Investing
in our securities involves a high degree of risk. We have described below a number of uncertainties and risks which, in addition
to uncertainties and risks presented elsewhere in this Quarterly Report, may adversely affect our business, operating results and
financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Quarterly
Report should be considered carefully in evaluating our company and our business and the value of our securities.
Risks
Relating to Our Stage of Development
We
have a history of losses.
Since
inception in 1996 through June 30, 2014, we have recorded accumulated losses totaling approximately $141,096,000. On
June 30, 2014, we had a working capital surplus of approximately $25,851,000 and stockholders’ equity of approximately $24,029,000.
Our net losses for the two most recent fiscal years have been approximately $19,832,000 and $10,122,000 for 2013 and 2012, respectively
while our net loss for the six months ended June 30, 2014 was approximately $12,670,000. We have recognized revenue of approximately
$9,000 and $105,000 in the six months ended June 30, 2014 and 2013, respectively related to the licensing of certain intellectual
property to third parties. We had no revenue from the sales of our products during the six months ended June 30, 2014 or 2013.
Our
ability to generate revenues and achieve profitability will depend upon our ability to complete the development of our proposed
products, obtain the required regulatory approvals, manufacture and market and sell our proposed products. To date, we have not
generated any revenue from the commercial sale of our proposed products. No assurances can be given as to exactly when, if at all,
we will be able to fully develop, commercialize, market, sell and/or derive any, let alone material, revenues from our proposed
products.
We
will need to raise additional capital to continue operations.
Since
our inception, we have funded our operations through the sale of our securities, credit facilities, the exercise of options and
warrants, and to a lesser degree, from grants and research contracts and other revenue generating activities such as licensing.
As of June 30, 2014, we had cash and cash equivalents on hand of approximately $15,232,000 and $15,000,000 of short-term investments.
We cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt,
licensing agreements or grants. Our inability to license our intellectual property, obtain grants or secure additional financing
will materially impact our ability to fund our current and planned.
We
have spent and expect to continue spending substantial cash in the research, development, clinical and pre-clinical testing of
our proposed products with the goal of ultimately obtaining FDA approval to market such products. We will require additional capital
to conduct research and development, establish and conduct clinical and pre-clinical trials, enter into commercial-scale manufacturing
arrangements and to provide for marketing and distribution of our products. We cannot assure you that financing will be available
if needed. If additional financing is not available, we may not be able to fund operations and planned growth, develop or enhance
our technologies, take advantage of business opportunities or respond to competitive market pressures. If we exhaust our cash reserves
and are unable to secure adequate additional financing, we may be unable to meet operating obligations which could result in us
initiating bankruptcy proceedings or delaying, or eliminating some or all of our research and product development programs.
Our
debt obligations expose us to risks that could adversely affect our business, operating results and financial condition. We will
need to raise additional capital to pay our indebtedness as it comes due.
We
have a substantial level of debt. As of June 30, 2014, we had approximately $6.6 million in aggregate principal amount of indebtedness
outstanding. Under our loan and security agreement we are required to make interest and principal payments on such indebtedness
in the amount of approximately $300,000 per month. As security for such indebtedness, we have pledged substantially all of our
assets, including our intellectual property. We will need to raise additional capital to pay our indebtedness as it comes due.
If we are unable to make the required payments, or if we fail to comply with the various requirements and covenants of our indebtedness,
we would be in default, which would permit the holders of our indebtedness to accelerate the maturity and require immediate repayment.
Any default under our indebtedness would have a material adverse effect on our business, operating results and financial condition.
Additionally, our loan and security agreement governing our $10 million credit facility contains a number of affirmative and restrictive
covenants, including reporting requirements and other collateral limitations, certain limitations on liens and indebtedness, dispositions,
mergers and acquisitions, restricted payments and investments, corporate changes and limitations on waivers and amendments to certain
agreements, our organizational documents, and documents relating to debt that is subordinate to our obligations under the credit
facility. Our failure to comply with the covenants in the loan and security agreement governing the credit facility could result
in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt
and potential foreclosure on the assets securing the debt. If we are unable to refinance or repay our indebtedness as it becomes
due or upon an event of default, we may become insolvent and be unable to continue operations.
Risks
Relating to Our Business
Our
business is dependent on the successful development of our product candidates.
