ITEM 1. BUSINESS
Business
Abeona Therapeutics Inc. (together with our
subsidiaries, “we”, “our”, “Abeona” or the “Company”) is a Delaware corporation.
We are focused on developing and delivering gene therapy and plasma-based products for severe and life-threatening rare diseases.
Abeona's lead programs are ABO-101 (AAV NAGLU) and ABO-102 (AAV SGSH), adeno-associated virus (AAV)-based gene therapies for Sanfilippo
syndrome (MPS IIIB and IIIA, respectively). We are also developing ABO-201 (AAV CLN3) gene therapy for Juvenile Neuronal Ceroid
Lipofuscinoses (JNCL) also known as juvenile Batten disease; and ABO-301 (AAV FANCC) for Fanconi anemia (FA) disorder using a novel
CRISPR/Cas9-based gene editing approach to gene therapy program for rare blood diseases. In addition, we are also developing rare
plasma protein therapies including PTB-101 SDF Alpha™ (alpha-1 protease inhibitor) for inherited COPD using our proprietary
SDF™ (Salt Diafiltration) ethanol-free process. Our principal executive office is located at 3333 Lee Parkway, Suite 600,
Dallas, Texas 75219. Our website address is
www.abeonatherapeutics.com
.
Product Development Strategy
Abeona is focused on developing and delivering
gene therapy and plasma-based products for severe and life-threatening rare diseases. A rare disease is one that affects fewer
than 200,000 people in the United States. There are nearly 7,000 rare diseases, which may involve chronic illness, disability,
and often, premature death. More than 25 million Americans and 30 million Europeans have one. While rare diseases can affect any
age group, about 50% of people affected are children (15 million); and rare diseases account for 35% of deaths in the first year
of life. These rare diseases are often poorly diagnosed, very complex, and have no treatment or not very effective treatment—over
95% of rare diseases do not have a single FDA or EMA approved drug treatment. However, most rare diseases are often caused by changes
in genes—80% are genetic in origin and can present at any stage of life. We believe emerging insights in genetics and advances
in biotechnology, as well as new approaches and collaboration between researchers, industry, regulators and patient groups, provide
significant opportunities to develop breakthrough treatments for rare diseases.
Developing Next Generation Gene Therapy
Gene therapy is the use of DNA as a potential
therapy to treat a disease. In many disorders, particularly genetic diseases caused by a single genetic defect, gene therapy aims
to treat a disease by delivering the correct copy of DNA into a patient's cells. The healthy, functional copy of the therapeutic
gene then helps the cell function correctly. In gene therapy, DNA that encodes a therapeutic protein is packaged within a "vector",
often a “naked” virus, which is used to transfer the DNA to the inside of cells within the body. Gene therapy can be
delivered by a direct injection, either intravenously (IV) or directly into a specific tissue in the body, where it is taken up
by individual cells. Once inside cells, the correct DNA is expressed by the cell machinery, resulting in the production of missing
or defective protein, which in turn is proposed to treat the patient's underlying disease and can provide long-term benefit.
Abeona is developing next generation adeno-associated
virus (AAV) gene therapies. Viruses such as AAV are utilized because they have evolved a way of encapsulating and delivering one
or more genes of the size needed for clinical application, and can be purified in large quantities at high concentration. Unlike
AAV vectors found in nature, the AAV vectors used by Abeona have been genetically-modified such that they do not replicate. Although
the preclinical studies in animal models of disease demonstrate the promising impact of AAV-mediated gene expression to affected
tissues such as the heart, liver and muscle, our programs use a specific virus that is capable of delivering therapeutic DNA across
the blood brain barrier and into the central nervous system (CNS) and the somatic system (body), making them attractive for addressing
lysosomal storage diseases which have severe CNS manifestations of the disease.
Lysosomal storage diseases (LSD) are a group
of rare inborn errors of metabolism resulting from deficiency in normal lysosomal function. These diseases are characterized by
progressive accumulation of storage material within the lysosomes of affected cells, ultimately leading to cellular dysfunction.
Multiple tissues ranging from musculoskeletal and visceral to tissues of the central nervous system are typically involved in disease
pathology. Since the advent of enzyme replacement therapy (ERT) to manage some LSDs, general clinical outcomes have significantly
improved; however, treatment with infused protein is lifelong and continued disease progression is still evident in patients. Thus,
AAV-based gene therapy may provide a viable alternative or adjunctive therapy to current management strategies for LSDs.
Our initial programs are focused on LSDs such
as Mucopolysaccharidosis (MPS) IIIA and IIIB. Also known as Sanfilippo syndromes type A and type B, MPS III is a progressive neuromuscular
disease with profound CNS involvement. Our lead product candidates, ABO-101 and ABO-102, have been developed to replace the damaged,
malfunctioning enzymes within target cells with the normal, functioning version. ABO-201 is a similar product, using an AAV to
deliver the correct lysosomal gene that is defective in juvenile neuronal ceroid lipofuscinosis. Delivered via a single injection,
these drugs are only given once.
ABO-101 for MPS III B and ABO-102 for
MPS III A (Sanfilippo syndrome)
Mucopolysaccharidosis (MPS) type III (Sanfilippo
syndrome) is a group of four inherited genetic diseases, described as type A, B, C or D, which cause enzyme deficiencies that result
in the abnormal accumulation of glycosaminoglycans (sugars) in body tissues. MPS III is a lysosomal storage disease, a group of
rare inborn errors of metabolism resulting from deficiency in normal lysosomal function. The incidence of MPS III (all four types
combined) is estimated to be 1 in 70,000 births.
Mucopolysaccharides are long chains of sugar
molecules used in the building of connective tissues in the body. There is a continuous process in the body of replacing used materials
and breaking them down for disposal. Children with MPS III are missing an enzyme called heparan sulfate which is essential in breaking
down the used mucopolysaccharides. The partially broken down mucopolysaccharides remain stored in cells in the body causing progressive
damage. Babies may show little sign of the disease, but as more and more cells become damaged, symptoms start to appear.
In MPS III, the predominant symptoms occur
due to accumulation within the central nervous system (CNS), including the brain and spinal cord, resulting in cognitive decline,
motor dysfunction, and eventual death. To date, there is no cure for MPS III and treatments are largely supportive.
Abeona is developing next generation AAV-based
gene therapies for MPS III (Sanfilippo syndrome), which involves a one-time delivery of a normal copy of the defective gene to
cells of the central nervous system with the aim of reversing the effects of the genetic errors that cause the disease.
After a single dose in Sanfilippo preclinical
models, ABO-101 and ABO-102 induced cells in the CNS and peripheral organs to produce the missing enzymes which helped repair the
damage caused to the cells. Preclinical
in vivo
efficacy studies in Sanfilippo syndrome have demonstrated functional benefits
that remain for months after treatment. A single dose of ABO-101 or ABO-102 significantly restored normal cell and organ function,
corrected cognitive defects that remained months after drug administration, increased neuromuscular control and increased the lifespan
of animals with MPS III over 100% one year after treatment compared to untreated control animals. These results are consistent
with studies from several laboratories suggesting AAV treatment could potentially benefit patients with Sanfilippo Syndrome Type
A and B. In addition, safety studies conducted in animal models of Sanfilippo syndromes have demonstrated that delivery of AB0-101
or AB0-102 are well tolerated with minimal side effects.
ABO-201 for Juvenile Neuronal Ceroid
Lipofuscinoses (JNCL) (or Juvenile Batten Disease (JBD))
ABO-201 (AAV CLN3) is an AAV-based gene therapy
which has shown promising preclinical efficacy in delivery of a normal copy of the defective CLN3 gene to cells of the central
nervous system with the aim of reversing the effects of the genetic errors that cause JNCL. JNCL is a rare, fatal, autosomal recessive
(inherited) disorder of the nervous system that typically begins in children between 4 and 8 years of age. Often the first noticeable
sign of JNCL is vision impairment, which tends to progress rapidly and eventually result in blindness. As the disease progresses,
children experience the loss of previously acquired skills (developmental regression). This progression usually begins with the
loss of the ability to speak in complete sentences. Children then lose motor skills, such as the ability to walk or sit. They also
develop movement abnormalities that include rigidity or stiffness, slow or diminished movements (hypokinesia), and stooped posture.
Beginning in mid- to late childhood, affected children may have recurrent seizures (epilepsy), heart problems, behavioral problems,
and difficulty sleeping. Life expectancy is greatly reduced. Most people with juvenile Batten disease live into their twenties
or thirties. As yet, no specific treatment is known that can halt or reverse the symptoms of JNCL disease.
JNCL disease is the most common form of a group
of disorders known as neuronal ceroid lipofuscinoses (NCLs). Collectively, all forms of NCL affect an estimated 2 to 4 in 100,000
live births in the United States. NCLs are more common in Finland, where approximately 1 in 12,500 individuals are affected; as
well as Sweden, other parts of northern Europe, and Newfoundland, Canada.
Most cases of JNCL disease are caused by mutations
in the CLN3 gene, which is the focus of our AAV-based gene therapy approach. These mutations disrupt the function of cellular structures
called lysosomes. Lysosomes are compartments in the cell that normally digest and recycle different types of molecules. Lysosome
malfunction leads to a buildup of fatty substances called lipopigments and proteins within these cell structures. These accumulations
occur in cells throughout the body, but neurons in the brain seem to be particularly vulnerable to damage. The progressive death
of cells, especially in the brain, leads to vision loss, seizures, and intellectual decline in children with JNCL disease.
