Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐
Yes ☒ No
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes
☒ No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. ☒ Yes
☐ No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). ☒ Yes
☐ No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes
☒ No
The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the Company’s common equity
was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter based upon the
closing price of the common stock as reported by NASDAQ on such date, was $30,672,818.
The number of shares outstanding of Registrant’s
common stock, $0.01 par value at February 28, 2017 was 11,045,480 .
Portions of the registrant’s definitive
proxy statement relating to its 2017 annual meeting of shareholders (the “2017 Proxy Statement”) are incorporated by
reference into Part III of this Annual Report on Form 10-K where indicated. The 2017 Proxy Statement will be filed with the U.S.
Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
PART I
We urge you to read this entire
Annual Report on Form 10-K, including the “Risk Factors” section, the financial statements and the related notes included
therein. As used in this Annual Report, unless context otherwise requires, the words “we,” “us,” “our,”
“the Company,” “Neuralstem” and “Registrant” refer to Neuralstem, Inc. and its subsidiary.
Also, any reference to “common share” or “common stock,” refers to our $.01 par value common stock. Additionally,
any reference to our “Series A Preferred Stock” refers to our Series A 4.5% Convertible Preferred Stock. On January
6, 2017, we completed a one-for-thirteen reverse stock split of our common stock. All share and per share information in this report
has been adjusted to reflect the reverse stock split.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Statements in this annual report that
are not strictly historical are forward-looking statements and include statements made pursuant to the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995 such as statements about products in development, results and
analyses of pre-clinical studies, clinical trials and studies, research and development expenses, cash expenditures, regulatory
applications and approvals, and third party relationships, among other matters. You can identify these forward-looking statements
because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future
events or circumstances and may often be identified by words such as “expect,” “anticipate,” “intend,”
“plan,” “believe,” “seek” or “will.” These forward-looking statements are not guarantees
of future performance and are subject to substantial risks and uncertainties that may cause actual results to differ materially
from those in the forward-looking statements These Forward-looking statements by their nature address matters that are, to different
degrees, uncertain. Specific risks and uncertainties that could cause our actual results to differ materially from those expressed
in our forward-looking statements include risks inherent in our ability to conduct and obtain successful results from our clinical
trials, our ability to commercialize our technology, our ability to obtain regulatory approval for our product candidates, our
ability to contract with third parties to adequately test and manufacture our proposed products, our ability to protect our intellectual
property rights and our ability to obtain additional financing to continue development efforts. These forward-looking statements
are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results
to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this Annual Report, and in particular, the risks discussed under the caption
“Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission
(SEC). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements,
except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements.
The
information contained herein is current as of the date of this Annual Report (December 31, 2016), unless another date is specified.
Overview
We are focused on the research and development
of nervous system therapies based on our proprietary human neuronal stem cells and our small molecule compounds with the ultimate
goal of gaining approval from the United States Food and Drug Administration or FDA, and its international counterparts to market
and commercialize such therapies. We are headquartered in Germantown, Maryland.
Our technology base has produced three
primary assets: our NSI-189 small molecule program, our NSI-566 stem cell therapy program and our novel and proprietary new chemical
entity screening platform.
Our patented technologies enable the commercial-scale
production of multiple types of central nervous system stem cells, which are under development for the potential treatment of central nervous system diseases and conditions. In addition, this ability to generate human neural stem cell lines provides
a platform for chemical screening and discovery of novel compounds that we believe may be used to stimulate the brain's capacity
to regenerate neurons, thereby potentially treating or reversing pathologies associated with certain nervous system conditions.
This proprietary screening platform enabled our discovery of NSI-189.
We have developed and maintain what we
believe is a strong portfolio of patents and patent applications that form the proprietary base for our research and development
efforts. We own or exclusively license over 20 U.S. issued and pending patents and over 120 foreign issued and pending patents
in the field of regenerative medicine, related to our stem cell technologies as well as our small molecule compounds.
We believe our technology base, in combination
with our expertise, and established collaborations with major research institutions, could facilitate the development and commercialization
of products for use in the treatment of a wide array of nervous system disorders including neurodegenerative conditions and regenerative
repair of acute and chronic disease.
Clinical Programs
We have devoted substantially all of our
efforts and financial resources to the pre-clinical and clinical development of our small molecule compounds and our stem cell
therapeutics. Below is a description of our most advanced clinical programs, their intended indication, current stage of development
and our expected future development plans:
In January 2016 we announced a strategic
refocusing to concentrate our resources primarily on our NSI-189 small molecule program. As part of this refocusing, we announced
that we will seek external funding to defray all, or substantially all, of the costs associated with our NSI-566 stem cell therapy
program. Although we are in active conversations with a number of funding sources to achieve this goal and minimize any delay in
progressing our stem cell therapy programs, there can be no assurance that any such funding source will ultimately be secured.
NSI - 189 (Small Molecule Pharmaceutical
Compound).
Our lead asset, NSI-189,
is a novel new chemical entity. NSI-189 is currently in an ongoing
Phase 2 clinical trial for the treatment of major depressive disorder (MDD).
Research
indicates that there may be a link between impaired hippocampal neurogenesis and psychiatric disorders such as depression. We
believe that NSI-189 may provide an effective treatment for patients suffering from MDD by promoting synaptogenesis or neurogenesis
in the hippocampus.
Results to date indicate that NSI-189 promotes neurogenesis in rodents and exerts anti-depression effects
in MDD patients
1
. NSI-189 stimulates neurogenesis of human hippocampus derived neural stem cells in vitro and stimulates
neurogenesis in mouse hippocampus in vivo therefore we believe NSI-189 may be a powerful anti-depressant. NSI-189 is believed
to have a highly specific effect in the hippocampus, a well-known neurogenic region in adult CNS.
In
a Phase 1B study in subjects with MDD, NSI-189 showed strong potential for efficacy on both depression and cognition scales. Additionally,
data from the study indicated that the compound appears to impart a durable effect. While the mechanism of action is not yet fully
understood, our data suggest that NSI-189 works by a different mechanism of action than current therapies. Accordingly, we believe
that NSI-189 may have a better therapeutic response as well as a favorable side-effect profile when compared to currently marketed
products.
We are currently conducting a Phase 2 randomized,
placebo-controlled, double-blind clinical trial for the treatment of MDD in an outpatient setting. The study is designed to randomize
220 subjects in three cohorts (two active doses plus placebo), at 12 select trial sites. The trial design incorporates strategies
to limit placebo effect. These include using experienced trial sites, a placebo-reducing pre-screen process, and a second confirmatory
diagnostic interview performed remotely by the Massachusetts General Hospital (MGH).
