportunities.
If any of the Company’s
Product Candidates Receives Marketing Approval and the Company or Others Later Discover that the Drug is Less Effective than Previously
Believed or Causes Undesirable Side Effects that Were Not Previously Identified, the Company’s Ability to Market the Drug
Could be Compromised.
Clinical trials of our
product candidates are conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently,
it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the
actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a product
candidate, we, or others, discover that the drug is less effective than previously believed or causes undesirable side effects
that were not previously identified, any of the following adverse events could occur:
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Regulatory Agencies may withdraw their
approval of the drug or seize the drug;
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We may be required to recall the drug
or change the way the drug is administered;
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Additional restrictions may be imposed
on the marketing of, or the manufacturing processes for, the particular drug;
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We may be subject to fines, injunctions
or the imposition of civil or criminal penalties;
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Regulatory Agencies may require the addition
of labeling statements, such as a “black box” warning or a contraindication;
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We may be required to create a Medication
Guide outlining the risks of the previously unidentified side effects for distribution to patients;
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We could be sued and held liable for harm
caused to patients;
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The drug may become less competitive;
and
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Our reputation may suffer.
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Any of these events could have a material
and adverse effect on our operations and business and could adversely impact our stock price.
If the Company is Unable to Establish
Sales, Marketing and Distribution Capabilities or Enter into Acceptable Sales, Marketing and Distribution Arrangements with Third
Parties, the Company May Not be Successful in Commercializing any Product Candidates that it Develops if and when Those Product
Candidates Are Approved.
We do not have a sales, marketing or distribution
infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial
success for any approved product candidate, we must either develop a sales and marketing organization, outsource these functions
to third parties or license our product candidates to others. If approved, we expect to license our encapsulated live cell/ifosfamide
product to a large pharmaceutical company with greater resources and experience than us. We may not be able license our encapsulated
live cell/ifosfamide product on reasonable terms, if at all. If other product candidates are approved for smaller or easily targeted
markets, we expect to commercialize them in the United States directly with a small and highly focused commercialization organization.
The development of sales, marketing and distribution capabilities will require substantial resources, will be time-consuming and
could delay any product launch. We expect that we will commence the development of these capabilities prior to receiving approval
of any of our product candidates. If the commercial launch of a product candidate for which we recruit a sales force and establish
marketing and distribution capabilities is delayed or does not occur for any reason, we could have prematurely or unnecessarily
incurred these commercialization costs. Such a delay may be costly, and our investment could be lost if we cannot retain or reposition
our sales and marketing personnel. In addition, we may not be able to hire or retain a sales force in the United States that is
sufficient in size or has adequate expertise in the medical markets that we plan to target. If we are unable to establish or retain
a sales force and marketing and distribution capabilities, our operating results may be adversely affected. If a potential partner
has development or commercialization expertise that we believe is particularly relevant to one of our product candidates, then
we may seek to collaborate with that potential partner even if we believe we could otherwise develop and commercialize the product
independently.
We expect to seek one or more strategic
partners for commercialization of our product candidates outside the United States. As a result of entering into arrangements with
third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product
revenues may be lower, perhaps substantially lower, than if we were to directly market and sell products in those markets. Furthermore,
we may be unsuccessful in entering into the necessary arrangements with third parties or may be unable to do so on terms that are
favorable to us. In addition, we may have little or no control over such third parties and any of them may fail to devote the necessary
resources and attention to sell and market our products effectively.
If we do not establish sales and marketing
capabilities, either on our own or in collaboration with third parties, we will not be successful in commercializing any of our
product candidates that receive marketing approval.
Risks
Related to the Company’s Dependence on Third Parties
The Company Relies and Expects
to Continue to Rely on Third Parties to Conduct its Preclinical Studies and Clinical Trials, and Those Third Parties May Not Perform
Satisfactorily, Including Failing to Meet Deadlines for the Completion of Such Studies and Trials.