ABO-301 for Fanconi Anemia (FA)
ABO-301 (AAV FANCC) is an AAV-based gene therapy
which has shown promising preclinical efficacy in delivery of a normal copy of the defective gene to cells of the hematopoietic
or blood system with the aim of reversing the effects of the genetic errors that cause Fanconi anemia (FA). FA is a rare (1 in
160,000) pediatric, autosomal recessive (inherited) disease characterized by multiple physical abnormalities, organ defects, bone
marrow failure, and a higher than normal risk of cancer. The average lifespan for people with FA is 20 to 30 years.
The major function of bone marrow is to produce
new blood cells. In FA, a DNA mutation renders the FANCC gene nonfunctional. Loss of FANCC causes patient skeletal abnormalities
and leads to bone marrow failure. FA patients also have much higher rates of hematological diseases, such as acute myeloid leukemia
(AML) or tumors of the head, neck, skin, gastrointestinal system, or genital tract. The likelihood of developing one of these cancers
in people with FA is between 10 and 30 percent. Aside from bone marrow transplantation (BMT) there are no specific treatments known
that can halt or reverse the symptoms of FA. Reparing fibroblast cells in FA patients with a functional FANCC gene is the focus
of our AAV-based gene therapy approach.
Using a novel CRISPR (clustered, regularly
interspaced short palindromic repeats)-Cas9 (CRISPR associated protein 9) system, researchers used a protein-RNA complex composed
of an enzyme known as Cas9 bound to a guide RNA molecule that has been designed to recognize a particular DNA sequence. The RNA
molecules guide the Cas9 complex to the location in the genome that requires repair. CRISPR-Cas9 uniquely enables surgically efficient
knock-out, knock-down or selective editing of defective genes in the context of their natural promoters, unlocking the potential
to treat both recessive and dominant forms of genetic diseases. Most importantly, this approach has the potential to allow more
precise gene modification.
Plasma-based Therapeutics using the SDF™
technology platform
Abeona’s proprietary Salt Diafiltration
Process™ (SDF) focuses on ethanol-free extraction of therapeutic biologics from human plasma. Plasma biologics are biopharmaceutical
proteins extracted, purified, and formulated from human blood plasma by the use of biotechnological processing techniques including
precipitation, diafiltration, affinity chromatography, and ion-exchange chromatography. These products are rendered virus-safe
by means of chemical treatment, nanofiltration, and pasteurization. Plasma biologics primarily address indications arising from
genetic deficiencies, which are increasingly being identified by means of newly available rapid and low-cost diagnostic genetic
tests. Examples of plasma biologics include Alpha-1 Antitrypsin (also known as alpha-1 proteinase inhibitor, A1PI), Intravenous
Immune Globulin (IVIG), Anti-Hemophilic Factor VIII (AHF) and Albumin.
Plasma biologics are currently obtained from
human plasma by a fractionation process known as the Cohn Cold Ethanol Fractionation Process (Cohn Process), which was developed
prior to World War II to provide a stable solution of human albumin for the rapid treatment of hemorrhagic shock on the battlefield.
This process employs various concentrations of ethanol combined with adjustments of pH, ionic strength, and temperature to bring
about the necessary separations by precipitation. Ethanol can inactivate many of the plasma proteins.
In contrast to the highly denaturing Cohn Process,
Abeona’s patented SDF™ method involves a short two-step, ethanol-free salt precipitation process optimized to extract
a wide range of therapeutically useful biologic proteins from human blood plasma. SDF™ enables the production of higher yields
of these proteins compared with the Cohn Process.
PTB-101 SDF Alpha™ (alpha-1 protease
inhibitor) for emphysema or chronic obstructive pulmonary disease (COPD)
due to severe congenital deficiency of A1PI
(alpha-1-antitrypsin deficiency)
Alpha-1 antitrypsin deficiency is a rare (1
in 1,500 to 3,500) genetic (inherited) autosomal disorder that may cause lung disease from an inability to neutralize the enzyme
neutrophil elastase and liver disease from retained misfolded protein. Alpha-1 antitrypsin deficiency occurs worldwide, but its
prevalence varies by population. Alpha-1 antitrypsin is also known as alpha-1 proteinase inhibitor (A1PI).
About 10 percent of infants with alpha-1 antitrypsin
deficiency develop liver disease, which often causes yellowing of the skin and whites of the eyes (jaundice). Approximately 15
percent of adults with alpha-1 antitrypsin deficiency develop liver damage (cirrhosis) due to the formation of scar tissue in the
liver. Signs of cirrhosis include a swollen abdomen, swollen feet or legs, and jaundice. Individuals with alpha-1 antitrypsin deficiency
are also at risk of developing a type of liver cancer called hepatocellular carcinoma.
Alpha-1 antitrypsin deficiency is inherited
with an autosomal codominant pattern, which means that two different versions of the gene may be active (expressed), and both versions
contribute to the genetic trait. The most common version (allele) of the SERPINA1 gene, called M, produces normal levels of alpha-1
antitrypsin. Most people in the general population have two copies of the M allele (MM) in each cell. Other versions of the SERPINA1
gene lead to reduced levels of alpha-1 antitrypsin. For example, the S allele produces moderately low levels of this protein, and
the Z allele produces very little alpha-1 antitrypsin. Individuals with two copies of the Z allele (ZZ) in each cell are likely
to have alpha-1 antitrypsin deficiency. Those with the SZ combination have an increased risk of developing liver and lung diseases
such as chronic obstructive pulmonary disease (COPD).
It is estimated that about 200,000 individuals
in the United States and Europe have severe alpha-1 antitrypsin deficiency. However, only about 5% of this number have been diagnosed
as symptoms caused by this deficiency are very similar to asthma and chronic obstructive pulmonary disease (COPD) from non-genetic
causes. Only about 1–2% of COPD patients have severe alpha-1 antitrypsin deficiency. The Global Initiative for Chronic Obstructive
Lung Disease (GOLD) defines COPD as group of airflow-limited diseases including emphysema and chronic bronchitis. While severe
alpha-1 antitrypsin deficiency can lead to or exacerbate all forms of COPD, it is considered to be the dominant cause of Panacinar
Emphysema, a form of emphysema which causes gradual destruction of all lung aveolii.
PTB-101 SDF Alpha™ (alpha1-proteinase
inhibitor) for Alpha-1 Antitrypsin Deficiency (Alpha-1)
Abeona is developing PTB-101 SDF Alpha™
(alpha-1-proteinase inhibitor) for chronic augmentation and maintenance therapy in adults with clinically evident panacinar emphysema
and other forms of COPD due to severe deficiency of alpha-1-proteinase inhibitor.
Polymer Hydrogel Technology (PHT™)
MuGard
®
(mucoadhesive
oral wound rinse) approved for mucositis, stomatitis, aphthous ulcers, and traumatic ulcers
MuGard
®
is our marketed product
for the management of oral mucositis, a frequent side-effect of cancer therapy for which there is no other established treatment.
MuGard, a proprietary nanopolymer formulation, has received marketing clearance from the FDA in the US as well as Europe, China,
Australia, New Zealand and Korea. We launched MuGard in the U.S. in 2010 and licensed MuGard for commercialization in the U.S.
to AMAG Pharmaceuticals, Inc. (AMAG) in 2013. We licensed MuGard to RHEI Pharmaceuticals, N.V. (RHEI) for China and other Southeast
Asian countries in 2010; Hanmi Pharmaceutical Co. Ltd. (Hanmi) for South Korea in 2014; and Norgine B.V. (Norgine) for the European
Union, Switzerland, Norway, Iceland, Lichtenstein, Australia and New Zealand in 2014.
ProctiGard™ (mucoadhesive oral
wound rinse) approved for rectal mucositis and radiation proctitis
ProctiGard™ received 510(K) marketing
clearance from the FDA on July 22, 2014 for the treatment of symptomatic management of rectal mucositis. ProctiGard is our product
for the treatment of radiation proctitis, a frequent side effect of radiation treatment to the pelvic region. Radiation proctitis,
or RP, is the inflammation and damage to the lower portion of the colon after exposure to x-rays or ionizing radiation as part
of radiation therapy. RP is most common after treatments for cancer, such as cervical, colon and prostate cancer. RP can be acute,
occurring within weeks of initiation of therapy, or can occur months or years after treatment. We intend to commercialize ProctiGard
in a manner similar to the commercialization of MuGard, which may include confirmatory clinical trials, with the objective of commercialization
in collaboration with marketing partners globally.
Intellectual Property
We believe
that the value of technology both to us and to our potential corporate partners is established and enhanced by our broad intellectual
property positions. Consequently, we have already been issued and seek to obtain additional U.S. and foreign patent protection
for our products, including those under development and for new discoveries. Patent applications are filed with the U.S. Patent
and Trademark Office and, when appropriate, with the Paris Convention’s Patent Cooperation Treaty (PCT) Countries (most major
countries in Western Europe and the Far East) for our inventions and prospective products.
We have a
strategy of maintaining an ongoing line of patent continuation applications for each major category of patentable carrier and delivery
technology. By this approach, we are extending the intellectual property protection of our basic targeting technology and initial
agents to cover additional specific carriers and agents, some of which are anticipated to carry the priority dates of the original
applications.