__________________________
1
Fava M, et al. Molecular Psychiatry , 8 Dec 2015; doi: 10.1038/mp.2015.178
Study subjects are randomized to three
cohorts: NSI-189 40 mg twice daily (BID), NSI-189 40 mg once daily (QD), or placebo. After the initial screening period, the dosing
portion of the trial is 12 weeks in duration. There is a two week wash out period for those subject enrolled that were taking
an anti-depressant at the time of screening. The primary endpoint is measurement on the Montgomery-Asberg Depression Rating Scale
(MADRS). Secondary endpoints include scores on the Hamilton Depression Rating Scale (HAM-D), Symptoms of Depression Questionnaire
(SDQ), the MGH Cognitive and Physical Functioning Questionnaire (CPFQ), the Clinical Global Impression-Severity (CGI-S) scale,
the Clinical Global Impression of Improvement (CGI-I) scale, and two computerized cognition measurements; Cogstate Brief Battery,
and CogScreen. The study is 80% powered to show an improvement in the primary endpoint, compared to placebo, with an effect size
of Cohen’s d=0.5 (p ≤ 0.05). Subjects eligible for the study must be diagnosed with major depressive disorder, recurrent,
as per Diagnostic and Statistical Manual of Mental Disorders V
2
, (DSM-V), scoring 20 or greater on the MADRS, at screening
and baseline and experiencing at least one eight-week MDD episode. The MADRS score will be confirmed to be 20 or greater via remote
SAFER interview by an independent rater prior to the baseline visit. After the 12-week trial period, eligible subjects are given
the opportunity to enroll in a separate six-month observational study to assess the durability of effect defined as the time until
the start of a new antidepressant treatment (ADT). Both the interventional and the observational studies are being conducted under
the direction of study principal investigator (PI) Maurizio Fava, MD, Executive Vice Chair, Department of Psychiatry and Executive
Director, Clinical Trials Network and Institute, Massachusetts General Hospital.
We enrolled the first subject in May 2016.
In September, 2016 we announced that we had achieved 50% enrollment. In February, 2017 we announced that we had completed enrollment
in the study. We expect to release the results of this study during the third quarter of 2017.
Major
Depressive Disorder (MDD)
Major depressive disorder (also known as recurrent depressive disorder, clinical depression, major depression,
unipolar depression, or unipolar disorder) is a mental disorder characterized by episodes of all-encompassing low mood accompanied
by low self-esteem and loss of interest or pleasure in normally enjoyable activities. MDD is the leading cause of disability in
the U.S. for persons age 15 to 44.
In 2015, an estimated 16.1 million adults aged 18 or older in
the United States had at least one major depressive episode in the prior year. This number represented 6.7% of all U.S. adults
3
.
Treatment of MDD is characterized by a high rate of patient turnover due to low efficacy and high side-effects. It is estimated
that 67% of patients will fail their first line therapy, 75% will then fail their second line prescription and 80% will then fail
their third line prescription
4
.
These factors combine to create a significant opportunity for a differentiated
therapeutic agent, particularly one that may act through a novel mechanism of action.
Early
Clinical Experience with NSI-189
Phase
1 Pharmacokinetics and Safety in Healthy Subjects
In
February of 2011 we commenced a two-part Phase 1A clinical trial to evaluate the safety and pharmacokinetics of NSI-189 in healthy
volunteers. The first part of the study enrolled thirty-one healthy male and female subjects into a single ascending dose phase.
Subjects were administered a single dose (40mg, 60mg, or 80mg) of NSI-189 or placebo. In the second part of the study, 10 subjects
received single doses of 40mg oral NSI-189 under fed and fasting conditions in an open label cross-over design. All subjects completed
the study. There were no clear gender effects on NSI-189 pharmacokinetics. No dose-limiting toxicity was observed, and no serious
adverse events (AE) were noted. All AEs were considered mild in intensity and none were considered to have a reasonable causal
relationship to study drug. NSI-189 was found to be safe and well tolerated at the tested doses.
In
December of 2011, we received authorization from the FDA to commence a Phase 1B randomized, double-blind, placebo-controlled, multiple-dose
escalation study to evaluate safety, tolerability, pharmacokinetic (PK), and pharmacodynamic (PD) effects of NSI-189 phosphate
in subjects
5
with MDD. The primary
outcome measure was to assess drug safety by number and severity of adverse events in drug versus the placebo group. A safety protocol
also included a comparison between NSI-189 and placebo of vital signs, standard physical examination, ECG, EEG, standard clinical
laboratory tests (hematology and biochemistry), standard neurological exam and the Columbia Suicide Severity Rating Scale. Secondary
measurements included pharmacokinetics, and
exploratory assessments included clinical scales such as the MADRS, CGI-I, SDQ,
and the MGH CPFQ.
__________________________
2
American Psychiatric Association. Diagnostic and Statistical Manual of Mental Disorders. 5th ed. Washington, DC: American Psychiatric
Association; 2013.
3
https://www.nimh.nih.gov/health/statistics/prevalence/major-depression-among-adults.shtml. Accessed February 13, 2017.
4
Rush AJ, Fava M, et al; STAR#D Investigators Group.Sequenced Treatment Alternatives to Relieve Depression (
STAR*D
); rationale
and design Control Clin Trials. 2004 Feb;25(1):119-42
5
https://www.clinicaltrials.gov/ct2/show/NCT01520649?term=neuralstem&rank=3
Criteria
for subjects to be eligible to participate in the study included: a MADRS score of 15 to 30, inclusive, at screening and baseline;
and diagnosed with MDD, or recurrent MDD, per DSM-IV-TR criteria and reconfirmed by SCID-CT. Subjects must have had at least two
prior depressive episodes and have been currently or had historically been treated with antidepressants.
The first cohort
received 40 mg QD, the second cohort 40 mg BID, and the third cohort 40 mg three times per day (TID). 24 subjects with MDD were
studied, with their diagnosis and illness severity confirmed through an independent, remote SAFER interview from Massachusetts
General Hospital Clinical Trial Network, Inc. (MGH CTNI) raters. Each cohort included at least 3 female subjects. Each subject
underwent a screening for eligibility (Day -37 to Day -6 or -3) and eligible subjects were admitted into the unit on Day -5 to
complete their wash-out before being confirmed for eligibility and for baseline assessments. Eligible subjects received daily dosing
of investigational medicinal product (NSI-189 Phosphate or placebo) for 28 days starting on Day 1 and were followed for safety,
PK, and PD until discharge. Subjects returned to the unit for extensive follow-up on Day 56 (± 3) and Day 84 (± 3)
(End-of-study).