We currently rely on third party CROs to
conduct our clinical trials. We expect to continue to rely on third parties, such as CROs, clinical data management organizations,
medical institutions and clinical investigators to conduct our clinical trials. Our agreements with these third parties generally
allow the third party to terminate our agreement with them at any time. If we are required to enter into alternative arrangements
because of any such termination, the introduction of our product candidates to market could be delayed.
Our reliance on these third parties for
research and development activities will reduce our control over these activities but will not relieve us of our responsibilities.
For example, we design our clinical trials and will remain responsible for ensuring that each of our clinical trials is conducted
in accordance with the general investigational plan and protocols for the trial. Moreover, the Regulatory Agencies require us
to comply with current cGCP standards for conducting, recording and reporting the results of clinical trials to assure that data
and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.
Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. We also are
required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database
of the Regulatory Agencies within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and
criminal sanctions.
Furthermore, these third parties may also
have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry
out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with the requirements of the
Regulatory Agencies or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals
for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product
candidates.
We also Expect to Rely on Other
Third Parties to Store and Distribute Drug Supplies for Our Clinical Trials. Any Performance Failure on the Part of Our Distributors
Could Delay Clinical Development or Marketing Approval of Our Product Candidates or Commercialization of Our Products, Producing
Additional Losses and Depriving Us of Potential Product Revenue. The Company’s Existing Collaboration with the University
of Veterinary Medicine Vienna and Vin-de-Bona is Important to the Company’s Business. If the Company is Unable to Maintain
this Collaboration, or if this Collaboration is Not Successful, the Company’s Business Could be Adversely Affected.
We will soon rely on the University of
Veterinary Medicine Vienna for a substantial portion of our preclinical capabilities, including reliance on their employees whom
we fund to conduct preclinical development of our product candidates. If there are delays or failures to perform their obligations,
our product candidates would be adversely affected. If our collaboration with Vin-de-Bona is unsuccessful or is terminated, we
would need to identify a new collaboration partner for our preclinical and clinical development. If we are unsuccessful or significantly
delayed in identifying a new collaboration partner, or unable to reach an agreement with such a partner on commercially reasonable
terms, development of our product candidates will suffer and our business would be materially harmed.
Furthermore, if Vin-de-Bona changes its
strategic focus, or if external factors cause it to divert resources from our collaboration, or if it independently develops products
that compete directly or indirectly with our product candidates using resources or information it acquires from our collaboration,
our business and results of operations could suffer.
Future Preclinical and Clinical Development
Collaborations May be Important to the Company. If the Company is Unable to Maintain these Collaborations, or if these Collaborations
Are Not Successful, the Company’s Business Could be Adversely Affected.
For some of our product candidates, we
may in the future determine to collaborate with pharmaceutical and biotechnology companies for development of our products. We
face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for any collaboration
will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of
the proposed collaboration and the proposed collaborator's evaluation of a number of factors. If we are unable to reach agreements
with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product
candidate, reduce or delay its development program or one or more of our other development programs, delay our potential development
schedule or increase our expenditures and undertake preclinical and clinical development activities at our own expense. If we fail
to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development activities, we
may not be able to further develop our product candidates or continue to develop our product candidates and our business may be
materially and adversely affected.
Future collaborations we may enter into
may involve the following risks:
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Collaborators may have significant discretion
in determining the efforts and resources that they will apply to these collaborations;
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Collaborators may not perform their obligations
as expected;
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Changes in the collaborators' strategic
focus or available funding, or external factors, such as an acquisition, may divert resources or create competing priorities;
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Collaborators may delay discovery
and preclinical development, provide insufficient funding for product development of targets selected by us, stop or abandon
preclinical or clinical development for a product candidate or have to repeat or conduct new preclinical and clinical
development for a product candidate;
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Collaborators could independently develop,
or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators
believe that competitive products are more likely to be successfully developed than ours;
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Product candidates may be viewed by our
collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources
to the development of our product candidates;
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Disagreements with collaborators, including
disagreements over proprietary rights, contract interpretation or the preferred course of development might cause delays or termination
of the preclinical or clinical development or commercialization of product candidates. This might lead to additional responsibilities
for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and
expensive;
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Collaborators may not properly maintain
or defend our intellectual property rights or intellectual property rights licensed to us or may use our proprietary information
in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information
or expose us to potential litigation;
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Collaborators may infringe the intellectual
property rights of third parties, which may expose us to litigation and potential liability; and
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Collaborations may be terminated for the
convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development
or commercialization of our product candidates.