Our
business is significantly dependent on our two product candidates currently at different phases of clinical trials. Any clinical,
regulatory or other development that significantly delays or prevents us from completing any of our trials, any material safety
issue or adverse side effect to any study participant in these trials, or the failure of these trials to show the results expected,
would likely depress our stock price significantly and could prevent us from raising the additional capital we will need to develop
our technologies. Moreover, any adverse occurrence in our clinical trials could substantially impair our ability to initiate clinical
trials to test our product candidates in other potential indications. This, in turn, could adversely impact our ability to raise
additional capital and pursue our business plan and planned research and development efforts.
Our
business relies on technologies that we may not be able to commercially develop.
We
have concentrated the majority of our resources on the development of our stem cell and small molecule technologies. Our ability
to generate revenue and operate profitably will depend on being able to develop these technologies for human applications. These
are emerging technologies that may have limited human application. We cannot guarantee that we will be able to develop our technologies
or that such development will result in products with any commercial utility or value. We anticipate that the commercial sale of
our proposed products and/or royalty/licensing fees related to our technologies, will be our primary sources of revenue. We recognized
revenue of approximately $110,000 and $173,000 for the years ended December 31, 2013 and December 31, 2012, respectively related
to the licensing of certain intellectual property to third parties. If we are unable to develop our technologies, we may never
realize any significant revenue.
Our
product development programs are based on novel technologies and are inherently risky.
We
are subject to the risks inherent in the development of products based on new technologies. The novel nature of therapies in the
field of regenerative medicine creates significant challenges in regard to product development and optimization, manufacturing,
government regulation, third party reimbursement, and market acceptance. For example, the pathway to regulatory approval for cell-based
therapies, including our product candidates, may be more complex and lengthy than the pathway for conventional drugs. These challenges
may prevent us from developing and commercializing products on a timely or profitable basis or at all.
We
are unable to predict when or if we will be able to earn revenues.
Given
the uncertainty of our technologies and the need for government regulatory approval, we cannot predict when, or if ever, we will
be able to realize revenues related to our products. As a result, we will be primarily dependent on our ability to raise capital
through the sale of our securities and issuance of debt for the foreseeable future.
Our
inability to manufacture and store our stem cells in-house that are used in our products could adversely impact our business.
We
currently outsource most of the manufacturing of our stem cells and small molecule pharmaceutical compounds to third party contractors
and as such have limited ability to adequately control the manufacturing process and the safe storage thereof. Any manufacturing
or storage irregularity, error, or failure to comply with applicable regulatory procedure would require us to find new third parties
to outsource our manufacturing and storage responsibilities. As part of our business plan, we are developing in-house manufacturing
capabilities but there can be no assurance that such capabilities will be successfully develop of if developed, be sufficient to
meet our demands. Our business would suffer in the event that there are delays in locating suitable third parties or if no suitable
third parties are found.
Our
inability to complete pre-clinical and clinical testing and trials will impair our viability.
We
are currently in clinical trials for NSI-566 and NSI-189, two of our proposed products, with regard to multiple indications. Although
we have commenced a number of trials, the ultimate outcome of the trials is uncertain. If we are unable to satisfactorily complete
such trials, or if such trials yield unsatisfactory results, we will be unable to commercialize our proposed products. No assurances
can be given that our clinical trials will be completed or result in successful outcomes. If regulatory authorities do not approve
our products or if we fail to maintain regulatory compliance, we would be unable to commercialize our proposed products, and our
business and results of operations could be materially harmed.
The
results of pre-clinical studies and clinical trials, may not be predictive of the results of later-stage clinical trials and our
proposed products may not have favorable results in later-stage clinical trials or receive regulatory approval.
Positive
results from pre-clinical studies or our Phase I and Phase II trials should not be relied upon as evidence that our clinical trials
will succeed. Even if our product candidates achieve positive results in pre-clinical studies or during our Phase I and Phase II
studies, we will be required to demonstrate through further clinical trials that our product candidates are safe and effective
for use in a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely
high rate of attrition from the failure of product candidates as they proceed through clinical trials. If any product candidate
fails to demonstrate sufficient safety and efficacy in any clinical trial, then we may experience potentially significant delays
in, or be required to abandon, development of that product candidate. Additionally, failure to demonstrate safety and efficacy
results acceptable to the FDA in later stage trials could impair our development prospects and even prevent regulatory approval
of our neuronal stem cells, NSI-189 or other future products. Any such delays or abandonment in our development efforts of any
of our product candidates would materially impair our ability to generate revenues.