Trial
data was presented in June 2014 at the American Society of Clinical Psychopharmacology Annual Meeting (ASCP), and published
in the journal Molecular Psychiatry (Fava et al., 2015). NSI-189 was well tolerated and there were no serious (grade 4 or 5) adverse
events.
At
the end of dosing, efficacy measurements showed
statistically significant improvement over placebo on one subject-reported
depression scale (SDQ) and one subject-reported cognition scale (CPFQ) and showed a medium to large size effect on all scales studied
6
.
Efficacy
measurements (MADRS, SDQ, CGI-I and, CPFQ), showed a promising reduction in depressive and cognitive symptoms across all measures
with statistically significant improvement in the SDQ and CPFQ scales, and a medium to large effect size for all measures at the
cessation of dosing (day 28). These improvements persisted to day 84, 8 weeks after cessation of drug administration. In particular,
depression symptoms showed a significant decrease at day 28 as measured by SDQ (P=0.02), with large effect size (Cohen's d = 0.90),
which persisted to day 84, 8 weeks after cessation of drug administration (P=0.03), also with large effect size (Cohen's d = 1.10).
In addition, CPFQ also showed a significant decrease at day 28 (P= 0.01) with large effect size (Cohen's d = 0.94) and at day 84,
(P<0.01, Cohen's d = 1.20).
__________________________
6
Size effect, as measured by
Cohen’s d” or “d”
is a validated
statistical measure of the separation between treatment group(s) and control. Differences of 0.2 are considered ‘small’,
0.5 are considered ‘moderate’ and 0.8 are considered ‘large’.
In
summary, NSI-189, a novel neurogenic compound, has shown promise as a potential treatment for MDD in this Phase 1B, double-blind,
randomized, placebo-controlled, multiple-dose study. It is our belief that NSI-189 may have a significant benefit on depressive
and cognitive symptoms in patients with MDD and other related disorders.
Pre-Clinical
Experience with NSI-189
Our preclinical research on NSI-189 is
focused on elucidating its mechanism of action and investigating its potential utility as a broad neuroregenerative drug that can
prevent or reverse various types of central and peripheral nerve degeneration and may have a significant cognitive benefit in diseases
that impact memory and cognition. Recent preclinical data support the potential benefits of NSI-189 in indications beyond MDD.
Supportive data include the following results
obtained in collaboration with academic partners:
|
1.
|
NSI-189 and cognition:
|
|
·
|
Treatment of normal mouse brain slices with NSI-189 produced a concentration and time dependent
increase in the magnitude of long-term potentiation (LTP) and short-term potentiation (STP), a measure of synaptic plasticity which
is an in vitro biomarker of memory
7
.
|
|
·
|
NSI-189 treatment of brain slices from mice with a genetic defect that models Angelman Syndrome
(which in humans leads to inherited mental retardation) restored LTP to normal levels
7
.
|
|
·
|
NSI-189 treatment preserved brain function and hippocampal proliferation at normal levels in a
rat model of cognitive impairment induced by irradiation
8
.
|
|
2.
|
NSI-189 and neuroregeneration
9
:
|
|
·
|
NSI-189 proved to be effective in the prevention and reversal of peripheral neuropathies in a mouse model
of Type 1 diabetes and in the prevention of peripheral neuropathies in a mouse of Type 2 diabetes. Data from these studies, which
includes reversal of neuropathic pain and decreased nerve conductance associated with the onset of diabetic symptoms, suggest that
NSI-189 may have broad applicability in the treatment of central and peripheral neuropathies arising from diverse etiologies.
|
|
3.
|
NSI-189 and neurogenesis
10
.
|
|
·
|
Oral administration of NSI-189 to rats with ischemic stroke led to a significant recovery from motor deficit.
The improvements were maintained post cessation of dosing for the additional 12 week observational period. The sustained improvement
suggests that NSI-189 initiated a host brain repair mechanism enabling tissue remodeling of the stroke brain. In cultured rat hippocampal
cells, NSI-189 led to the upregulation of growth factors such as Stem Cell Factor (SCF) and Brain Derived Neurotrophic Factor (BDNF),
as well as increasing neurite outgrowth.
|
__________________________
7
Liu Y, Hefferan MP, Johe K, Bi X, Baudry M. NSI-189, a Neurogenic Compound, Enhances Short-term and Long-term Potentiation in C57BL/6
Mice and Reverses LTP Impairment in a Mouse Model of Angelman Syndrome. 2016 Annual Meeting of the Society for Neuroscience.
8
Allen BD, Acharya MM, Lu CL, Giedzinski E, Parihar VK, Hefferan M, Johe KK, Limoli CL. Reversal of Radiation-Induced Cognitive
Impairment by Oral Administration of Neurogenic Small Molecule Compound NSI-189. 2016 Annual Meeting of the Radiation Research
Society.
9
Johe K, Marquez A, Anaya C, Kifle B, Muttalib N, Jolivalt CG, Hefferan M, Calcutt NA. Therapeutic Efficacy of NSI-189 in Diabetic
Mice. 2016 Annual Meeting of the Diabetic Neuropathy Study Group of the EASD (European Association for the Study of Diabetes)
10
Tajiri N, et al. NSI-189, a Small Molecule with Neurogenic Properties, Exerts Behavioral and Neurostructural Benefits in Stroke
Rats”
Journal of Cellular Physiology
232 (2017): accessed February 13, 2017, DOI: 10.1002/jcp.25847
We believe that these data support our
view that NSI-189 may be effective in the treatment of a broad range of cognitive and neuroregenerative applications.
Mechanism of Action Studies with NSI-189
Evidence
to date suggests that NSI-189 has a novel mechanism of action when compared to currently marketed therapies. Screening assays indicate
that NSI-189 does not bind appreciably to known neurotransmitter receptors or transporters. These tests have included 48 neurotransmitter
related receptors, ion channels, and enzymes, plus in excess of 450 protein kinases. The resulting data lead us to believe that
NSI-189 acts via a mechanism that is distinct from currently marketed SSRI, SNRI, or NDRI compounds
Discovery of NSI-189: Our Proprietary
and Novel Screening Platform
NSI-189
was discovered using our stem cell-based screening platform. Our
human neural stem cell lines form the foundation for functional
cell-based assays used to screen for small molecule compounds that can impact biologically relevant outcomes such as neurogenesis,
synapse formation, and protection against toxic insults.