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Additionally, subject to its contractual
obligations to us, if a collaborator of ours is involved in a business combination, the collaborator might deemphasize or terminate
the development of any of our product candidates. If one of our collaborators terminates its agreement with us, we may find it
more difficult to attract new collaborators and our perception in the business and financial communities could be adversely affected.
If we are unable to maintain our collaborations,
development of our product candidates could be delayed and we may need additional resources to develop them.
We Rely on Dr. Günzburg and
Dr. Salmons for the Development of Our Product Candidates. If They Decide to Terminate their Relationship with the Company, We
May Not be Successful in the Development of the Company’s Product Candidates.
Dr. Günzburg and Dr. Salmons are intimately
involved in the scientific endeavors underway and being planned by the Company. These endeavors include preclinical and clinical
studies to be conducted in the United States on behalf of the Company. These studies are designed to determine the effectiveness
of the Company’s pancreatic cancer treatment in ameliorating the unbearable pain that is associated with advanced pancreatic
cancer and the effects of the treatment on the rate of accumulation of Malignant Ascites that occurs in patients with this disease.
Also in the cancer area, Dr. Günzburg and Dr. Salmons will be intimately involved in the Company’s Phase 2b clinical
trial that will be conducted in Australia. In addition, they will be assisting the Company in the development of a treatment for
diabetes that will employ the Cell-in-a-Box
®
cellulose-based live cell encapsulation technology. Dr. Günzburg
and Dr. Salmons will likewise play a prominent role in the Diabetes Consortium being formed by the Company. They provide professional
consulting services to the Company through their consulting company, Vin-de-Bona, pursuant to a Consulting Agreement with us. The
Consulting Agreement may be terminated for any reason at any time upon one party giving the other a written notice 30 days prior
to the effective date of the termination. If that occurs, we may not be successful in the development of our product candidates
which could have a material adverse effect on the Company.
The Company Contracts with
Third Parties for the Manufacture of the Company’s Product Candidates for Preclinical Studies and Clinical Trials and Expects
to Continue to do so for Commercialization. This Reliance on Third Parties Increases the Risk that the Company will Not Have Sufficient
Quantities of its Product Candidates or Such Quantities at an Acceptable Cost, Which Could Delay, Prevent or Impair the Company’s
Development or Commercialization Efforts.
We do not currently own or operate manufacturing
facilities for the production of clinical quantities of our encapsulated live cell/ifosfamide product and other product candidates
and have limited personnel with manufacturing experience. We currently rely on and expect to continue to rely on third party contract
manufacturers to manufacture supplies of our product candidates for preclinical studies and clinical trials, as well as for commercial
manufacture of our product candidates, and these must be maintained for us to receive marketing approval for our products.
Our encapsulated live cell/ifosfamide
product and our other product candidates must be manufactured through complex, multi-step synthesis processes that are
time-consuming and involve special conditions at certain stages. Biologics and drug substance manufacture requires high
potency containment, and containment under aseptic conditions. Any performance failures on the part of our existing or future
manufacturers could delay clinical development or marketing approval of our product candidates. Our agreements with our third
party manufacturers can be terminated by us or such manufacturers on short notice. If any of our manufacturers should become
unavailable to us for any reason, we may incur additional cost or delay in identifying or qualifying replacements. In
addition, while we believe that our existing manufacturer, Austrianova Singapore, or an alternative manufacturer would be
capable of continuing to produce our product candidates or products, if approved, in commercial quantities, we will also need
to identify a third-party manufacturer capable of providing commercial quantities of our products. If we are unable to
arrange for such a third-party manufacturing source or fail to do so on commercially reasonable terms, we may not be able to
successfully produce and market our encapsulated live cell/ifosfamide product or any other product candidate or may be
delayed in doing so.