Gene licensed
patents
We have secured an exclusive license through
Nationwide Children’s Hospital to the ABO-101 and ABO-102 patent portfolios for developing treatments for patients with Sanfilippo
Syndrome Type A and Type B. This portfolio comprises one patent family: “Products and methods for delivery of polynuleotides
by adeno-associated virus for lysosomal storage disorders”. Additionally, we have secured FDA Orphan drug designation for
both Sanfilippo A and B, which will provide 7 years of post-launch market exclusivity for both ABO-101 and ABO-102 in the U.S.
ABO-101 and ABO-102 are also eligible for 12 years of Biologics exclusivity upon approval in the US and 10 years of exclusivity
in the EU upon marketing authorization. We will be seeking Orphan Drug Status within the EMA, which will grant 10 years of post-market
exclusivity in the European Union.
We licensed the rights to two patents (62/092,501
and 62/146,793) with an exclusive, worldwide, licensing agreement with the UNeMed Corporation. The patents are “Compositions
and Methods for the Treatment of Juvenile Neuronal Ceroid Lipofuscinosis” and “Gene Therapy for Juvenile Batten Disease”
for an AAV gene therapy for the treatment of juvenile Batten disease.
We licensed one patent (62/000,590), “Method
for Editing a Genetic Sequence” with an exclusive, worldwide, licensing agreement with the University of Minnesota for an
AAV gene therapy for the treatment of patients with Fanconi anemia (FA) disorder and other rare blood diseases.
We licensed two patents (13/594,773 and EPO
12756603.2) with a nonexclusive license agreement with Stanford University for an AAV delivery vector for the treatment of FA
and rare blood disease platform.
Plasma
based patents
We licensed
our SDF patents from Licensor issued U.S. Patents #7,879,331, #7,879,332, and #8,293,242, the last of which expires in September
2025. We have also licensed issued patents in Europe, China and Australia and pending applications in Canada and India. SDF patents
from Licensor the last of which expires in September 2025.
MuGard
patents
For our mucoadhesive
liquid technology, used in MuGard, two U.S. patents have been issued and two European patents have been granted. One European patent
has been issued in 19 European countries the other patent is in nationalization process. Patents have also been granted, or are
under review, in several other major territories worldwide. Our mucoadhesive liquid technology patents and applications cover a
range of products for a variety of diseases and conditions affecting the oral cavity, including the management of the various phases
of mucositis. MuGard mucoadhesive technology patents expire in 2022
In addition
to issued patents, we have a number of pending patent applications. If issued, the patents underlying these applications could
extend the patent life of our technologies beyond the dates listed above.
Government Regulation
We are subject
to extensive regulation by the federal government, principally by the FDA, and, to a lesser extent, by other federal and state
agencies as well as comparable agencies in foreign countries where registration of products will be pursued. Although a number
of our formulations incorporate extensively tested drug substances, because the resulting formulations make claims of enhanced
efficacy and/or improved side effect profiles, they are expected to be classified as new drugs by the FDA.
The Federal
Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern the testing, manufacturing, safety,
labeling, storage, shipping and record keeping of our products. The FDA has the authority to approve or not approve new drug applications
and inspect research, clinical and manufacturing records and facilities.
Among the
requirements for drug approval and testing is that the prospective manufacturer’s facilities and methods conform to the FDA’s
Code of Good Manufacturing Practices regulations, which establishes the minimum requirements for methods to be used in, and the
facilities or controls to be used during, the production process. Such facilities are subject to ongoing FDA inspection to insure
compliance.
The steps
required before a pharmaceutical product may be produced and marketed in the U.S. include preclinical tests, the filing of an Investigational
New Drug (‘‘IND’’) application with the FDA, which must become effective pursuant to FDA regulations before
human clinical trials may commence, numerous phases of clinical testing and the FDA approval of a New Drug Application (NDA) prior
to commercial sale.
Preclinical
tests are conducted in the laboratory, usually involving animals, to evaluate the safety and efficacy of the potential product.
The results of preclinical tests are submitted as part of the IND application and are fully reviewed by the FDA prior to granting
the sponsor permission to commence clinical trials in humans. All trials are conducted under International Conference on Harmonization,
good clinical practice guidelines. All investigator sites and sponsor facilities are subject to FDA inspection to insure compliance.
Clinical trials typically involve a three-phase process. Phase 1 the initial clinical evaluations, consists of administering the
drug and testing for safety and tolerated dosages and in some indications such as cancer and HIV, as preliminary evidence of efficacy
in humans. Phase 2 involves a study to evaluate the effectiveness of the drug for a particular indication and to determine optimal
dosage and dose interval and to identify possible adverse side effects and risks in a larger patient group. When a product is found
safe, and initial efficacy is established in Phase 2, it is then evaluated in Phase 3 clinical trials. Phase 3 trials consist of
expanded multi-location testing for efficacy and safety to evaluate the overall benefit-to-risk index of the investigational drug
in relationship to the disease treated. The results of preclinical and human clinical testing are submitted to the FDA in the form
of an NDA for approval to commence commercial sales.
The process
of forming the requisite testing, data collection, analysis and compilation of an IND and an NDA is labor intensive and costly
and may take a protracted time period. In some cases, tests may have to be redone or new tests instituted to comply with FDA requests.
Review by the FDA may also take considerable time and there is no guarantee that an NDA will be approved. Therefore, we cannot
estimate with any certainty the length of the approval cycle.
We are also
governed by other federal, state and local laws of general applicability, such as laws regulating working conditions, employment
practices, as well as environmental protection.
License Agreements
Gene therapy
license agreements
On May 15,
2015, we acquired Abeona Therapeutics LLC which had a an exclusive license through Nationwide Children’s Hospital to the
AB-101 and AB-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type A and Type B. This portfolio
comprises 1 patent family: “Products and methods for delivery of polynuleotides by adeno-associated virus for lysosomal storage
disorders”. Additionally, Abeona has secured FDA Orphan drug designation for both Sanfilippo A and B, which will provide
7 years of post-launch market exclusivity for both ABX-A and ABX-B in the U.S. Abeona will be seeking Orphan Drug Status within
the EMA, which will grant 10 years of post-market exclusivity in the European Union.
On June 5,
2015, we entered into an exclusive, worldwide, licensing agreement with the UNeMed Corporation, the technology transfer and commercialization
office for the University of Nebraska Medical Center (UNMC) in Omaha, Nebraska, for an AAV gene therapy for the treatment of juvenile
Batten disease. We licensed the rights to two patents (62/092,501 and 62/146,793). Under the terms of the licensing agreement,
we paid a license fee of $75,000 and will pay milestone payments on certain milestone events. Commencing with the first commercial
sale of licensed products a royalty will be paid. Terms of the agreement require we execute a sponsored research agreement with
UNMC focused on additional efficacy studies within 12 months.
On October
14, 2015 we entered into a sponsored research agreement with UNMC to support ongoing AAV/CLN3 projects in the amount of $215,000.
On June 5,
2015, we entered into an exclusive, worldwide, licensing agreement with the University of Minnesota for an AAV gene therapy for
the treatment of patients with Fanconi anemia (FA) disorder and other rare blood diseases. We licensed one patent (62/000,590),
Method for Editing a Genetic Sequence. Under terms of the licensing agreement, we paid a license fee of $80,000, will pay an additional
license fee of $50,000, will pay annual maintenance fees and a royalty fee with the first commercial sale of licensed products.
On September
17, 2015, we entered into a nonexclusive license agreement with Stanford University for an AAV delivery vector for the treatment
of FA and rare blood disease platform. This license augments the University of Minnesota agreement. We licensed two patents (13/594,773
and EPO 12756603.2). Under terms of the licensing agreement, we paid a license fee of $25,000, will pay annual maintenance fees
and a royalty fee with the first commercial sale of licensed products.
Plasma-based
therapeutics license agreements
On September
22, 2014, we entered into an exclusive, worldwide, licensing agreement with Licensor to obtain rights to utilize and to sub-license
to other pharmaceuticals firms, its patented methods for the extraction of therapeutic biologics from human plasma. Under the terms
of the licensing agreement, as amended on January 23, 2015, we paid a license fee of $1 million in cash, will pay $4,000,000 in
cash or 1,096,151 shares of our common stock in 2017, a regulatory approval milestone payment of 513,375 shares of our common stock
upon the first FDA regulatory approval of a drug derived from the Licensor’s proprietary SDF process, and a tiered royalty
on annual net sales of plasma fractions produced with Licensor’s proprietary SDF process.
We believe
that Licensor’s proprietary fractionation process is expected to significantly enhance yields of key value blood proteins,
including A1PI, expanding market opportunities, while greatly enhancing margins. The Company obtained rights to utilize and sub-license
to other pharmaceutical firms the recently patented improved methods for the extraction of therapeutic biologics from human plasma.
We believe that Licensor’s lead product, A1PI, offers a low-risk, high revenue, short time to market respiratory product
for treatment of inherited COPD (pulmonary emphysema), among other genetic A1PI deficiencies. Additionally, the ability to extract
several additional therapeutically useful and important proteins, due to the process being less destructive than historical fractionation
processes, may enable us to seek new therapeutic applications and address high-value-added orphan indications.
MuGard license agreements
On June 6,
2013 we entered into an exclusive license agreement with AMAG related to the commercialization of MuGard in the U.S. and its territories.
Under the terms of the licensing agreement, we received an upfront licensing fee of $3.3 million and will receive a tiered, double-digit
royalty on net sales of MuGard in the licensed territories. AMAG also purchased our existing MuGard inventory. The $3.3 million
license fee is accounted for as deferred revenue and is recognized over ten years, which is the life of the license agreement.