There
are no assurances that we will be able to submit or obtain FDA approval in order to market and sell our products.
There
can be no assurance that even if the clinical trial of any potential product candidate is successfully initiated and completed,
that we will be able to submit a Biologics License Application (“BLA”) or New Drug Application (“NDA”)
to the FDA, or that any BLA or NDA we submit will be approved in a timely manner, if at all. If we are unable to submit a BLA or
NDA with respect to any future product, or if such application is not approved by the FDA, we will be unable to commercialize that
product. The FDA can and does reject BLAs and NDAs and may require additional clinical trials, even when product candidates performed
well or achieved favorable results during initial clinical trials. If we fail to commercialize our product candidates, we may be
unable to generate sufficient revenues to attain profitability and our reputation in the industry and in the investment community
would likely be damaged, each of which would have a materially adverse effect on our business.
The
manufacturing of stem cell-based therapeutic products is novel and dependent upon specialized key materials
.
The
manufacturing of stem cell-based therapeutic products is a complicated and difficult process, dependent upon substantial know-how
and subject to the need for continual process improvements. We depend almost exclusively on third party manufacturers to supply
our cells. In addition, our suppliers’ ability to scale-up manufacturing to satisfy the various requirements of our planned
clinical trials is uncertain. Manufacturing irregularities or lapses in quality control could have a material adverse effect on
our reputation and business, which could cause a significant loss of stockholder value. Many of the materials that we use to prepare
our cell-based products are highly specialized, complex and available from only a limited number of suppliers. At present, some
of our material requirements are single sourced, and the loss of one or more of these sources may adversely affect our business.
We
may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.
Our
business may bring us into conflict with licensees, licensors, or others with whom we have contractual or other business relationships
or with our competitors or others whose interests differs from ours. If we are unable to resolve these conflicts on terms that
are satisfactory to all parties, we may become involved in litigation brought by or against such parties. Any litigation is likely
to be expensive and may require a significant amount of management's time and attention, at the expense of other aspects of our
business. The outcome of litigation is always uncertain, and in some cases could include judgments against us which could have
a materially adverse effect on our business. By way of example, in May of 2008, we filed a complaint against StemCells Inc., alleging
that U.S. Patent No. 7,361,505 (the '''505 patent''), allegedly exclusively licensed to StemCells, Inc., is invalid, not infringed
and unenforceable. On the same day, StemCells, Inc. filed a complaint alleging that we had infringed, contributed to the infringement
of, and or induced the infringement of two patents allegedly exclusively licensed to StemCells. Please refer to the section of
this Quarterly Report entitled “Legal Proceedings” for a further discussion of the status of such litigation.
We may not be able to obtain necessary licenses to third-party patents and other rights.
A
number of companies, universities and research institutions have filed patent applications or have received patents relating to
technologies in our field. We cannot predict which, if any, of these applications will issue as patents or how many of these issued
patents will be found valid and enforceable. There may also be existing issued patents on which we would infringe by the commercialization
of our product candidates. If so, we may be prevented from commercializing these products unless the third party is willing to
grant a license to us. We may be unable to obtain licenses to the relevant patents at a reasonable cost, if at all, and may also
be unable to develop or obtain alternative non-infringing technology. If we are unable to obtain such licenses or develop non-infringing
technology at a reasonable cost, our business could be significantly harmed. Also, any infringement lawsuits commenced against
us may result in significant costs, divert our management’s attention and result in an award against us for substantial damages,
or potentially prevent us from continuing certain operations.
We
may not be able to obtain government or third-party patient reimbursement.
Our
ability to successfully commercialize our proposed products, if developed, in the human therapeutic field depends to a significant
degree on patient reimbursement of the costs of such products and related treatments. We cannot assure you that reimbursement in
the U.S. or in foreign countries will be available for any products developed, or, if available, will not decrease in the future,
or that reimbursement amounts will not reduce the demand for, or the price of, our products. There is considerable pressure to
reduce the cost of therapeutic products. Government and other third party payors are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing, in some cases,
to provide any coverage for uses of approved products for disease indications for which the FDA or other relevant authority has
not granted marketing approval. Moreover, in some cases, government and other third party payors have refused to provide reimbursement
for uses of approved products for disease indications for which the FDA or other relevant authority has granted marketing approval.