Even if we are able to establish such arrangements
with third party manufacturers, reliance on third party manufacturers entails additional risks, including:
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Reliance on the third party for regulatory
compliance and quality assurance;
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The possible breach of the manufacturing
agreement by the third party;
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The possible misappropriation of our proprietary
information, including our trade secrets and know-how; and
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The possible termination or nonrenewal
of the agreement by the third party at a time that is costly or inconvenient for us.
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Third party manufacturers may not be
able to comply with cGMP standards or the requirements of the Regulatory Agencies. Our failure, or the failure of our third
party manufacturers, to comply with these practices or requirements could result in sanctions being imposed on us, including
clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could
significantly and adversely affect supplies of our products.
Delays in the construction of Austrianova
Singapore’s cGMP manufacturing facilities in Bangkok, Thailand could affect their ability to manufacture encapsulated live
cells on a timely basis and could adversely affect supplies of our products.
Our encapsulated live cell/ifosfamide
product and any other product candidate that we may develop may compete with other product candidates and products for access
to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might
be capable of manufacturing for us.
In addition, we expect to rely on our manufacturers
to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical studies. There
are a small number of suppliers for certain capital equipment and raw materials that are used in the manufacture of our product
candidates. Such suppliers may not sell these raw materials to our manufacturers at the times we need them or on commercially reasonable
terms. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover,
we currently do not have any agreements for the commercial production of these raw materials. Any significant delay in the supply
of a product candidate or the raw material components thereof for an ongoing clinical trial due to the need to replace a third-party
manufacturer could considerably delay completion of our clinical studies, product testing and potential regulatory approval of
our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been
obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage
in supply, which would impair our ability to generate revenues from the sale of our product candidates.
Our current and anticipated future dependence
upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to commercialize
any products that receive marketing approval on a timely and competitive basis.
Risks Related to the Company’s
Intellectual Property
If the Company is Unable to Obtain
and Maintain Intellectual Property Protection for its Technology and Products, or if the Scope of the Intellectual Property Protection
Obtained is Not Sufficiently Broad, the Company’s Competitors Could Develop and Commercialize Technology and Products Similar
or Identical to the Company’s, and the Company’s Ability to Commercialize Successfully its Technology and Products
May be Impaired.
Our success depends in large part on our
ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology
and products. We seek to protect our proprietary position by filing patent applications in the United States and abroad related
to our novel technologies and product candidates. Our patent portfolio includes patents and patent applications we exclusively
licensed from Bavarian Nordic/GSF, SG Austria and Austrianova Singapore.
The patent prosecution and/or patent maintenance
process is expensive and time-consuming, and we may not be able to file and prosecute or maintain all necessary or desirable patent
applications or maintain the existing patents at a reasonable cost or in a timely manner. We may choose not to seek patent protection
for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Under the laws of certain jurisdictions,
patents or other intellectual property rights may be unavailable or limited in scope. It is also possible that we will fail to
identify patentable aspects of our discovery and preclinical development output before it is too late to obtain patent protection.
Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications,
or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may
not be prosecuted and enforced in a manner consistent with the best interests of our business.
The patent position of biotechnology and
pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been
the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the
laws of the United States. For example, India does not allow patents for methods of treating the human body. Publications of discoveries
in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions
are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty
whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that
we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability
and commercial value of our patent rights are highly uncertain. Any future patent applications may not result in patents being
issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing
competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States
and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Recent patent reform legislation could
increase the uncertainties and costs surrounding the prosecution of any patent applications and the enforcement or defense of
our licensed patents. On September 16, 2011, the Leahy-Smith America Invents Act (“Leahy-Smith Act”) was signed
into law. The Leahy-Smith Act includes a number of significant changes to patent law in the United States. These include provisions
that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent and Trademark
Office (“USPTO”) recently developed new regulations and procedures to govern administration of the Leahy-Smith Act.