We have developed over 300 unique
stem cell lines representing multiple different regions of the developing brain and spinal cord at multiple different time points
in development, enabling the generation of almost unlimited numbers of physiologically relevant human neural cells for screening,
target validation, and mechanism-of-action studies. This platform provides us with a unique and powerful tool to identify new chemical
entities to treat a broad range of nervous system conditions.
The
discovery process for NSI-189 started with the initiation of a high content screen of 10,269 small molecules and led to the identification
of 16 compounds that were capable of inducing neurogenesis, the birth of new neurons in hippocampal stem cells in culture. These
16 compounds were then tested for toxicity
in vitro
and in mice, and were evaluated for their ability to induce neurogenesis
in healthy adult mice after oral administration. Seven of the starting 16 compounds, representing three structural classes, were
advanced as orally active neurogenic leads. Compounds were evaluated in three mouse models of depression and NSI-189 was advanced
as the lead small molecule candidate due to its anti-depressant behavioral effect, and its ability to both induce hippocampal neurogenesis
and increase hippocampal volume.
NSI - 566 (Stem Cells)
The human central
nervous system (CNS) has limited capacity for regeneration following injury or the onset of disease. Traditional therapies have
mainly focused on minimizing the progression or symptoms of CNS disease or injury, but have not been effective at repairing the
underlying cause of such disease. The focus of our cell therapy initiatives is the regeneration of neural function which has been
lost to disease or injury. We believe that replacing or supplementing damaged or dead neural cells with fully functional ones may
be a useful therapeutic strategy in treating many diseases and conditions of the central nervous system.
Our proprietary
technology enables the isolation and large-scale expansion of regionally specific neural stem cells from all areas of the developing
human brain and spinal cord, and enables the generation of commercially useful quantities of highly characterized allogeneic human
neural stem cells that can be transplanted into patients to mitigate the consequences of CNS diseases or injury. We have developed
and optimized processes that allow us to manufacture these cells under Good Manufacturing Practices or cGMP compliant conditions
as required by the FDA for use in clinical trials, and have generated cell banks which we believe are sufficient to provide material
to meet all our requirements through to completion of Phase 3 studies. We have exclusive licenses for manufacture and use of the
surgical platform and cannula that enable administration of the cells to the spinal cord for treatment utilizing our stem cells.
Based on our preclinical data we believe that our human neural stem cells will differentiate into neurons and glia after grafting
into the patient and will replace the function of cells lost to disease or injury.
Our lead stem cell program is the spinal
cord-derived neural stem cell line, NSI-566, which is being tested for treatment of paralysis due to Amyotrophic Lateral Sclerosis
(ALS, or Lou Gehrig’s disease), stroke, and spinal cord injury. To date we have completed Phase 1 and Phase 2 safety and
dose escalation studies in subjects with ALS, a Phase1 safety and dose escalation study in subjects with motor deficits due to
ischemic stroke, and a Phase 1 safety study in subjects with chronic spinal cord injury or cSCI. Each of these studies are currently
evaluating patients in a long-term follow-up stage.
Amyotrophic Lateral Sclerosis
Amyotrophic lateral sclerosis is a disease
of the nerve cells in the brain and spinal cord that control voluntary muscle movement. In 2016 the Centers for Disease Control
and Prevention estimated that between 14,000 and 15,000 Americans have ALS
11
.
In ALS, nerve cells (motor neurons) waste away or die, and can no longer send messages to muscles. This eventually leads to muscle
weakening, twitching, and an inability to move the arms, legs, and body. As the condition progresses, muscles in the chest area
stop working, making it difficult or impossible to breathe. NSI-566 is under development as a potential treatment for ALS by providing
cells designed to nurture and protect the patients’ remaining motor neurons; and possibly repair some motor neurons which
have not yet died but which are diseased. We received orphan designation by the FDA for NSI-566 in ALS.
Motor Deficits Due to Ischemic Stroke
Ischemic stroke, the most common type of
stroke, occurs as a result of an obstruction within a vessel supplying blood to the brain. Annually, approximately 15 million people
worldwide suffer stroke
12
, of which
it is estimated that 87% are ischemic strokes
13
.
Post-stroke motor deficits include paralysis in arms and legs and can be permanent. We believe that NSI-566 may provide an effective
treatment for restoring motor deficits resulting from ischemic stroke by both creating new circuitry in the area of injury and
through repairing and or nurturing diseased cells to improve function in patients.
Chronic Spinal Cord Injury
Spinal cord injury, or SCI, generally refers to any injury to the spinal cord that is caused by trauma instead
of disease, although in some cases it can be the result of diseases. It is estimated that there are 17,000
14
new cases
of SCI per year and that at any given time, there are between 243,000 and 347,000 people in the United States that are living with
SCI
14
. Chronic spinal cord injury refers to the time after the initial hospitalization. SCIs are most often traumatic,
caused by lateral bending, dislocation, rotation, axial loading, and hyperflexion or hyperextension of the cord or cauda equina.
Motor vehicle accidents are the most common cause of SCIs, while other causes include falls, work-related accidents, sports injuries,
and penetrating injuries such as stab or gunshot wounds. In certain instances, SCIs can also be of a non-traumatic origin, as in
the case of cancer, infection, intervertebral disc disease, vertebral injury and spinal cord vascular disease. We believe that
NSI-566 may provide an effective treatment for chronic spinal cord injury by “bridging the gap” in the spinal cord
circuitry created in traumatic spinal cord injury and providing new cells to help transmit the signal from the brain to points
at or below the point of injury.
Clinical Experience with NSI-566
Amyotrophic Lateral Sclerosis
In January 2010, we commenced a Phase 1
trial of NSI-566 in ALS at Emory University in Atlanta, Georgia. The purpose of the trial was to evaluate the safety of our proposed
treatment and procedure in a total of 15 subjects. The dosing of subjects in the Phase 1 trial, as designed, was completed in August
of 2012. We commenced a Phase 2 clinical trial in subjects suffering from ALS in September of 2013 to further test the feasibility
and safety of the treatment and procedure, and maximum tolerated dose of cells. The Phase 2 dose escalation trial enrolled 15 ambulatory
subjects in five different dosing cohorts. Each patient in the final cohort had two separate surgeries.