Significant uncertainty exists as to the reimbursement status of newly approved health care products or novel therapies such as
ours. We cannot predict what additional regulation or legislation relating to the health care industry or third-party coverage
and reimbursement may be enacted in the future or what effect such regulation or legislation may have on our business. If additional
regulations are overly onerous or expensive or if healthcare related legislation makes our business more expensive or burdensome
than originally anticipated, we may be forced to significantly downsize our business plans or completely abandon the current business
model.
Our
products may not be profitable due to manufacturing costs and our inability to receive favorable pricing.
Our
products may be significantly more expensive to manufacture than other drugs or therapies currently on the market today due to
a fewer number of potential manufacturers, greater level of needed expertise and other general market conditions affecting manufacturers
of stem cell based products. Even if we are able to receive approval for the reimbursement of our proposed products the amount
of reimbursement may be significantly less than the manufacturing costs of our products. Additionally, other market factors may
limit the price which we can charge for our proposed products while still being competitive. Accordingly, even if we are successful
in developing our proposed products, we may not be able to charge a high enough price for us to earn a profit.
We
are dependent on the acceptance of our products by the healthcare community.
Our
proposed products, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical
community, in general, may decide not to accept and utilize these products. The products that we are attempting to develop represent
substantial departures from established treatment methods and will compete with a number of more conventional drugs and therapies
manufactured and marketed by major pharmaceutical companies. The degree of market acceptance will depend on a number of factors,
including:
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the clinical efficacy and safety of our proposed
products;
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the superiority of our products to alternatives
currently on the market;
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the potential advantages of our products
over alternative treatment methods; and
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the reimbursement policies of government
and third-party payors.
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If
the healthcare community does not accept our products for any reason, our business will be materially harmed.
We
depend on key employees and consultants for our continued operations and future success.
We
are highly dependent on our chief executive officer, chief scientific officer and outside consultants. Although we have
entered into employment and consulting agreements with these parties, these agreements can be terminated at any time. The
loss of any of these key employees or consultants could adversely affect our opportunities and materially harm our future prospects. In
addition, we anticipate growth and expansion into areas and activities requiring additional expertise, such as clinical testing,
regulatory compliance, manufacturing and marketing. We anticipate the need for additional management personnel as well
as the development of additional expertise by existing management personnel. There is intense competition for qualified personnel
in the areas of our present and planned activities, and there can be no assurance that we will be able to attract and retain the
qualified personnel necessary for the development our business.
The
employment contracts of certain key employees contain significant anti-termination provisions which could make changes in management
difficult or expensive.
We
have entered into employment agreements with Messrs. Garr and Johe which expire on October 31, 2017. In the event either individual
is terminated prior to the full term of their respective contracts, for any reason other than a voluntary resignation, all compensation
due to such employee under the terms of the respective agreement shall become due and payable immediately. These provisions will
make the replacement of either of these employees very costly and could cause difficulty in effecting a change in control. Termination
prior to the full term of these contracts would cost us as much as approximately $1,500,000 per contract and the immediate vesting
of all outstanding options and/or warrants held by Messrs. Garr and Johe.
Our
competition has significantly greater experience and financial resources.
The
biotechnology industry is characterized by intense competition. We compete against numerous companies, many of which have substantially
greater resources. Several such enterprises have initiated cell therapy research programs and/or efforts to treat the same diseases
which we target. Given our current stage of development and resources, it may be extremely difficult for us to compete against
more developed companies.
Our
outsource model depends on third parties to assist in developing and testing our proposed products.
Our
strategy for the development, clinical and preclinical testing and commercialization of our proposed products is based in large
part on an outsource model. This model requires us to engage third parties in order to further develop our technology and products
as well as for the day to day operations of our business. In the event we are not able to enter into such relationships in the
future, our ability to operate and develop products may be seriously hindered or we may be required to spend considerable time
and resources to bring such functions in-house. Either outcome could result in our inability to develop a commercially feasible
product or in the need for substantially more working capital to complete the research in-house.
The
commercialization of therapeutic products exposes us to product liability claims.
Product
liability claims could result in substantial litigation costs and damage awards against us. We attempt to mitigate this risk by
obtaining and maintaining appropriate insurance coverage. Historically, we have obtained liability insurance that covers our clinical
trials. If we begin commercializing products, we will need to increase our insurance coverage. We may not be able to obtain insurance
on acceptable terms, if at all, and the policy limits on our insurance policies may be insufficient to cover our liability.