The license term expires June 6, 2023. The license can also terminate in the event of breach by either us or AMAG or by AMAG at
anytime with 180 days prior notice of termination.
On March
11, 2014, we announced we had entered into an exclusive license agreement with Hanmi related to MuGard commercialization in South
Korea. Under the terms of the agreement, we received an upfront licensing fee and double digit royalties on sales of MuGard in
the licensed territory. The license term expires February 26, 2024. The license can also terminate in the event of breach or by
Hanmi at anytime with 180 days prior notice of termination.
On August
7, 2014, we entered into an exclusive license agreement with Norgine, a leading independent European specialty pharmaceutical company,
for the commercialization of MuGard in Europe. Under the terms of the license agreement, we could receive up to $10 million in
milestone payments and an escalating double digit royalty on the net sales of the oral mucositis product, MuGard, in the licensed
territories. Norgine will develop, manufacture, and commercialize MuGard in the European Union, Switzerland, Norway, Iceland and
Lichtenstein. Norgine anticipates launching MuGard in 2016.
Competition
The pharmaceutical
and biotechnology industry is characterized by intense competition, rapid product development and technological change. Competition
is intense among manufacturers of prescription pharmaceuticals and other product areas where we may develop and market products
in the future. Most of our potential competitors are large, well established pharmaceutical, chemical or healthcare companies with
considerably greater financial, marketing, sales and technical resources than are available to us. Additionally, many of our potential
competitors have research and development capabilities that may allow such competitors to develop new or improved products that
may compete with our product lines. Our potential products could be rendered obsolete or made uneconomical by the development of
new products to treat the conditions to be addressed by our developments, technological advances affecting the cost of production,
or marketing or pricing actions by one or more of our potential competitors. Our business, financial condition and results of operation
could be materially adversely affected by any one or more of such developments. We cannot assure you that we will be able to compete
successfully against current or future competitors or that competition will not have a material adverse effect on our business,
financial condition and results of operations. Academic institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent protection and may commercialize products on their own
or with the assistance of major health care companies in areas where we are developing product candidates. We are aware of certain
development projects for products to treat or prevent certain diseases targeted by us, and the existence of these potential products
or other products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely
affect the marketability of products developed by us.
Gene therapy
competition
The gene
therapy industry is highly competitive and driven by several large competitors including Bluebird, Voyager, Regenx, Spark, Dimension,
Avalanche, Uniqure, and Lysogene. We face competition from both US based and international based producers of plasma products who
may have greater access to capital, production facilities and resources for both research and development as well as commercialization.
Plasma-based
therapeutics competition
The plasma
therapeutics industry is highly competitive and driven by several large competitors including Baxter International, Inc. (“Baxter”),
CSL Behring (“CSL”) and Grifols SA (“Grifols”). Each of these groups produce A1PI under the name of the
following, Baxter (Aralast, license of Glassia from Kamada), CSL (Zemairia) and Grifols (Prolastin) Other regional competitors
include, but are not limited to, BPL, Kedrion, LFB Group SA, and Octapharma AG. We face competition from both US based and international
based producers of plasma products who may have greater access to capital, production facilities and resources for both research
and development as well as supplies of plasma.
Furthermore,
plasma derived products also face competition from products that are not derived from plasma, and other courses of treatment.
MuGard
competition
ActoGeniX
N.V., Alder Biopharmaceuticals, Inc., Applied Protein Sciences, LLC, Avaxia Biologics, Inc., BioAlliance Pharma S.A., BMG Pharma
s.r.l., Camurus AB, DARA BioSciences, Inc. EUSA Pharma, Galera Therapeutics, Inc. Maya Biotech Ltd., NephRx, Piramal Healthcare
Ltd., Soligenix, Inc. and Synedgen are developing products to treat mucositis that may compete with our mucoadhesive liquid technology.
Products which are marketed to treat mucositis include Caphosol by EUSA Pharma, Gelclair by DARA BioSciences, Inc., Episil by Camurus
AB, and Kepivance by Biovitrum.
Many of these
competitors have greater financial and other resources, including larger research and development, marketing and manufacturing
organizations. As a result, our competitors may successfully develop technologies and drugs that are more effective or less costly
than any that we are developing or which would render our technology and future products obsolete and noncompetitive.
In addition,
some of our competitors have greater experience than we do in conducting preclinical and clinical trials and obtaining FDA and
other regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA or other regulatory approvals for drug candidates
more rapidly than we do. Companies that complete clinical trials, obtain required regulatory agency approvals and commence commercial
sale of their drugs before their competitors may achieve a significant competitive advantage. Drugs resulting from our research
and development efforts or from our joint efforts with collaborative partners therefore may not be commercially competitive with
our competitors’ existing products or products under development.
In the area
of advanced drug delivery, which is the focus of our early stage research and development activities, a number of companies are
developing or evaluating enhanced drug delivery systems. We expect that technological developments will occur at a rapid rate and
that competition is likely to intensify as various alternative delivery system technologies achieve similar if not identical advantages.
Even if our
products are fully developed and receive required regulatory approval, of which there can be no assurance, we believe that our
products can only compete successfully if marketed by a company having expertise and a strong presence in the therapeutic area.
Consequently, we do not currently plan to establish an internal marketing organization. By forming strategic alliances with major
and regional pharmaceutical companies, management believes that our development risks should be minimized and that the technology
potentially could be more rapidly developed and successfully introduced into the marketplace.
Other Key Developments
2015 Financings
On April 23, 2015 we closed a $7 million private
placement of common stock consisting of 2,333,333 shares of our common stock, at a price of $3.00 per share.
On May 11, 2015, we closed a $10 million private
placement of common stock consisting of 1,250,000 shares of our common stock, at a price of $8.00 per share and warrants to purchase
625,000 shares of common stock. The warrants have an exercise price of $8.00 per share and are exercisable for 30 months from the
closing date. A total net of $9.2 million was received.
Also in connection with the financing, the
placement agent received warrants to purchase 50,000 shares of common stock at $11.00 per share and which are exercisable for five
years from the closing date.
During the second quarter we received additional
financing of $4.6 million through warrant exercises of our $5.00 warrants.
On July 31, 2015 we closed an upsized $15.5
million direct placement of registered common stock with institutional investors, including Soros Fund Management and Perceptive
Life Science Fund, and two members of our Board of Directors. The financing was comprised of 2.83 million shares of our common
stock at a price of $5.50 per share.
$14 Million Financing
On December 24, 2014, we announced the closing
of an underwritten public offering of 3,500,000 shares of our common stock, and warrants to purchase up to an aggregate 3,500,000
shares of common stock, at an offering price of $4.00 per share and $.01 per warrant. The warrants have a per share exercise price
of $5.00, are exercisable immediately, and expire 5 years from the date of issuance. The gross proceeds to the Company from this
offering were $14,035,000, before deducting underwriting discounts and commissions and other estimated offering expenses. All of
the shares and warrants in the offering were sold by the Company. The shares and warrants began trading on The NASDAQ Capital Market
on December 19, 2014 under the symbols “PTBI” and “PTBIW,” respectively. In connection with the closing
of the public offering, on December 24, 2014, all of our outstanding Series A and Series B preferred stock was converted into common
stock.
Acquisition
of Abeona Therapeutics LLC
On May 5, 2015, the Company, Plasmatech
Merger Sub Inc. (“Merger Sub”), a wholly owned subsidiary of the Company and a Delaware corporation, Abeona Therapeutics
LLC, an Ohio limited liability company (“Abeona Ohio”) and Paul A. Hawkins, an individual, solely in his capacity
as Member Representative (“Member Representative”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub merged with
and into Abeona Ohio, with Abeona Ohio continuing as the surviving corporation and became a wholly owned subsidiary of the Company
(the “Merger”). Our Board of Directors and the Managers of Abeona Ohio have unanimously approved the transaction.
The merger closed on May 15, 2015.
In connection with the Merger, the Company
issued to Abeona Ohio members a total of 3,979,761 common shares upon closing of the transaction, and may issue up to an additional
$9 million in performance milestones, in common stock or cash, at the Company’s option.
Plasma Technologies LLC License (“Licensor”)
On September
22, 2014, we entered into an exclusive, worldwide licensing agreement with Licensor to obtain rights to utilize and to sub-license
its patented methods for the extraction of therapeutic biologics from human plasma. Plasma biologics are bio-pharmaceutical proteins
extracted, purified, and formulated from human blood plasma by the use of biotechnological processing techniques including precipitation,
diafiltration, affinity chromatography, and ion-exchange chromatography. Because plasma biologics are biosimilar, they are less
likely than recombinant or transgenic proteins to cause toxic or other adverse reactions, or cause adverse immunological responses
such as the stimulation of inhibitors in recipients.
Under the
terms of the licensing agreement, as amended on January 23, 2015, we paid a license fee of $1 million in cash, will pay $4,000,000
in cash or 1,096,151 shares of our common stock in 2017, a regulatory approval milestone payment of 513,375 shares of our common
stock upon the first FDA regulatory approval of a drug derived from the Licensor’s proprietary SDF process, and a tiered
royalty on annual net sales of plasma fractions produced with Licensor’s proprietary SDF process.