Many of the substantive changes to patent law associated with the Leahy-Smith Act, in particular, the first to file provisions,
only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have
on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the enforcement or defense of our licensed patents, all of which could
have a material adverse effect on our business and financial condition.
Moreover, we may be subject to a third-party
pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter-party review,
post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination
in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties
to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to
manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of
protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us
to license, develop or commercialize current our future product candidates.
Even if our owned and licensed patent applications
issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing
with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed
patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is not conclusive
as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or
patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent
claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from
using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology
and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and
licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or
identical to ours.
The risks described elsewhere pertaining
to our patents and other intellectual property rights also apply to the intellectual property rights that we license, and any failure
to obtain, maintain and enforce these rights could have a material adverse effect on our business. In some cases we may not have
control over the prosecution, maintenance or enforcement of the patents that we license, and our licensors may fail to take the
steps that we believe are necessary or desirable in order to obtain, maintain and enforce the licensed patents. Any inability on
our part to protect adequately our intellectual property may have a material adverse effect on our business, operating results
and financial position.
Obtaining and Maintaining the Company’s
Patent Protection Depends on Compliance with Various Procedural, Document Submission, Fee Payment and other Requirements Imposed
by Governmental Patent Agencies. The Company’s Patent Protection Could be Reduced or Eliminated for Non-Compliance with these
Requirements.
Periodic maintenance fees, renewal fees,
annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various
governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications.
The USPTO and various non-United States governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals
to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance
with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent
or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our
competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
The Company May Become Involved in
Lawsuits to Protect or Enforce the Company’s Patents or other Intellectual Property, Which Could be Expensive, Time Consuming
and Unsuccessful.
Because competition in our industry is
intense, competitors may infringe or otherwise violate our issued patents, patents of our licensors or other intellectual property.
To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming.
Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that
we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid
or unenforceable, in whole or in part, construe the patent's claims narrowly or refuse to stop the other party from using the technology
at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding
could put one or more of the patents associated with our business at risk of being invalidated or interpreted narrowly. We may
also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation,
and any such license agreements may require us to pay royalties and other fees that could be significant. Furthermore, because
of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential information could be compromised by disclosure.
The Company May Need to License Certain
Intellectual Property from Third Parties, and Such Licenses May Not be Available or May Not be Available on Commercially Reasonable
Terms.
A third party may hold intellectual property,
including patent rights, which are important or necessary to the development of our products. It may be necessary for us to use
the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain
a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially. Although
we believe that licenses to these patents may be available from these third parties on commercially reasonable terms, if we were
not able to obtain a license, or are not able to obtain a license on commercially reasonable terms, our business could be harmed,
possibly materially.
Third Parties May Initiate Legal
Proceedings Alleging that the Company is Infringing their Intellectual Property Rights, the Outcome of Which Would be Uncertain
and Could Have a Material Adverse Effect on the Success of the Company’s Business.
Our commercial success depends upon our
ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary
technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation
in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings
or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation
proceedings before the USPTO and various governmental patent agencies outside of the United States. Third parties may assert infringement
claims against us based on existing patents or patents that may be granted in the future.
If we are found to infringe a third party's
intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing
our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at
all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies
licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In
addition, we could be found liable for monetary damages, including treble damages and attorneys' fees if we are found to have willfully
infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease
some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential
information or trade secrets of third parties could have a similar negative impact on our business.
The Company May Not be Successful
in Obtaining or Maintaining Necessary Rights for its Development Pipeline through Acquisitions and Licenses from Third Parties.
Presently we have rights to intellectual
property to develop our product candidates. Because our programs may involve additional product candidates that may require the
use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license
or use these proprietary rights. We may be unable to acquire or in-license any compositions, methods of use or other third-party
intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property
rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party
intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over
us due to their size, cash resources and greater clinical development and commercialization capabilities.