We
currently rely almost exclusively upon third party FDA-regulated manufacturers and suppliers for our products.
We
currently manufacture our cells both in-house and on an outsource basis. We outsource the manufacturing of our pharmaceutical compound
to third party manufacturers. We manufacture cells in-house which are not required to meet stringent FDA requirements. We use these
cells in our research and collaborative programs. At present, we outsource all the manufacturing and storage of our stem cells
and pharmaceuticals compound to be used in pre-clinical and clinical works, and which are subject to higher FDA requirements, to
Charles River Laboratories, Inc., of Wilmington, Massachusetts (stem cells) and Albany Molecular Resources, Inc. (small molecule).
Because manufacturing facilities are subject to regulatory oversight and inspection, failure to comply with regulatory requirements
could result in material manufacturing delays and product shortages, which could delay or otherwise negatively impact our clinical
trials and product development. In the event we are required to seek alternative third party suppliers or manufacturers, they may
require us to purchase a minimum amount of materials or could require other unfavorable terms. Any such event would materially
impact our business prospects and could delay the development of our products. Moreover, there can be no assurance that any manufacturer
or supplier that we select will be able to supply our products in a timely or cost effective manner or in accordance with applicable
regulatory requirements or our specifications. In addition, due to the novelty of our products and product development, there can
be no assurances that we would be able to find other suitable third party FDA-regulated manufacturers at terms reasonable to us.
Failure to secure such third party manufacturers or suppliers would materially impact our business.
We
rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays
that prevent us from successfully commercializing our product candidates.
We
do not have the in-house capability to conduct clinical trials for our product candidates. We rely, and will rely in the future,
on medical institutions, clinical investigators, contract research organizations, contract laboratories, and collaborators to perform
data collection and analysis and other aspects of our clinical trials. Our preclinical activities or clinical trials conducted
in reliance on third parties may be delayed, suspended, or terminated if:
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the third parties
do not successfully carry out their contractual duties;
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the third parties
fail to meet regulatory obligations or expected deadlines;
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we replace a
third party for any reason; or
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the quality or
accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory
requirements, or for other reasons.
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Third
party performance failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent
the commercialization of our product candidates. While we believe that there are numerous alternative sources to provide these
services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without
incurring delays or additional costs.
Risks
Relating to Intellectual Property
We
may not be able to withstand challenges to our intellectual property rights.
We
rely on our intellectual property, including issued and applied-for patents, as the foundation of our business. Our intellectual
property rights may come under challenge. No assurances can be given that, even though issued, our current and potential future
patents will survive such challenges. For example, in 2005 one of our patents was challenged in the USPTO. Although we prevailed
in this particular matter, these cases are complex, lengthy, expensive, and could potentially be adjudicated adversely to our interests,
removing the protection afforded by an issued patent. The viability of our business would suffer if such patent protection were
limited or eliminated. Moreover, the costs associated with defending or settling intellectual property claims would likely have
a material adverse effect on our business and future prospects. At present, there is litigation with StemCells, Inc., which is
further described in this Quarterly Report in the section entitled “Legal Proceedings.”
We
may not be able to adequately protect against the piracy of the intellectual property in foreign jurisdictions.
We
conduct research in countries outside of the U.S., including through our subsidiary in the People’s Republic of China. A
number of our competitors are located in these countries and may be able to access our technology or test results. The laws protecting
intellectual property in some of these countries may not adequately protect our trade secrets and intellectual property. The misappropriation
of our intellectual property may materially impact our position in the market and any competitive advantages, if any, that we may
have.
Risks
Relating to Our Common Stock
The
market price for our common shares is particularly volatile.
The
market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than those of a seasoned issuer. The volatility in our share price is attributable
to a number of factors. Mainly however, we are a speculative or “risky” investment due to our limited operating history,
lack of significant revenues to date and the uncertainty of FDA approval and future market acceptance for our products if successfully
developed. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their
investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly
and at greater discounts than would be the case with the stock of a seasoned issuer. Additionally, in the past, plaintiffs have
often initiated securities class action litigation against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and
liabilities and could divert management’s attention and resources.
The
following factors may add to the volatility in the price of our common shares: actual or anticipated variations in our quarterly
or annual operating results; government regulations; announcements of significant acquisitions, strategic partnerships or joint
ventures; our capital commitments; offerings of our securities and additions or departures of our key personnel. Many of these
factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance.