Miscellaneous
On March 5, 2015 we announced that enrollment
has begun in a clinical trial at UCLA’s Jonsson Comprehensive Cancer Center that is evaluating MuGard in the prevention and
treatment of stomatitis in breast cancer patients using Everolimus (marketed by Novartis Oncology under the tradename Afinitor®).
The title of the trial is “Phase II Randomized Trial of MuGard Compared With Best Supportive Care for Prevention and Treatment
of Stomatitis in Women With Hormone Receptor Positive Breast Cancer Initiating Treatment With Everolimus-based Endocrine Therapy”
and details on the trial design and enrollment can be found on its website, clinicaltrials.gov, under the identifier NCT02015559.
On March 31, 2015 we announced that Hanmi has
received marketing approval in Korea from the country’s Ministry of Food and Drug Safety (“MFDS”) and the Korea
Testing & Research Institute (KTR) for MuGard. Under the terms of the previously announced marketing agreement, Hanmi will
import MuGard from the United States and marketing will commence. Hanmi intends to market MuGard in Korea under the trade name
Mucogard.
On April 7, 2015 we announced we had appointed
Charlie Strange, M.D. to our Scientific Advisory Board (SAB). Dr. Strange is a highly regarded thought leader in the Alpha-1 community,
and has extensive clinical experience in designing and managing Alpha-1 clinical studies. We believe his advice and counsel will
help accelerate development and approval of our proprietary SDF Alpha™ biologic drug.
On May 12, 2015 we announced that Todd Wider,
MD joined our board of directors. Dr. Wider has a strong medical background and significant experience in small and mid-cap biotechnology
companies.
On May 15, 2015 Timothy J. Miller, PhD became
our President and CEO and joined our board of directors.
Dr. Miller was President & CEO
of Abeona Therapeutics LLC from 2013 to 2015. He has 16 years of scientific research, product development, regulatory and clinical
operations expertise, with a focus on transitioning novel biotherapeutics through pre-clinical phases and into Phase 1 and 2 human
clinical trials. Dr. Miller earned his PhD in Pharmacology with a focus on Gene therapy/Cystic Fibrosis from Case Western University.
He also holds a B.S. in Biology and M.S. in Molecular Biology from John Carroll University (Cleveland, OH).
On June 8, 2015 we licensed exclusive worldwide
rights to an AAV gene therapy and intellectual property for the treatment of JNCL also known as juvenile Batten disease from UNeMed
Corporation, the technology transfer and commercialization office for the University of Nebraska Medical Center in Omaha, Nebraska
for undisclosed terms.
On June 15, 2015 we licensed exclusive worldwide
rights to an AAV gene therapy and intellectual property from the University of Minnesota to treat patients with Fanconi anemia
(FA) disorder and other rare blood diseases using the CRISPR/cas9 technology platform for undisclosed terms.
On June 19, 2015 we announced we changed our
name to Abeona Therapeutics Inc. from PlasmaTech Biopharmaceuticals, Inc.
On July 7, 2015 we announced preliminary results
of our SDF plasma protein programs, confirming that multiple batches of our two-step salt precipitation process yields resultant
fractions with significantly enhanced levels of alpha-1 protease inhibitor and immunoglobulins (IVIG) relative to the industry-standard
Cohn process.
On October 6, 2015 we announced a license with
Stanford University for AAV LK19, a therapeutic gene delivery vector for the treatment of Fanconi anemia (FA) and rare blood disease
platform. The license augments a previously announced license agreement with the University of Minnesota for ABO-301 (AAV-FANCC)
to treat patients with FA disorder and other rare blood diseases.
On January 11, 2016 we announced initial regulatory
approval for Phase 1/2 gene therapy clinical studies for patients with Sanfilippo syndrome types A and B. The Interministerial
Council of Genetically Modified Organisms has approved the Genetically Modified Organism (GMO) Voluntary Release regulatory filings
for both Phase 1/2 Gene Therapy Clinical Studies to treat patients with ABO-101 (AAV NAGLU) and ABO-102 (AAV SGSH) for patients
with Sanfilippo syndrome type A (MPS IIIA) or type B (MPS IIIB). Additionally, the Comite Etico De Investigacion Clinica de Euskadi
(CEIC-E) has approved the ethical committee regulatory filings for both ABO-101 and ABO-102. Abeona plans to file CTAs for both
programs shortly for the upcoming clinical studies to be conducted at Cruces University Hospital (Bilbao, Spain).
On February 29, 2016 we announced the FDA cleared
our Investigational New Drug Application for ABO-102 (AAV-SGSH), a single treatment strategy for Mucopolysaccharidosis Type IIIA
(MPS IIIA). The ABO-102 IND application is now active and enables Nationwide Children’s Hospital (Columbus, OH) to initiate
a Phase 1/2 clinical study designed to assess the safety, tolerability and potential efficacy of ABO-102 in children with MPS III
A.
Corporate Information
Our principal executive office is located at
3333 Lee Parkway, Suite 600, Dallas, Texas 75219. Our telephone number is (214) 665-9495. We also have offices in New York at 1325
Avenue of the Americas, 27
th
Floor, New York, NY 10019. Our telephone number is (212) 786-6208. We also have offices
and laboratory in Ohio at 6555 Carnegie Ave., 4
th
Floor, Cleveland, OH 44103.
We were incorporated in Wyoming in 1974 as
Chemex Corporation, and in 1983 we changed our name to Chemex Pharmaceuticals, Inc. We changed our state of incorporation from
Wyoming to Delaware on June 30, 1989. In 1996 we merged with Access Pharmaceuticals, Inc., a private Texas corporation, and changed
our name to Access Pharmaceuticals, Inc. On October 24, 2014 we changed our name to PlasmaTech Biopharmaceuticals, Inc. On June
19, 2015 we changed our name to Abeona Therapeutics Inc.
Suppliers
Some materials used by us are specialized.
We obtain materials from several suppliers based in different countries around the world. If materials are unavailable from one
supplier we generally have alternate suppliers available.
Employees
As of March 30, 2016, we had 15 full-time employees,
six of whom have advanced scientific degrees. We have never experienced employment-related work stoppages and consider that we
maintain good relations with our personnel. In addition, to complement our internal expertise, we have contracts with scientific
consultants, contract research organizations and university research laboratories that specialize in various aspects of drug development
including clinical development, regulatory affairs, toxicology, process scale-up and preclinical testing.
Web Availability
We make available free of charge through our
website,
www.abeonatherapeutics.com
, our annual reports on Form 10-K and other reports that we file with the Securities
and Exchange Commission as well as certain of our corporate governance policies, including the charters for the audit, compensation
and nominating and corporate governance committees of the Board of Directors (the “Board”) and our code of ethics,
corporate governance guidelines and whistleblower policy. We will also provide to any person without charge, upon request, a copy
of any of the foregoing materials. Any such request must be made in writing to us at: Abeona Therapeutics Inc. c/o Investor Relations,
3333 Lee Parkway, Suite 600, Dallas, TX 75219.
ITEM 1A. RISK FACTORS
Risks Relating to our Business and Industry
We have experienced a history of losses,
we expect to incur future losses and we may be unable to obtain necessary additional capital to fund operations in the future.
We have recorded minimal revenue to date and
have incurred an accumulated deficit of approximately $310.6 million through December 31, 2015 and $296.1 million through December
31, 2014. Net loss allocable to common stockholders for the year ended December 31, 2015 was $14.5 million and the net loss for
the year ended December 31, 2014 was $29.7 million. Our losses have resulted principally from costs incurred in research and development
activities related to our efforts to develop clinical drug candidates, from losses due to derivatives and from the associated administrative
costs. We expect to incur additional operating losses over the next several years. We also expect cumulative losses to increase
if we expand research and development efforts and preclinical and clinical trials.
We require substantial capital for our
development programs and operating expenses, to pursue regulatory clearances and to prosecute and defend our intellectual property
rights. We will need to raise substantial additional capital to support our ongoing and planned operations.
If we raise additional funds by issuing equity
securities, further dilution to existing stockholders will result and future investors may be granted rights superior to those
of existing stockholders. If adequate funds are not available to us through additional equity offerings, we may be required to
delay, reduce the scope of or eliminate one or more of our research and development programs or to obtain funds by entering into
arrangements with collaborative partners or others that require us to issue additional equity securities or to relinquish rights
to certain technologies or drug candidates that we would not otherwise issue or relinquish in order to continue independent operations.
We do not have significant operating revenue
and may never attain profitability.
To date, we have funded our operations primarily
through private sales of common stock, preferred stock and convertible notes. Contract research payments and licensing fees from
corporate alliances and mergers have also provided funding for our operations. Our ability to achieve significant revenue or profitability
depends upon our licensees ability to successfully market MuGard in North America, Europe, Australia, New Zealand, Korea and China
or to complete the development of our drug candidates, to develop and obtain patent protection and regulatory approvals for our
drug candidates and to manufacture and commercialize the resulting drugs. We are not expecting any significant revenues in the
short-term from our products or product candidates. Furthermore, we may not be able to ever successfully identify, develop, commercialize,
patent, manufacture, obtain required regulatory approvals and market any additional products. Moreover, even if we do identify,
develop, commercialize, patent, manufacture, and obtain required regulatory approvals to market additional products, we may not
generate revenues or royalties from commercial sales of these products for a significant number of years, if at all. Therefore,
our proposed operations are subject to all the risks inherent in the establishment of a new business enterprise. In the next few
years, our revenues may be limited to minimal product sales and royalties, and any amounts that we receive under strategic partnerships
and research or drug development collaborations that we may establish and, as a result, we may be unable to achieve or maintain
profitability in the future or to achieve significant revenues in order to fund our operations.