In addition, companies that perceive us
to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party
intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to
successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects
for growth could suffer.
If the Company is Unable to Protect
the Confidentiality of its Trade Secrets, the Company’s Business and Competitive Position Would be Harmed.
In addition to seeking patents for some
of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary
information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure
and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific
collaborators, contract manufacturers, consultants, advisors and other third parties. We seek to protect our confidential proprietary
information, in part, by entering into confidentiality and invention or patent assignment agreements with our employees and consultants;
however, we cannot be certain that such agreements have been entered into with all relevant parties. Moreover, to the extent we
enter into such agreements, any of these parties may breach the agreements and disclose our proprietary information, including
our trade secrets to unaffiliated third parties. We may not be able to obtain adequate remedies for such breaches. Enforcing a
claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming and the outcome
is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade
secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no
right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any
of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
Risk Factors Related to the Company’s
Stock
The Extent to Which a Trading Market
for the Company’s Common Stock will Develop or How Liquid that Market Might Become is a Risk to Investors.
The Company’s common stock is currently
listed on the OTC Link™ quotation platform of OTC Markets Group, Inc. The Company cannot predict the extent to which
a trading market will develop or how liquid that market might become. Accordingly, holders of our common stock may be required
to retain their shares for an indefinite period of time.
The OTC Link™ quotation system provides
significantly less liquidity than national stock exchanges. Quotes for stocks included on the OTC Link™ quotation system
are not listed in the financial sections of newspapers, as are those for the national stock exchanges. Therefore, prices for securities
traded solely on the OTC Link™ quotation system may be difficult to obtain, and holders of our common stock may be unable
to resell their shares at or near their original acquisition price or at any price. Market prices for our shares of common
stock will be influenced by a number of factors, including, but not limited to:
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The issuance of new shares pursuant to future offering;
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Changes in interest rates;
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New services or significant contracts and acquisitions;
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Variations in quarterly operating results;
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Change in financial estimates by securities analysts;
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The depth and liquidity of the market for the Shares;
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Investor perceptions of us and of investments based in the countries
where our projects operate and the project companies generally; and
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General economic and other national and international conditions.
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Penny Stock Rules May Have an Adverse Effect on the Company.
The Company's securities sold as part of
financing provided to the Company are currently subject to “penny stock rules” that impose additional sales requirements
on broker-dealers who sell such securities to persons other than established customers and accredited investors, the latter of
which are generally people with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly. For transactions
covered by these rules, the Company and/or broker-dealer must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the “penny stock rules” require the delivery, prior to the transaction, of
a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer must also disclose the commissions
payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information on the limited market in penny stocks. Consequently, the “penny
stock rules” may restrict the ability of broker-dealers to sell the Company’s securities. The foregoing required penny
stock restrictions will not apply to the Company's common stock if such securities maintain a market price of $5.00 or greater.
Therefore, the challenge for the Company is that the market price of the Company's common stock may not reach or remain at such
a level.
Shareholders should be aware that, according to SEC, the market
for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include, but are not limited
to:
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Control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer;
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Manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
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“Boiler room” practices involving high-pressure sales
tactics and unrealistic price projections by inexperienced sales persons;
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Excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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The wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, leaving investors with losses.
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Our executive officers are aware of these
abuses that have occurred historically in the penny stock market. Although we are in no position to dictate the behavior of
the market or of broker-dealers or others are engage in such abuses, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to our common stock.
The Company Has No Plans to Pay Dividends in the Foreseeable
Future, and Investors May Not Expect a Dividend as a Return of or on Any Investment in the Company.
The Company has not paid dividends on its shares of common stock
and does not anticipate paying such dividends in the foreseeable future.
The Company’s Investors May Suffer Future Dilution
Due to Issuances of Additional Shares of Our Common Stock for Various Reasons in the Future.
There may be substantial dilution to the
Company’s shareholders as a result of future decisions of our Board to issue shares without shareholder approval for cash
transactions, services rendered, acquisitions, payment of debt and other permissible reasons. The Company can give investors
no assurance that they will be able to sell their shares at or near the prices they ask or at all if they need money or otherwise
desire to liquidate their shares.