We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time,
including as to whether our common shares will sustain their current market prices, or as to what effect the sale of shares or
the availability of common shares for sale at any time will have on the prevailing market price.
The
requirements of being a public company may strain our resources, divert management’s attention and affect our ability to
attract and retain qualified board members.
As
a public company, we incur significant legal, accounting and other expenses that we would not incur as a private company, including
costs associated with public company reporting requirements. We also incur costs associated with the Sarbanes-Oxley Act of 2002,
as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be implemented by
the SEC and the NYSE MKT. The expenses incurred by public companies generally for reporting, insurance and corporate governance
purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to
make some activities more time-consuming and costly. These laws and regulations could also make it more difficult or costly for
us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations
could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board
committees or as our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our
obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action
and potentially civil litigation.
We
have never paid a cash dividend and do not intend to pay cash dividends on our common stock in the foreseeable future.
We
have never paid cash dividends nor do we anticipate paying cash dividends in the foreseeable future. Accordingly, any return on
your investment will be as a result of stock appreciation if any. Additionally, we are prohibited from paying any cash dividends
under the terms of our credit agreement.
Our
anti-takeover provisions may delay or prevent a change of control, which could adversely affect the price of our common stock.
Our
amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make it difficult
to remove our board of directors and management and may discourage or delay “change of control” transactions, which
could adversely affect the price of our common stock. These provisions include, among others:
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our board of
directors is divided into three classes, with each class serving for a staggered three-year term, which prevents stockholders from
electing an entirely new board of directors at an annual meeting;
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advance notice
procedures that stockholders must comply with in order to nominate candidates to our board of directors and propose matters to
be brought before an annual meeting of our stockholders may discourage or deter a potential acquirer from conducting a solicitation
of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
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our board of
directors may, without stockholder approval, issue series of preferred stock, or rights to acquire preferred stock, that could
dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging,
delaying or preventing a change of control.
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If
securities or industry analysts do not publish research reports, or publish unfavorable research about our business, the price
and trading volume of our common stock could decline.
The
trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us and our business. We currently have limited research coverage by securities and industry analysts. In the event an analyst
downgrades our securities, the price of our securities would likely decline. If analysts cease to cover us or fails to publish
regular reports on us, interest in our securities could decrease, which could cause the price of our common stock and other securities
and their trading volume to decline.
Our
corporate documents and Delaware law contain provisions that could make it difficult for us to be acquired in a transaction that
might be beneficial to our stockholders.
Our
board of directors has the authority to issue shares of preferred stock and to fix the rights, preferences, privileges, and restrictions
of these shares without stockholder approval. Additionally, our Bylaws provide for a staggered board. These
provisions in our corporate documents, along with certain provisions under Delaware law, may make it more difficult for a third
party to acquire us or discourage a third party from attempting to acquire us, even if the acquisition might be beneficial to our
stockholders.
Our
board of directors has broad discretion to issue additional securities which might dilute the net tangible book value per share
of our common stock for existing stockholders.
We
are entitled under our certificate of incorporation to issue up to 300,000,000 shares of common stock and 7,000,000 “blank
check” shares of preferred stock. Shares of our blank check preferred stock provide our board of directors with broad authority
to determine voting, dividend, conversion, and other rights. As of June 30, 2014 we have issued and outstanding 86,837,455 shares
of common stock and we have 44,231,359 shares of common stock reserved for future grants under our equity compensation plans and
for issuances upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of June
30, 2014, we had no shares of preferred stock issued and outstanding. Accordingly, we are entitled to issue up to 168,931,186 additional
shares of common stock and 7,000,000 additional shares of “blank check” preferred stock. Our board may generally issue
those common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders.
Any preferred shares we may issue will have such rights, preferences, privileges and restrictions as may be designated from time-to-time
by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.
It is likely that we will be required to issue a large amount of additional securities to raise capital in order to further our
development and marketing plans. It is also likely that we will be required to issue a large amount of additional securities to
directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone
grants or under our various stock plans. The issuance of additional securities may cause substantial dilution to our shareholders.
Risks
Related to Government Regulation and Approval of our Product Candidates
Our
products may not receive regulatory approval.