We have completed all of the transplantations
and the observation period of six months after the last surgery concluded in January 2015. The Phase 2 ALS clinical trial met the
primary safety endpoints and established what we believe to be the maximum safe tolerated dose of 16 million cells delivered in
40 injections over two surgeries. In September 2015, nine-month Phase 2 and combined Phase 1 and Phase 2 data from our ALS trials
were presented at the American Neurological Association Meeting by principal investigator Eva Feldman, MD, PhD, Director of the
A. Alfred Taubman Medical Research Institute and Director of Research of the ALS Clinic at the University of Michigan Health. The
data showed that the intraspinal transplantation of the cells was safe and well tolerated. Subjects from both the Phase 1 and Phase
2 continue to be monitored for long-term follow-up evaluations
__________________________
11
https://www.ninds.nih.gov/Disorders/Patient-Caregiver-Education/Fact-Sheets/Amyotrophic-Lateral-Sclerosis-ALS-Fact-Sheet. Accessed
February 17, 2017
12
http://www.world-heart-federation.org/cardiovascular-health/stroke/. Accessed February 13, 2017
13
https://www.cdc.gov/stroke/facts.htm. Accessed February 13, 2017
14
Spinal Cord Injury Facts and Figures at a Glance,” National Spinal Cord Injury Statistical Center, accessed
March 6, 2017. https://www.nscisc.uab.edu
Ischemic Stroke
During the fourth Quarter of 2013 we commenced
a human clinical trial for treatment of motor deficits due to ischemic stroke. The trial is being conducted at BaYi Brain Hospital
in Beijing, China utilizing our spinal cord stem cells. This Phase 1 multiple dose escalation study is intended to evaluate safety
of direct injections of NSI-566 into the brain. The Phase 1 portion of the trial was designed to confirm the maximum safe tolerated
dose.
In March, 2016, we completed dosing the
final planned cohort, for a total of nine subjects. Subjects are currently being monitored through their 24 month observational
follow-up period. The trial is being conducted by Suzhou Neuralstem, a wholly owned subsidiary of Neuralstem in China.
To date, the Ischemic Stroke program has
been funded substantially by Neuralstem.
Chronic Spinal Cord Injury
During the first quarter of 2013, we received
authorization from the FDA to commence our proposed Phase 1 clinical trial to treat chronic spinal cord injury. The trial, which
is taking place at The University of California, San Diego or UCSD, commenced during the third quarter of 2014 and the first subject
was treated in October 2014. The study enrolled four AISA A
15
thoracic spinal cord injury subjects (motor and sensory complete), one to two years post-injury at the time of stem cell treatment.
In January of 2016 we reported six month follow-up data on all four subjects. The stem cell treatment was found to be safe and
well-tolerated by the subjects enrolled and there were no serious adverse events. A self-reported ability to contract some muscles
below the level of injury in one of the four subjects treated was confirmed via clinical and electrophysiological follow-up examinations.
All subjects will be followed for five years.
FDA has approved the protocol amendment
to treat an additional cohort of four cervical spinal cord injury patients.
Substantially all of the clinical costs
of this study have been, and will continue to be, funded by grants arranged through UCSD.
Pre-Clinical Experience with NSI
-
566
and other candidates for our stem cell pipeline
Our preclinical studies with NSI-566 have
served to provide a solid foundation for our ongoing clinical trials by demonstrating performance and efficacy of this cell line
in animal models for ALS (Yan et al., 2006; Hefferan et al., 2011; Xu et al., 2006; Xu et al., 2009; Xu et al., 2011), spinal cord
injury (Cizkova et al., 2007; Lu et al., 2012; van Gorp et al., 2013), and ischemic stroke (Tajiri et al., 2014), and demonstrated
safety in large animals (Usvald et al., 2010; Raore et al., 2011). Additional studies involving NSI-566 or other proprietary cell
lines are directed at identifying new therapeutic candidates.
In addition to NSI-566 we have developed
an inventory of over
300 unique stem cell lines.
These stem cell lines include cortex,
hippocampus, midbrain, hindbrain, cerebellum, and spinal cord. We believe these lines possess unique properties and represent candidates
for both transplantation-based strategies to treat disease and for screening of compound libraries to discover novel drug therapies.
|
·
|
NSI-566:
Traumatic Brain Injury (TBI).
|
TBI occurs when a sudden mechanical
force induces damage to the brain. TBIs result in cognitive and motor deficits or death. Damage may come from the forceful collision
of the skull with a solid object, such as during a fall or car accident, or may be caused by an object penetrating the skull and
disrupting brain tissue. The Company is in the midst of a collaboration with investigators at the Miami Project to Cure Paralysis
to determine if transplantation of NSI-566 can lead to an improvement in motor function in an animal model for penetrating TBI.
|
·
|
HK532-IGF-1: Alzheimer’s disease (AD).
|
Neuralstem’s
HK532-IGF-1 is a proprietary line of cortical neural stem cells engineered to express insulin-like growth factor-1 (IGF-1),
which has been shown to have wide-ranging neuroprotective properties. AD is a progressive neurodegenerative disorder of the
brain that leads to cognitive decline and memory loss which is the most common cause of dementia in older adults. Researchers
at the University of Michigan evaluated the ability of the human neural stem cell line HK-532.IGF1 to reverse the cognitive
impact of neurodegeneration in a mouse model of AD (McGinley et al., 2016). Animals with HK532-IGF-1 transplanted in the
peri-hippocampus, performed better on hippocampal-dependent behavioral tasks than untreated mice, demonstrating both
enhanced learning cognitive processes and memory consolidation.
__________________________
15
“ASIA”; American Spinal Injury Association. A = Complete: No sensory or motor function is preserved in sacral segments
S4-S5
|
·
|
NSI-777: Multiple Sclerosis (MS) and demyelinating diseases.
|
In the case of MS and other demyelinating
diseases, the myelin sheath that wraps and insulates axons in the central nervous system can become damaged, leading to inefficient
transmission of signals along the nerves of the brain and spinal cord. This loss of conductivity may lead to profound symptoms,
including loss of vision, sensation, and muscle strength, Myelin is generated in the CNS by a neural cell type called oligodendrocytes.
The Company has developed a human neural stem cell line, NSI-777, that gives rise to large quantities of these myelin-generating
cells after grafting in animals. In collaboration with researchers at Johns Hopkins University, we have recently shown
16
that NSI-777 has high capacity for myelinating axons after grafting into animal models for demyelination. We will continue to pursue
NSI-777 to further develop this candidate for potential use in treatment of human demyelinating diseases.
Our Technologies
Stem Cells.
Our
stem cell based technology has both therapeutic and screening characteristics.