The Price of the Company’s Common Stock is Volatile,
Which Substantially Increases the Risk that the Company’s Investors May Not be Able to Sell Their Shares at or above the
Price that the Investors Have Paid for their Shares.
Because of the price volatility the Company
has observed since its inception, investors in our common stock may not be able to sell their shares when they desire to do so
at a price the investors desire to attain. The inability to sell securities in a rapidly declining market may substantially
increase the risk of loss because the price of our common stock may suffer greater declines due to the historical price volatility
of our shares. Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly
include, but are not limited to, the following:
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Variations in our quarterly operating results;
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Loss of a key relationship or failure to complete significant product
candidate programs;
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Additions or departures of key personnel; and
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Fluctuations in the stock market price and volume.
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In addition, in recent years the stock
market in general, and the over-the-counter markets in particular, have experienced extreme price and volume fluctuations. In
some cases, these fluctuations are unrelated or disproportionate to the performance of the underlying company. These market
and industry factors may materially and adversely affect our share price, regardless of our performance or whether we meet our
business objectives. In the past, class action litigation often has been brought against companies following periods of volatility
in the market price of those companies common stock. If we become involved in this type of litigation in the future, it could
result in substantial costs and diversion of management attention and resources, which could have a material adverse effect on
the Company and the trading price of our common stock.
Risks Related to Employee Matters, Managing
Growth and Macroeconomic Conditions
The Company Has a Limited Number
of Employees and is Highly Dependent on the Company’s Chief Executive and Chief Operating Officers. The Company’s
Future Success Depends on the Company’s Ability to Retain these Officers and other Key Executives and to Attract, Retain
and Motivate Qualified Personnel.
We are an early-stage clinical
development company with a limited operating history. As of April 30, 2014, we had only four employees, all of whom are
executive officers. We are highly dependent on the research and development, clinical and business development expertise of
the principal members of our management, scientific and clinical team. Recruiting and retaining qualified scientific,
clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of
our executive officers or other key employees could impede the achievement of our research, development and commercialization
objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive
officers and key employees may be difficult and may take an extended period of time because of the limited number of
individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory
approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire,
train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and
biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical
personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific
and clinical advisors, to assist us in formulating our discovery, preclinical and clinical development
and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have
commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are
unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be
limited.
The Company Expects to Expand the
Company’s Development and Regulatory Capabilities and Potentially Implement Sales, Marketing and Distribution Capabilities.
As a result, the Company May Encounter Difficulties in Managing its Growth, Which Could Disrupt its Operations.
We expect to experience significant growth
in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs
and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated
future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities
and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience
of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion
of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant
costs and may divert our management and business development resources. Any inability to manage growth could delay the execution
of our business plans or disrupt our operations.
Unfavorable Global Economic Conditions
Could Adversely Affect the Company’s Business, Financial Condition or Results of Operations.
Our results of operations could be adversely
affected by general conditions in the global economy and in the global financial markets. The recent global financial crisis caused
extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent
global financial crisis, could result in a variety of risks to our business, including our ability to raise additional capital
when needed on acceptable terms, if at all. This is particularly true in Europe, which is undergoing a continued severe economic
crisis. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing
could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions
could adversely impact our business.
The Company’s Business and
Operations Would Suffer in the Event of System Failures.
Despite the implementation of security
measures, our internal computer systems and those of our CROs, collaborators and third-parties on whom we rely are vulnerable to
damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.
Furthermore, we have little or no control over the security measures and computer systems of our third-party collaborators. While
we and, to our knowledge, our third-party collaborators have not experienced any such system failure, accident or security breach
to date, if such an event were to occur and cause interruptions in our operations or the operations of our third-party collaborators,
it could result in a material disruption of our drug development programs. If any disruptions occur, they could have a material
adverse effect on our business.