The
FDA and comparable government agencies in foreign countries impose substantial regulations on the manufacturing and marketing of
pharmaceutical and biological products through lengthy and detailed laboratory, pre-clinical and clinical testing procedures, sampling
activities and other costly and time-consuming procedures. Satisfaction of these regulations typically takes several years or more
and vary substantially based upon the type, complexity and novelty of the proposed product. We are currently undertaking
clinical trials for our lead products candidates NSI-566 and NSI-189. We cannot assure you that we will successfully
complete any clinical trials in connection with such INDs. Further, we cannot predict when we might first submit any
product license application (BLA or NDA) for FDA approval or whether any such product license application will be granted on a
timely basis, if at all. Moreover, we cannot assure you that FDA approvals for any products developed by us will be
granted on a timely basis, if at all. Any delay in obtaining, or failure to obtain, such approvals could have a material adverse
effect on the marketing of our products and our ability to generate product revenue.
Development
of our technologies is subject to extensive government regulation.
Our
research and development efforts, as well as any future clinical trials, and the manufacturing and marketing of any products we
may develop, will be subject to, and restricted by, extensive regulation by governmental authorities in the U.S. and other countries.
The process of obtaining FDA and other necessary regulatory approvals is lengthy, expensive and uncertain. FDA and other legal
and regulatory requirements applicable to our proposed products could substantially delay or prevent us from initiating additional
clinical trials. We may fail to obtain the necessary approvals to commence clinical testing or to manufacture or market our potential
products in reasonable time frames, if at all. In addition, the U.S. Congress and other legislative bodies may enact regulatory
reforms or restrictions on the development of new therapies that could adversely affect the regulatory environment in which we
operate or the development of any products we may develop.
A
substantial portion of our research and development entails the use of stem cells obtained from human tissue. The U.S. federal
and state governments and other jurisdictions impose restrictions on the acquisition and use of human tissue, including those incorporated
in federal Good Tissue Practice, or “GTP,” regulations. These regulatory and other constraints could prevent us from
obtaining cells and other components of our products in the quantity or of the quality needed for their development or commercialization.
These restrictions change from time to time and may become more onerous. Additionally, we may not be able to identify or develop
reliable sources for the cells necessary for our potential products — that is, sources that follow all state and federal
laws and guidelines for cell procurement. Certain components used to manufacture our stem and progenitor cell product candidates
will need to be manufactured in compliance with the FDA’s GMP. Accordingly, we will need to enter into supply agreements
with companies that manufacture these components to GMP standards. There is no assurance that we will be able to enter into any
such agreements.
Noncompliance
with applicable requirements both before and after approval, if any, can subject us, our third party suppliers and manufacturers
and our other collaborators to administrative and judicial sanctions, such as, among other things, warning letters, fines and other
monetary payments, recall or seizure of products, criminal proceedings, suspension or withdrawal of regulatory approvals, interruption
or cessation of clinical trials, total or partial suspension of production or distribution, injunctions, limitations on or the
elimination of claims we can make for our products, refusal of the government to enter into supply contracts or fund research,
or government delay in approving or refusal to approve new drug applications.
We
cannot predict if or when we will be permitted to commercialize our products due to regulatory constraints.
Federal,
state and local governments and agencies in the U.S. (including the FDA) and governments in other countries have significant regulations
in place that govern many of our activities. We are, or may become, subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use
of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with its research and development
work. The preclinical testing and clinical trials of our proposed products are subject to extensive government regulation that
may prevent us from creating commercially viable products. In addition, our sale of any commercially viable product will be subject
to government regulation from several standpoints, including manufacturing, advertising, marketing, promoting, selling, labeling
and distributing. If, and to the extent that, we are unable to comply with these regulations, our ability to earn revenues,
if any, will be materially and negatively impacted.
If
our clinical trials fail to demonstrate to the FDA that any of our product candidates are safe and effective for the treatment
of particular diseases, the FDA may require us to conduct additional clinical trials or may not grant us marketing approval for
such product candidates for those diseases.
We
are not permitted to market our product candidates in the United States until we receive approval of a BLA or NDA from the FDA.
Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate
with evidence gathered in preclinical and well-controlled clinical trials, and, with respect to approval in the United States,
to the satisfaction of the FDA and, with respect to approval in other countries, similar regulatory authorities in those countries,
that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes
and controls used to produce the product are compliant with applicable statutory and regulatory requirements. Our failure to adequately
demonstrate the safety and effectiveness of any of our product candidates for the treatment of particular diseases may delay or
prevent our receipt of the FDA’s approval and, ultimately, may prevent commercialization of our product candidates for those
diseases. The FDA has substantial discretion in deciding whether, based on the benefits and risks in a particular disease, any
of our product candidates should be granted approval for the treatment of that particular disease. Even if we believe that a clinical
trial or trials has demonstrated the safety and statistically significant efficacy of any of our product candidates for the treatment
of a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data can be interpreted by the FDA authorities
in different ways, which could delay, limit or prevent regulatory approval. If regulatory delays are significant or regulatory
approval is limited or denied altogether, our financial results and the commercial prospects for those of our product candidates
involved will be harmed, and our prospects for profitability will be significantly impaired.
In
addition, in the course of its review of a BLA or NDA or other regulatory application, the FDA or other regulatory authorities
may conduct audits of the practices and procedures of a company and its suppliers and contractors concerning manufacturing, clinical
study conduct, non-clinical studies and several other areas. If the FDA and/or other regulatory authorities conducts an audit relating
to a BLA, NDA or other regulatory application and finds a significant deficiency in any of these or other areas, the FDA or other
regulatory authorities could delay or not approve such BLA, NDA or other regulatory application. If regulatory delays are significant
or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for those of our products
or product candidates involved will be harmed, and our prospects for profitability will be significantly impaired.
We
are subject to extensive and rigorous governmental regulation, including the requirement of FDA or other regulatory approval before
our product candidates may be lawfully marketed.
Both
before and after the approval of our product candidates, we, our product candidates, our operations, our facilities, our suppliers,
and our contract manufacturers, contract research organizations, and contract testing laboratories are subject to extensive regulation
by governmental authorities in the United States and other countries, with regulations differing from country to country. In the
United States, the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy,
potency, labeling, storage, record keeping, quality systems, advertising, promotion, sale and distribution of therapeutic products.
Failure to comply with applicable requirements could result in, among other things, one or more of the following actions: notices
of violation, untitled letters, warning letters, fines and other monetary penalties, unanticipated expenditures, delays in approval
or refusal to approve a product candidate; product recall or seizure; interruption of manufacturing or clinical trials; operating
restrictions; injunctions; and criminal prosecution. We or the FDA, or an institutional review board, may suspend or terminate
human clinical trials at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable
health risk. Our product candidates cannot be lawfully marketed in the United States without FDA approval. Any failure to receive
the marketing approvals necessary to commercialize our product candidates could harm our business.
The
regulatory review and approval process of governmental authorities, which includes the need to conduct nonclinical studies and
clinical trials of each product candidate, is lengthy, expensive and uncertain, and regulatory standards may change during the
development of a particular product candidate. We are not permitted to market our product candidates in the United States or other
countries until we have received requisite regulatory approvals. For example, securing FDA approval requires the submission of
an NDA to the FDA. The approval application must include extensive nonclinical and clinical data and supporting information to
establish the product candidate’s safety and effectiveness for each indication. The approval application must also include
significant information regarding the chemistry, manufacturing and controls for the product. The FDA review process typically takes
significant time to complete and approval is never guaranteed. If a product is approved, the FDA may limit the indications for
which the product may be marketed, require extensive warnings on the product labeling, impose restricted distribution programs,
require expedited reporting of certain adverse events, or require costly ongoing requirements for post-marketing clinical studies
and surveillance or other risk management measures to monitor the safety or efficacy of the product. Markets outside of the United
States also have requirements for approval of drug candidates with which we must comply prior to commencing marketing of our products
in those markets. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure we will be
able to obtain regulatory approval in other countries, but a failure or delay in obtaining regulatory approval in one country may
have a negative effect on the regulatory process in other countries. Also, any regulatory approval of any of our product candidates,
once obtained, may be withdrawn.
In
addition, we, our suppliers, our operations, our facilities, and our contract manufacturers, our contract research organizations,
and our contract testing laboratories are required to comply with extensive FDA requirements both before and after approval of
our products. For example, we are required to report certain adverse reactions and production problems, if any, to the FDA, and
to comply with certain requirements concerning advertising and promotion for our product candidates and our products. Also, quality
control and manufacturing procedures must continue to conform to current Good Manufacturing Practices, or cGMP, regulations after
approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, we and others
with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing,
production, and quality control. In addition, discovery of safety issues may result in changes in labeling or restrictions on a
product manufacturer or NDA holder, including removal of the product from the market.