We may not successfully commercialize our
drug candidates.
Our drug candidates are subject to the risks
of failure inherent in the development of pharmaceutical products based on new technologies, and our failure to develop safe commercially
viable drugs would severely limit our ability to become profitable or to achieve significant revenues. We may be unable to successfully
commercialize our drug candidates because:
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some or all of our drug candidates may be found to be unsafe or ineffective or otherwise fail to
meet applicable regulatory standards or receive necessary regulatory clearances;
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our drug candidates, if safe and effective, may be too difficult to develop into commercially viable
drugs;
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it may be difficult to manufacture or market our drug candidates on a large scale;
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proprietary rights of third parties may preclude us from marketing our drug candidates; and
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third parties may market superior or equivalent drugs.
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The success of our research and development
activities, upon which we primarily focus, is uncertain.
Our primary focus is on our research and development
activities and the commercialization of compounds covered by proprietary biopharmaceutical patents and patent applications. Research
and development activities, by their nature, preclude definitive statements as to the time required and costs involved in reaching
certain objectives. Actual research and development costs, therefore, could significantly exceed budgeted amounts and estimated
time frames may require significant extension. Cost overruns, unanticipated regulatory delays or demands, unexpected adverse side
effects or insufficient therapeutic efficacy will prevent or substantially slow our research and development effort and our business
could ultimately suffer. We anticipate that we will remain principally engaged in research and development activities for an indeterminate,
but substantial, period of time.
We may be unable to successfully develop,
market, or commercialize our products or our product candidates without establishing new relationships and maintaining current
relationships and our ability to successfully commercialize, and market our product candidates could be limited if a number of
these existing relationships are terminated.
Our strategy for the research, development
and commercialization of our potential pharmaceutical products may require us to enter into various arrangements with corporate
and academic collaborators, licensors, licensees and others, in addition to our existing relationships with other parties. Specifically,
we may seek to joint venture, sublicense or enter other marketing arrangements with parties that have an established marketing
capability or we may choose to pursue the commercialization of such products on our own. We may, however, be unable to establish
such additional collaborative arrangements, license agreements, or marketing agreements as we may deem necessary to develop, commercialize
and market our potential pharmaceutical products on acceptable terms. Furthermore, if we maintain and establish arrangements or
relationships with third parties, our business may depend upon the successful performance by these third parties of their responsibilities
under those arrangements and relationships.
We may be unable to successfully manufacture
our products and our product candidates in clinical quantities or for commercial purposes without the assistance of contract manufacturers,
which may be difficult for us to obtain and maintain.
We have limited experience in the manufacture
of pharmaceutical products in clinical quantities or for commercial purposes and we may not be able to manufacture any new pharmaceutical
products that we may develop. As a result, we have established, and in the future intend to establish arrangements with contract
manufacturers to supply sufficient quantities of products to conduct clinical trials and for the manufacture, packaging, labeling
and distribution of finished pharmaceutical products if any of our potential products are approved for commercialization. If we
are unable to contract for a sufficient supply of our potential pharmaceutical or biopharmaceutical products on acceptable terms,
our preclinical and human clinical testing schedule may be delayed, resulting in the delay of our clinical programs and submission
of product candidates for regulatory approval. This may cause our business to suffer if there are delays or difficulties in establishing
relationships with manufacturers to produce, package, label and distribute our finished pharmaceutical or biopharmaceutical or
other medical products, if any. Moreover, US contract manufacturers that we may use must adhere to current Good Manufacturing Practices,
as required by the FDA. In this regard, the FDA will not issue a pre-market approval or product and establishment licenses, where
applicable, to a manufacturing facility for the products until the manufacturing facility passes a pre-approval plant inspection.
If we are unable to obtain or retain third party manufacturing on commercially acceptable terms, we may not be able to commercialize
our products as planned. Our potential dependence upon third parties for the manufacture of our products may adversely affect our
ability to generate profits or acceptable profit margins and our ability to develop and deliver such products on a timely and competitive
basis.
We are subject to extensive governmental
regulation which increases our cost of doing business and may affect our ability to commercialize any new products that we may
develop.
The FDA and comparable agencies in foreign
countries impose substantial requirements upon the introduction of pharmaceutical products through lengthy and detailed laboratory,
preclinical and clinical testing procedures and other costly and time-consuming procedures to establish safety and efficacy. All
of our drugs and drug candidates require receipt and maintenance of governmental approvals for commercialization. Preclinical and
clinical trials and manufacturing of our drug candidates will be subject to the rigorous testing and approval processes of the
FDA and corresponding foreign regulatory authorities. Satisfaction of these requirements typically takes a significant number of
years and can vary substantially based upon the type, complexity and novelty of the product.
Due to the time-consuming and uncertain nature
of the drug candidate development process and the governmental approval process described above, we cannot assure you when we,
independently or with our collaborative partners, might submit a New Drug Application, or NDA, for FDA or other regulatory review.
Further, our ability to commence and/or complete development projects will be subject to our ability to raise enough funds to pay
for the development costs of these projects. Government regulation also affects the manufacturing and marketing of pharmaceutical
products. Government regulations may delay marketing of our potential drugs for a considerable or indefinite period of time, impose
costly procedural requirements upon our activities and furnish a competitive advantage to larger companies or companies more experienced
in regulatory affairs. Delays in obtaining governmental regulatory approval could adversely affect our marketing as well as our
ability to generate significant revenues from commercial sales.
Our drug candidates may not receive FDA or
other regulatory approvals on a timely basis or at all. Moreover, if regulatory approval of a drug candidate is granted, such approval
may impose limitations on the indicated use for which such drug may be marketed. Even if we obtain initial regulatory approvals
for our drug candidates, our drugs and our manufacturing facilities would be subject to continual review and periodic inspection,
and later discovery of previously unknown problems with a drug, manufacturer or facility may result in restrictions on the marketing
or manufacture of such drug, including withdrawal of the drug from the market. The FDA and other regulatory authorities stringently
apply regulatory standards and failure to comply with regulatory standards can, among other things, result in fines, denial or
withdrawal of regulatory approvals, product recalls or seizures, operating restrictions and criminal prosecution.
The uncertainty associated with preclinical
and clinical testing may affect our ability to successfully commercialize new products.
Before we can obtain regulatory
approvals for the commercial sale of any of our potential drugs, the drug candidates will be subject to extensive preclinical
and clinical trials to demonstrate their safety and efficacy in humans. Preclinical or clinical trials of future drug
candidates may not demonstrate the safety and efficacy to the extent necessary to obtain regulatory approvals and our drug
candidates could result in injury or death to patients in our clinical trials. In this regard, for example, adverse side
effects can occur during the clinical testing of a new drug on humans which may delay ultimate FDA approval or even lead it
to terminate our efforts to develop the drug for commercial use. Companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials, even after demonstrating promising results in earlier trials, including
injury or death. The failure to adequately demonstrate the safety and efficacy of a drug candidate under development could delay
or prevent regulatory approval of the drug candidate. A delay or failure to receive regulatory approval for any of our drug
candidates could prevent us from successfully commercializing such candidates and we could incur substantial additional
expenses in our attempt to further develop such candidates and obtain future regulatory approval.
We may incur substantial product liability
expenses due to the use or misuse of our products for which we may be unable to obtain insurance coverage.
Our business exposes us to potential
liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. These risks will
expand with respect to our drug candidates, if any, that receive regulatory approval for commercial sale and we may face
substantial liability for damages in the event of adverse side effects, including injury or death, or product
defects identified with any of our products that are used in clinical tests or marketed to the public. Product liability
insurance for the biotechnology industry is generally expensive, if available at all, and as a result, we may be unable
to obtain insurance coverage at acceptable costs or in a sufficient amount in the future, if at all. We may be unable to
satisfy any claims for which we may be held liable as a result of the use or misuse of products which we developed,
manufactured or sold and any such product liability claim could adversely affect our business, operating results or financial
condition.
Intense competition may limit our ability
to successfully develop and market commercial products.
The biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological change. Our competitors in the U.S. and elsewhere
are numerous and include, among others, major multinational pharmaceutical and chemical companies, specialized biotechnology firms
and universities and other research institutions. Many of our competitors have and employ greater financial and other resources,
including larger research and development, marketing and manufacturing organizations. As a result, our competitors may successfully
develop technologies and drugs that are more effective or less costly than any that we are developing or which would render our
technology and future products obsolete and noncompetitive.
In addition, some of our competitors have greater
experience than we do in conducting preclinical and clinical trials and obtaining FDA and other regulatory approvals. Accordingly,
our competitors may succeed in obtaining FDA or other regulatory approvals for drug candidates more rapidly than we can. Companies
that complete clinical trials, obtain required regulatory agency approvals and commence commercial sale of their drugs before their
competitors may achieve a significant competitive advantage. Drugs resulting from our research and development efforts or from
our joint efforts with collaborative partners therefore may not be commercially competitive with our competitors’ existing
products or products under development.
Our ability to successfully develop and
commercialize our drug candidates will substantially depend upon the availability of reimbursement funds for the costs of the resulting
drugs and related treatments.