From
a therapeutic perspective, our stem cell based technology enables the isolation and large-scale expansion of regionally specific,
human neural stem cells from all areas of the developing human brain and spinal cord thus enabling the generation of physiologically
relevant human neurons of all types. We believe that our stem cell technology will assist the body in producing new cells to replace
malfunctioning or dead cells as a way to treat disease and injury. Many significant and currently untreatable human diseases arise
from the loss or malfunction of specific cell types in the body. Our focus is the development of effective methods to generate
replacement cells from neural stem cells. We believe that replacing damaged, malfunctioning or dead neural cells with fully functional
ones may be a useful therapeutic strategy in treating many diseases and conditions of the central nervous system.
Small Molecule Pharmaceutical Compounds.
Utilizing our
proprietary stem cell derived screening capability, we have discovered and patented a series of small molecule compounds. We believe
our low molecular weight compounds can efficiently cross the blood/brain barrier. In mice, research indicated that these compounds
both stimulate neurogenesis of the hippocampus and increase its volume. We believe these compounds may promote synaptogenesis
or neurogenesis in the human hippocampus in indications such as MDD.
Research
Substantial resources have been and will
be devoted to our research programs. Our efforts are directed at developing therapies utilizing our stem cells and small molecule
regenerative drug candidates. This research is conducted internally, through the use of third party laboratories and consulting
companies under our direct supervision, and through collaboration with academic institutes.
Manufacturing
We currently manufacture our cells both
in-house and on an outsourced basis. We outsource the manufacturing of our pharmaceutical compounds and our clinical supply of
stem cells to cGMP compliant third party manufacturers. We manufacture neural stem cells in-house for use in our research and collaborative
programs.
Intellectual Property
We have developed and maintain what we
believe is a strong portfolio of patents and patent applications that form the basis for our research and development efforts.
We own or exclusively license over 10 U.S. issued and pending patents and over 60 foreign issued and pending patents related to
our stem cell technologies for use in treating disease and injury. We own over 10 U.S. issued and pending patents and over 60 foreign
issued and pending patents related to our small molecule compounds. Our issued patents have expiration dates ranging from 2017
through 2034. Two of our original patents covering methods and composition of matter associated with our stem cell technologies
expired in 2016. In our opinion the expiration of these patents is not material to our intellectual property.
When appropriate, we seek patent protection
for inventions in our core technologies and in ancillary technologies that support our core technologies or which we otherwise
believe will provide us with a competitive advantage. We accomplish this by filing patent applications for discoveries we make,
either alone or in collaboration with scientific collaborators and strategic partners. Typically, although not always, we file
patent applications both in the United States and in select international markets. In addition, we plan to obtain licenses or options
to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in advancing
our research, development and commercialization initiatives and our strategic business interests.
__________________________
16
Hefferan M, Schwartz K, Hazel T, Johe K, Levy M. Remyelinating Human Oligodendrocyte Progenitors for Regenerative Treatment of
Demyelinating Diseases and Spinal Cord Injury. 2016 Annual Meeting of the Society for Neuroscience.
In addition to patenting our technologies,
we also rely upon trade-secret protection for our confidential and proprietary information and take active measures to control
access to that information, including the use of confidentiality agreements with our employees, consultants and certain of our
contractors.
Our policy is to require our employees,
consultants and significant scientific collaborators and sponsored researchers to execute confidentiality and assignment of invention
agreements upon the commencement of an employment or consulting relationship with us. These agreements generally provide that all
confidential information developed or made known to the individual by us during the course of the individual's or entity’s
relationship with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case
of employees and consultants, the agreements generally provide that all inventions conceived by the individual or entity in the
course of rendering services to us shall be our exclusive property.
The patent positions of pharmaceutical
and biotechnology companies, including ours, are uncertain and involve complex and evolving legal and factual questions. The coverage
sought in a patent application can be denied or significantly reduced before or after the patent is issued. Consequently, we do
not know whether any of our pending applications will result in the issuance of patents, or if any existing or future patents will
provide significant protection or commercial advantage or will be circumvented by others. Since patent applications are secret
until the applications are published (usually eighteen months after the earliest effective filing date), and since publication
of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the
first to make the inventions covered by each of our pending patent applications or that we were the first to file patent applications
for such inventions. There can be no assurance that patents will issue from our pending or future patent applications or, if issued,
that such patents will be of commercial benefit to us, afford us adequate protection from competing products, or not be challenged
or declared invalid.
In the event that a third party has also
filed a patent application relating to inventions claimed in our patent applications, we may have to participate in interference
proceedings declared by the United States Patent and Trademark Office or USPTO, to determine priority of invention, which could
result in substantial uncertainties and costs, even if the eventual outcome is favorable to us. There can be no assurance that
our patents, if issued, would be held valid by a court of competent jurisdiction.
A number of pharmaceutical, biotechnology
and other companies, universities and research institutions have filed patent applications or have been issued patents relating
to cell therapy, stem cells and other technologies potentially relevant to or required by our proposed products. We cannot predict
which, if any, of such applications will issue as patents or the claims that might be allowed.
If third party patents or patent applications
contain claims infringed by our technology and such claims are ultimately determined to be valid, there can be no assurance that
we would be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative
non-infringing technology. If we are unable to obtain such licenses or develop or obtain alternative non-infringing technology
at a reasonable cost, we may not be able to develop certain products commercially. There can be no assurance that we will not be
obliged to defend ourselves in court against allegations of infringement of third party patents. Patent litigation is very expensive
and could consume substantial resources and create significant uncertainties. An adverse outcome in such a suit could subject us
to significant liabilities to third parties, require us to seek licenses from third parties, or require us to cease using such
technology.
Competition
The pharmaceutical and biotechnology industries
are characterized by rapidly evolving technology and intense competition. Our competitors include major multinational pharmaceutical
companies, specialty biotechnology companies and chemical and medical products companies. Many of these companies are well-established
and possess greater resources for technical, research, development, financial, sales and marketing initiatives than we do. Other,
less well-established companies have formed or may form strategic collaborations, partnerships and other types of joint ventures
with larger, well established industry competitors that may provide research and development and commercialization advantages to
these competitors. Academic institutions, governmental agencies and other public and private research organizations are also conducting
and financing research activities which may produce products directly competitive to those we are developing. Moreover, many of
these competitors may be able obtain patent protection, or FDA and other regulatory approvals that may impede our freedom to develop
and commercialize our programs.