Market acceptance and sales of our product
candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage
as well as levels at which government authorities and third-party payers, such as private health insurers and health maintenance
organizations, reimburse patients for the price they pay for our products as well as levels at which these payors pay directly
for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure that reimbursement
will be available for any of these products. Also, we cannot be sure that coverage or reimbursement amounts will not reduce the
demand for, or the price of, our products. We have not commenced efforts to have our product candidates reimbursed by government
or third party payors. If coverage and reimbursement are not available or are available only at limited levels, we may not be able
to commercialize our products. In recent years, officials have made numerous proposals to change the health care system in the
U.S. These proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing
of drugs to government control. In addition, in many foreign countries, particularly the countries of the European Union, the pricing
of prescription drugs is subject to government control. If our products are or become subject to government regulation that limits
or prohibits payment for our products, or that subjects the price of our products to governmental control, we may not be able to
generate revenue, attain profitability or commercialize our products.
As a result of legislative proposals and the
trend towards managed health care in the U.S., third-party payors are increasingly attempting to contain health care costs by limiting
both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements and/or
refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted
market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients
for their use of newly-approved drugs, which in turn will put pressure on the pricing of drugs.
The market may not accept any pharmaceutical
products that we develop.
The drugs that we are attempting to develop
may compete with a number of well-established drugs manufactured and marketed by major pharmaceutical companies. The degree of
market acceptance of any drugs developed by us will depend on a number of factors, including the establishment and demonstration
of the clinical efficacy and safety of our drug candidates, the potential advantage of our drug candidates over existing therapies
and the reimbursement policies of government and third-party payers. Physicians, patients or the medical community in general may
not accept or use any drugs that we may develop independently or with our collaborative partners and if they do not, our business
could suffer.
Healthcare reform measures could hinder
or prevent our product candidates’ commercial success.
The U.S. government and other governments have
shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely impact the pricing
of healthcare products and services in the U.S. or internationally and the amount of reimbursement available from governmental
agencies or other third party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed
care organizations and other payors of health care services to contain or reduce health care costs may adversely affect our ability
to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.
New laws, regulations and judicial decisions,
or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery
or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise
our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging
due to several reasons, including policies advanced by the current executive administration in the U.S., new healthcare legislation
or fiscal challenges faced by government health administration authorities. Specifically, in both the U.S. and some foreign jurisdictions,
there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our
ability to sell our products profitably.
For example, in March 2010, President Obama
signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA.
This law will substantially change the way healthcare is financed by both government health plans and private insurers, and significantly
impact the pharmaceutical industry. The PPACA contains a number of provisions that are expected to impact our business and operations
in ways that may negatively affect our potential revenues in the future. For example, the PPACA imposes a non-deductible excise
tax on pharmaceutical manufacturers or importers that sell branded prescription drugs to U.S. government programs which we believe
will increase the cost of our products. In addition, as part of the PPACA’s provisions closing a funding gap that currently
exists in the Medicare Part D prescription drug program (commonly known as the ‘‘donut hole’’), we will
be required to provide a discount on branded prescription drugs equal to 50% of the government-negotiated price, for drugs provided
to certain beneficiaries who fall within the donut hole. Similarly, PPACA increases the level of Medicaid rebates payable by manufacturers
of brand-name drugs from 15.1% to 23.1% and requires collection of rebates for drugs paid by Medicaid managed care organizations.
The PPACA also includes significant changes to the 340B drug discount program including expansion of the list of eligible covered
entities that may purchase drugs under the program. At the same time, the expansion in eligibility for health insurance benefits
created under PPACA is expected to increase the number of patients with insurance coverage who may receive our products. While
it is too early to predict all the specific effects the PPACA or any future healthcare reform legislation will have on our business,
they could have a material adverse effect on our business and financial condition.
Congress periodically adopts legislation like
the PPACA and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, that modifies Medicare reimbursement and
coverage policies pertaining to prescription drugs. Implementation of these laws is subject to ongoing revision through regulatory
and sub regulatory policies. Congress also may consider additional changes to Medicare policies, potentially including Medicare
prescription drug policies, as part of ongoing budget negotiations. While the scope of any such legislation is uncertain at this
time, there can be no assurances that future legislation or regulations will not decrease the coverage and price that we may receive
for our proposed products. Other third-party payors are increasingly challenging the prices charged for medical products and services.
It will be time consuming and expensive for us to go through the process of seeking coverage and reimbursement from Medicare and
private payors. Our proposed products may not be considered cost-effective, and coverage and reimbursement may not be available
or sufficient to allow us to sell our proposed products on a profitable basis. Further federal and state proposals and health care
reforms are likely which could limit the prices that can be charged for the product candidates that we develop and may further
limit our commercial opportunities. Our results of operations could be materially adversely affected by proposed healthcare reforms,
by the Medicare prescription drug coverage legislation, by the possible effect of such current or future legislation on amounts
that private insurers will pay and by other health care reforms that may be enacted or adopted in the future. In September 2007,
the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including
the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance
with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in
delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance
with post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of approved products.
Our business could suffer if we lose the
services of, or fail to attract, key personnel.
We are highly dependent upon the efforts of
our senior management, including our Executive Chairman, Principal Executive Officer, and board member, Steven H. Rouhandeh; our
President and Chief Executive Officer, and board member, Timothy J. Miller; our Chief Operating Officer and board member, Jeffrey
B. Davis; our Chief Financial Officer, Harrison G. Wehner, III; and our Chief Accounting Officer, Stephen B. Thompson. The loss
of the services of these individuals could delay or prevent the achievement of our research, development, marketing, or product
commercialization objectives. We do not have employment contracts with our other key personnel. We do not maintain any ‘key-man’
insurance policies on any of our key employees and we do not intend to obtain such insurance. In addition, due to the specialized
scientific nature of our business, we are highly dependent upon our ability to attract and retain qualified scientific and technical
personnel and consultants. In view of the stage of our development and our research and development programs, we have restricted
our hiring to research scientists, consultants and a small administrative staff and we have made only limited investments in manufacturing,
production, sales or regulatory compliance resources. There is intense competition among major pharmaceutical and chemical companies,
specialized biotechnology firms and universities and other research institutions for qualified personnel in the areas of our activities,
however, and we may be unsuccessful in attracting and retaining these personnel.
Trends toward managed health care and downward
price pressures on medical products and services may limit our ability to profitably sell any drugs that we may develop.
Lower prices for pharmaceutical products may
result from:
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third-party-payers’ increasing challenges to the prices charged for medical products and
services;
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the trend toward managed health care in the U.S. and the concurrent growth of HMOs and similar
organizations that can control or significantly influence the purchase of healthcare services and products; and
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legislative proposals to reform healthcare or reduce government insurance programs.
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The cost containment measures that healthcare
providers are instituting, including practice protocols and guidelines and clinical pathways, and the effect of any healthcare
reform, could limit our ability to profitably sell any drugs that we may successfully develop. Moreover, any future legislation
or regulation, if any, relating to the healthcare industry or third-party coverage and reimbursement, may cause our business to
suffer.
Security breaches and other disruptions
could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we
collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers
and business partners, as well as personally identifiable information of clinical trial participants and employees. Similarly,
our business partners and third party providers possess certain of our sensitive data. The secure maintenance of this information
is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure
may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could
compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access,
disclosure or other loss of information, including our data being breached at our business partners or third-party providers, could
result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations,
and damage our reputation which could adversely affect our business.
Risks Related to our Intellectual Property
It is difficult and costly to protect our
proprietary rights, and we may not be able to ensure protection of such rights.
Our commercial success will depend in part
on obtaining and maintaining patent protection and trade secret protection of our product candidates, and the methods used to manufacture
them, as well as successfully defending these patents against third-party challenges. We will only be able to protect our product
candidates from unauthorized making, using, selling and offering to sell or importation by third parties to the extent that we
have rights under valid and enforceable patents or trade secrets that cover these activities. The patent positions of pharmaceutical
and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles
remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in
the U.S. The biotechnology patent situation outside the U.S. is even more uncertain. Changes in either the patent laws or in interpretations
of patent laws in the U.S. and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict
the breadth of claims that may be allowed or enforced in our issued patents or in third-party patents.
The degree of future protection for our proprietary
rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to
gain or keep our competitive advantage. For example:
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others may be able to produce compounds or molecules that are competitive with our product candidates
but that are not covered by the claims of our patents;
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we may not have been the first to make the inventions covered by our pending patent applications;
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we may not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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it is possible that our pending patent applications will not result in issued patents and it is
possible that our issued patents could be narrowed in scope, invalidated, held to be unenforceable, or circumvented;
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we may not develop additional proprietary technologies that are patentable; or
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the patents of others may have an adverse effect on our business; or others may be able to misappropriate
our trade secrets.
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We also may rely on trade secrets to protect
our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult
to protect. While we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that
a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable.
In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may
independently develop equivalent knowledge, methods and know-how.
We may incur substantial costs as a result
of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our
rights to, or use, our technology.
If we choose to go to court to stop someone
else from using the inventions claimed in our patents, that individual or company has the right to ask the court to rule that these
patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time
and other resources even if we were successful in stopping the infringement of these patents. In addition, there is a risk that
the court will decide that these patents are not valid and that we do not have the right to stop the other party from using the
inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other
party on the ground that such other party’s activities do not infringe our rights to these patents.