The diseases and medical conditions we
are targeting have a demographic in which there are large numbers of patients who do not respond to current therapies or have limited
therapies available. Nevertheless, we expect that our technologies and product candidates, if or when approved, will compete with
a variety of therapeutic products and procedures offered by other pharmaceutical and biotechnology companies. Many pharmaceutical
and biotechnology companies are investigating new drugs and therapeutic approaches for the same or similar indications. These companies’
efforts may achieve new efficacy profiles, extend the therapeutic window for such products, alter the prognosis of these diseases,
or prevent their onset. We believe that our products, if or when approved, will attempt to compete with these products principally
on the basis of improved and extended efficacy and safety and their overall economic benefit to the health care system. Competition
for our products may be in the form of existing and new drugs, other forms of cell transplantation, surgical procedures, gene therapy
or other proprietary technology and expertise. We expect that all of these products will compete with our product candidates, if
or when approved, based on efficacy, safety, cost and intellectual property positions. We cannot be certain that that other entities
have not filed patents that block our freedom to commercialize our programs and we may be required to seek licenses from these
entities in order to commercialize certain of our proposed products, and such licenses may not be granted or be extremely expensive
to obtain.
If we develop products that receive regulatory
approval, they would then have to compete for market acceptance and market share. For our potential products, an important success
factor will be the timing of market introduction of competitive products. This timing will be a function of the relative speed
with which we and our competitors can develop products, complete the clinical testing and approval processes, and supply commercial
quantities of a product to the market. These competitive products may also impact the timing of clinical testing and approval processes
by limiting the number of clinical investigators and subjects available to test our potential products.
Government Regulation
Regulation by governmental authorities
in the United States and other countries is a significant factor in our research and development and will be a significant factor
in the manufacture and marketing of our proposed products. The nature and extent to which such regulation applies to us will vary
depending on the nature of any products we may develop. Governmental authorities, including the FDA and comparable regulatory authorities
in other countries, regulate the design, development, testing, manufacturing, safety, efficacy, labeling, storage, record-keeping,
advertising, promotion and marketing of pharmaceutical products, including drugs and biologics, under the Federal Food, Drug, and
Cosmetic Act, or FFDCA, and its implementing regulations, and, for biologics, under the Public Health Service Act, or PHSA, and
its implementing regulations. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions,
including product seizures, import restrictions, injunctive actions and criminal prosecutions of both companies and individuals.
In addition, administrative remedies can involve requests to recall violative products; the refusal of the government to enter
into supply contracts; or the refusal to approve pending product approval applications until manufacturing or other alleged deficiencies
are brought into compliance. The FDA also has the authority to cause the withdrawal of approval of a marketed product or to impose
labeling restrictions. The process of obtaining approvals and the subsequent compliance with appropriate statutes and regulations
require the expenditure of substantial time and money, and there can be no guarantee that approvals will be granted.
United States Product Development Process
We believe that, in the United States, our human neuronal stem
cell candidates are regulated as biologic pharmaceuticals, or biologics, and our small-molecule compounds are regulated as drugs.
The process required by the FDA before a drug or biological
product may be marketed in the United States generally involves the following:
-
Completion of preclinical testing of new pharmaceutical or biological
products, generally conducted in the laboratory and in animal studies in accordance with Good Laboratory Practices (GLPs), and
applicable requirements for the humane use of laboratory animals or other applicable regulations to evaluate the potential efficacy
and safety of the product candidate;
-
Submission of the results of these studies to the FDA as part of
an Investigational New Drug (IND) application, which must become effective before clinical testing in humans can begin;
-
Performance of adequate and well-controlled human clinical trials
according to cGMPs and any additional requirements for the protection of human research patients and their health information,
to establish the safety and efficacy of the product candidate for its intended use;
-
Submission to the FDA of a Biological License Application, or BLA,
for any biologic or a New Drug Application, or NDA, for any new chemical entity drug we seek to market that includes substantive
evidence of safety, purity, and potency, or safety and effectiveness from results of nonclinical testing and clinical trials;
-
Satisfactory completion of an FDA inspection of the manufacturing
facility or facilities where the product is produced, packaged and distributed, to assess compliance with cGMPs, to assure that
the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity, and,
if applicable, the FDA’s current good tissue practices, or GTPs, for the use of human cellular and tissue products;
-
Potential FDA audit of the nonclinical study and clinical trial
sites that generated the data in support of the BLA or NDA; and
-
FDA review and approval of the NDA, or licensure, of the BLA.
Typically, human clinical evaluation involves
a time-consuming and costly three-phase process.
-
Phase 1. The product is initially introduced into healthy human volunteers and tested
for safety. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently
toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
-
Phase 2. The product is evaluated in a limited patient population to identify possible
adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine
dosage tolerance, optimal dosage and dosing schedule.
-
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy,
potency, and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are
intended to establish the overall risk to benefit ratio of the product and provide an adequate basis for product labeling.
Post-approval clinical trials, sometimes
referred to as Phase IV clinical trials, may be required and conducted after initial marketing approval. These clinical trials
are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for
long-term safety follow-up.
During all phases of clinical development,
regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators.
Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Clinical trials may not be completed
successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend or
terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to
an unacceptable health risk, including risks inferred from other unrelated similar trials. Similarly, an institutional review board,
or IRB, can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in
accordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to patients.
Human
cell-based therapies in the field of regenerative medicine are relatively novel. Because this is a relatively new and expanding
area of novel therapeutic interventions, there can be no assurance as to the length of the trial period, the number of patients
the FDA will require to be enrolled in the trials in order to establish the safety, efficacy, purity and potency of such products,
or that the data generated in these trials will be acceptable to the FDA to support marketing approval.
United States Review and Approval Process
After the completion of clinical trials
of a product candidate, FDA approval of a BLA or NDA must be obtained before commercial marketing of the product. The BLA or NDA
must include results of product development, laboratory and animal studies, human trials, information on the manufacture and composition
of the product, proposed labeling and other relevant information as well as a significant user fee. The FDA may grant deferrals
for submission of data, or full or partial waivers. The testing and approval processes require substantial time and effort and
there can be no assurance that the FDA will accept the BLA or NDA for filing and, even if filed, that any approval will be granted
on a timely basis, if at all.
The FDA may refuse to file any BLA or NDA
that it deems incomplete or not properly reviewable at the time of submission, and may request additional information. Once the
submission is accepted for filing, the FDA reviews the BLA or NDA to determine, among other things, whether the proposed product
is safe, potent, and/or effective for its intended use, and has an acceptable purity profile, and whether the product is safe and
effective for its intended use, and in each case, whether the product is being manufactured in accordance with cGMP or GTP, if
applicable. During the product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy,
or REMS, is necessary to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLA or NDA
must submit a proposed REMS. The FDA will not approve a BLA or NDA without a REMS, if required.