Furthermore, a third party may claim that we
are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal
operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results
of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we
are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there
is a risk that a court will order us to pay the other party damages for having violated the other party’s patents. The biotechnology
industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents
cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or
methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we
may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing
evidence to overcome the presumption of validity enjoyed by issued patents. Because some patent applications in the U.S. may be
maintained in secrecy until the patents are issued, patent applications in the U.S. and many foreign jurisdictions are typically
not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries,
we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending
applications or that we were the first to invent the technology. Our competitors have filed, and may in the future file, patent
applications covering technology similar to ours. Any such patent application may have priority over our patent applications and
could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent
application on inventions similar to ours, we may have to participate in an interference proceeding declared by the PTO, to determine
priority of invention in the U.S. The costs of these proceedings could be substantial, and it is possible that such efforts would
be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.
Some of our competitors may be able to sustain
the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition,
any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our
ability to raise the funds necessary to continue our operations.
Future litigation, including
product liability claims, private securities litigation, stockholder derivative suits and contract litigation, may adversely affect
our financial condition and results of operations or liquidity.
The development, manufacture and marketing
of pharmaceutical products of the types that we produce entail an inherent risk of product liability claims. A number of factors
could result in an unsafe condition or injury to a patient with respect to these or other products that we manufacture or sell,
including inadequate disclosure of product-related risks or product-related information. In addition, we may be the subject of
litigation involving contract disputes, stockholder derivative suites or private securities litigation. The outcome of litigation,
particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery
of very large or indeterminate amounts, including not only actual damages, but also punitive damages. The magnitude of the potential
losses relating to these lawsuits may remain unknown for substantial periods of time. In addition, the cost to defend against any
future litigation may be significant. Product liability claims, securities and commercial litigation and other litigation in the
future, regardless of the outcome, could have a material adverse effect on our financial condition, results of operations or liquidity.
We may not be successful in protecting our
intellectual property and proprietary rights.
Our success depends, in part, on our ability
to obtain U.S. and foreign patent protection for our drug candidates and processes, preserve our trade secrets and operate our
business without infringing the proprietary rights of third parties. Legal standards relating to the validity of patents covering
pharmaceutical and biotechnological inventions and the scope of claims made under such patents are still developing and there is
no consistent policy regarding the breadth of claims allowed in biotechnology patents. The patent position of a biotechnology firm
is highly uncertain and involves complex legal and factual questions. We cannot assure you that any existing or future patents
issued to, or licensed by, us will not subsequently be challenged, infringed upon, invalidated or circumvented by others. We cannot
assure you that any patents will be issued from any of the patent applications owned by, or licensed to, us. Furthermore, any rights
that we may have under issued patents may not provide us with significant protection against competitive products or otherwise
be commercially viable.
Patents may have been granted to third parties
or may be granted covering products or processes that are necessary or useful to the development of our drug candidates. If our
drug candidates or processes are found to infringe upon the patents or otherwise impermissibly utilize the intellectual property
of others, our development, manufacture and sale of such drug candidates could be severely restricted or prohibited. In such event,
we may be required to obtain licenses from third parties to utilize the patents or proprietary rights of others. We cannot assure
you that we will be able to obtain such licenses on acceptable terms, if at all. If we become involved in litigation regarding
our intellectual property rights or the intellectual property rights of others, the potential cost of such litigation, regardless
of the strength of our legal position, and the potential damages that we could be required to pay could be substantial.
Our products could infringe on the intellectual
property rights of others, and we may be required to license technology from third parties in the future in order to market our
products.
Companies in the biotechnology and pharmaceutical
industries steadfastly pursue and protect intellectual property rights. This can result in considerable and costly litigation to
determine the validity of patents and claims by third parties of infringement of patents or other intellectual property. Our gene
therapy products could be found to infringe on the intellectual property rights of others. Other companies may hold or obtain patents
or inventions or other proprietary rights in technology necessary for our business. We have or may be required to obtain licenses
from other companies to use such proprietary rights. We may be unable to obtain licenses to use such proprietary rights.
Furthermore, should we violate the terms of a license, that license could be cancelled. Our ability to achieve profitability and
positive cash flow may be negatively affected by our inability to procure such a license, the cancellation of any such license,
any new license fees arising out of any new license, or any increases in license fees we currently pay. Periodically companies
inquire about our products and technology in their attempts to assess whether we violate their intellectual property rights. If
we are forced to defend against infringement claims, we may face costly litigation and diversion of technical and management personnel,
even if the allegations of infringement are unwarranted. In addition, as a result of potential infringement claims, we may be required
to obtain one or more licenses from other companies to use the infringed technology, and the license fees we pay may negatively
affect our ability to achieve profitability and positive cash flow. If there is a successful claim of infringement against us and
we are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, our business,
and our ability to grow revenue and achieve profitability and positive cash flow, could be adversely affected.
Risks Related to our Common Stock
The market price of our common stock may
be volatile and adversely affected by several factors.
The market price of our common stock could
fluctuate significantly in response to various factors and events, including:
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our ability to integrate operations, technology, products and services;
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our ability to execute our business plan;
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operating results below expectations;
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announcements concerning product development results, including clinical trial results, or intellectual
property rights of others;
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litigation or public concern about the safety of our potential products;
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our issuance of additional securities, including debt or equity or a combination thereof, which
will be necessary to fund our operating expenses;
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announcements of technological innovations or new products by us or our competitors;
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loss of any strategic relationship;
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industry developments, including, without limitation, changes in healthcare policies or practices
or third-party reimbursement policies; economic and other external factors;
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period-to-period fluctuations in our financial results; and
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whether an active trading market in our common stock develops and is maintained.
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In addition, the securities markets have from
time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
We have not paid cash dividends in the past
and do not expect to pay cash dividends in the foreseeable future. Any return on investment may be limited to the value of our
common stock.
We have never paid cash dividends on our common
stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our
capital stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time
as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return
on your investment will only occur if the common stock price appreciates.
Our quarterly operating results may fluctuate
significantly.
We expect our operating results to be subject
to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
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variations in the level of expenses related to our development programs;
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addition or termination of clinical trials;
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any intellectual property infringement lawsuit in which we may become involved;
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regulatory developments affecting our product candidates; and
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our execution of any collaborative, licensing or similar arrangements, and the timing of payments
we may make or receive under these arrangements.
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If our quarterly operating results fall below
the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any
quarterly fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially.
Provisions of our charter documents could
discourage an acquisition of our company that would benefit our stockholders and may have the effect of entrenching, and making
it difficult to remove, management.
Provisions of our Certificate of Incorporation
and By-laws may make it more difficult for a third party to acquire control of us, even if a change in control would benefit our
stockholders. In particular, shares of our preferred stock may be issued in the future without further stockholder approval and
upon such terms and conditions, and having such rights, privileges and preferences, as our Board of Directors may determine, including,
for example, rights to convert into our common stock. The rights of the holders of our common stock will be subject to, and may
be adversely affected by, the rights of the holders of any of our preferred stock that may be issued in the future. The issuance
of our preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes,
could have the effect of making it more difficult for a third party to acquire control of us. This could limit the price that certain
investors might be willing to pay in the future for shares of our common stock and discourage these investors from acquiring a
majority of our common stock. Further, the existence of these corporate governance provisions could have the effect of entrenching
management and making it more difficult to change our management.
Failure to achieve and maintain effective
internal controls could have a material adverse effect on our business.
Effective internal controls are necessary for
us to provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be harmed.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Based on our evaluation, our management concluded
that there is no material weakness in our internal control over financial reporting for the year ended December 31, 2015 based
on the criteria established in Internal Control —Integrated Framework, 2013, issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”).
While we continue to evaluate and improve our
internal controls, we cannot be certain that these measures will ensure adequate controls over our financial processes and reporting
in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our reporting obligations. Failure to achieve and maintain an effective
internal control environment could cause investors to lose confidence in our reported financial information, which could have a
material adverse effect on our stock price. Failure to comply with Section 404 could also potentially subject us to sanctions or
investigations by the Securities and Exchange Commission (“SEC”) or other regulatory authorities.
There can be no assurance that we will be
able to comply with continued listing standards of the NASDAQ Capital Market.
We cannot
assure you that we will be able to continue to comply with the minimum bid price and the other standards that we are required to
meet in order to maintain a listing of our common stock on the NASDAQ Capital Market. Our failure to continue to meet these requirements
may result in our common stock being delisted from the NASDAQ Capital Market.
Our ability to use our net operating loss
carry forwards may be subject to limitation.
Generally, a change of more than 50% in the
ownership of a company’s stock, by value, over a three-year period constitutes an ownership change for U.S. federal income
tax purposes. An ownership change may limit our ability to use our net operating loss carryforwards attributable to the period
prior to the change. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards
to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax
liability for us. At December 31, 2015, we had net operating loss carryforwards aggregating approximately $209.7 million.
Ownership of our shares is concentrated
in the hands of a few investors which could limit the ability of our other stockholders to influence the direction of the company.
As calculated by SEC rules of beneficial ownership,
SCO Capital Partners LLC and affiliates; Perceptive Advisors LLC (and affiliates Joseph Edelman); Quantum Partners (and affiliates
Soros Fund Management LLC); and Europa International Inc. (and affiliates Knoll Capital Management) each beneficially owned approximately
42.2%, 5.2%, 5.2% and 5.1%, respectively, of our common stock as of December 31, 2015. Accordingly, they
collectively have the ability to significantly influence or determine the election of all of our directors or the outcome of most
corporate actions requiring stockholder approval. They may exercise this ability in a manner that advances their best interests
and not necessarily those of our other stockholders.