Notwithstanding the submission of relevant
data and information, the FDA may ultimately decide that the BLA or NDA does not satisfy its regulatory criteria for approval and
deny approval via a letter detailing such deficiencies. Data obtained from clinical trials are not always conclusive and the FDA
may interpret data differently than we interpret the same data. If the FDA denies an application, the applicant may either resubmit
the BLA or NDA, addressing all of the deficiencies identified by the FDA, or withdraw the application.
United States Post-Approval Requirements
Any products for which we receive FDA approvals
are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse
experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution
requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer
advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s
approved uses, known as off-label use, limitations on industry-sponsored scientific and educational activities and requirements
for promotional activities involving the internet.
In addition, quality control and manufacturing
procedures must continue to conform to applicable manufacturing requirements after approval to ensure the long-term stability of
the product. We rely, and expect to continue to rely, on third parties for the production of some, or all, clinical and commercial
quantities of our products in accordance with cGMP and GTP regulations, as applicable. Manufacturers and other entities involved
in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain
state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP,
GTP and other laws.
The FDA also may require post-marketing
testing, known as Phase 4 testing, and surveillance to monitor the effects of an approved product. Discovery of previously unknown
problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse
publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications
with doctors, and civil or criminal penalties, among others. Also, new government requirements, including those resulting from
new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of
our product candidates under development.
European, China and Other Regulatory Review and Approval
Whether or not FDA approval has been obtained,
approval of a product by comparable regulatory authorities in Europe, China and other countries will be necessary prior to commencement
of marketing the product in such countries. The regulatory authorities in each country may impose their own requirements and may
refuse to grant an approval, or may require additional data before granting it, even though the relevant product has been approved
by the FDA or another authority. As with the FDA, the regulatory authorities in the European Union, China and other developed countries
have lengthy approval processes for biological and pharmaceutical products. The process for gaining approval in particular countries
varies, but generally follows a similar sequence to that described for FDA approval.
Other Health Care Laws
In the event any of proposed products are
ever approved for marketing, we may also be subject to healthcare regulation and enforcement by the federal government and the
states and foreign governments where we may market our product candidates, if approved. These laws include, without limitation,
state and federal anti-kickback, fraud and abuse, false claims, physician sunshine and privacy and security laws and regulations.
Other Regulations
We are also subject to various U.S. federal,
state, local and international laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing
practices and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious
disease agents, used in connection with our business. We cannot accurately predict the extent of government regulation which might
result from future legislation or administrative action.
For additional information about governmental
regulations as well as risks related to our business that could affect our planned and intended business operations, see the
“Risk
Factors”
Section of this Annual Report.
Employees
As of January 31, 2017, we had eleven (11)
full-time employees. Of these full-time employees, seven (7) work on research and development and clinical operations and four
(4) work in administration. We also use the services of numerous outside consultants in business and scientific matters.
Our Corporate Information
We were incorporated in Delaware in 2001.
Our principal executive offices are located at 20271 Goldenrod Lane, Germantown, Maryland 20876, and our telephone number is (301)
366-4841. Our website is located at www.neuralstem.com.
We have not incorporated by reference into this report the information
in, or that can be accessed through, our website and you should not consider it to be a part of this report.
Where to Find More Information
We make our public filings with the SEC,
including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits
and amendments to these reports. Also our executive officers, directors and holders of more than 10% of our common stock, file
reports with the SEC on Forms 3, 4 and 5 regarding their ownership of our securities. These materials are available on the
SEC’s web site,
http://www.sec.gov
. You may also read or copy any materials we file with the SEC at the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Alternatively, you may obtain copies of these filings, including exhibits,
by writing or telephoning us at:
NEURALSTEM, INC
20271 Goldenrod Lane
Germantown, Maryland 20876
Attn: Chief Financial Officer
Tel: (301) 366-4841
Investing
in our common stock involves a high degree of risk. We have described below a number of uncertainties and risks which, in addition
to uncertainties and risks presented elsewhere in this Annual Report, may adversely affect our business, operating results and
financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Annual Report
should be considered carefully in evaluating our company and our business and the value of our securities.
Risks Relating to Our
Stage of Development and Capital Structure
We
have a history of losses.
Since
inception in 1996 and through December 31, 2016, we have accumulated losses totaling approximately $193,033,000. On December 31,
2016, we had a working capital surplus of approximately $13,571,000 and stockholders’ equity of approximately $11,331,000.
Our net losses for the three most recent fiscal years have been approximately $21,075,000, $20,904,000 and $22,629,000 for 2016,
2015 and 2014, respectively. We have generated no significant revenue from the sales of our proposed products.
Our
ability to generate revenues and achieve profitability will depend upon our ability to complete the development of our proposed
products, obtain the required regulatory approvals, manufacture and market and sell our proposed products. To date, we have not
generated any revenue from the commercial sale of our proposed products. No assurances can be given as to exactly when, if at all,
we will be able to fully develop, commercialize, market, sell and/or derive any, let alone material, revenues from our proposed
products.
We
will need to raise additional capital to continue operations.
Since our inception,
we have funded our operations through the sale of our securities, credit facilities, the exercise of options and warrants, and
to a lesser degree, from grants and research contracts and other revenue generating activities such as licensing. As of December
31, 2016, we had cash, cash equivalents and short-term investments on hand of approximately $20.2 million. We cannot assure you
that we will be able to secure additional capital through financing transactions, including issuance of debt, licensing agreements
or grants. Our inability to license our intellectual property, obtain grants or secure additional financing will materially impact
our ability to fund our current and planned operations.
We have spent
and expect to continue spending substantial cash in the research, development, clinical and pre-clinical testing of our proposed
products with the goal of ultimately obtaining FDA approval and equivalent international approvals to market such products. We
will require additional capital to conduct research and development, establish and conduct clinical and pre-clinical trials, enter
into commercial-scale manufacturing arrangements and to provide for marketing and distribution of our products. We cannot assure
you that financing will be available if needed. If additional financing is not available, we may not be able to fund our operations,
develop or enhance our technologies, take advantage of business opportunities or respond to competitive market pressures. If we
exhaust our cash reserves and are unable to secure adequate additional financing, we may be unable to meet operating obligations
which could result in us initiating bankruptcy proceedings or delaying, or eliminating some or all of our research and product
development programs.
Our auditors previously expressed
substantial doubt about our ability to continue as a going concern.
Our auditors’ report issued in
connection with our December 31, 2015 financial statements included an explanatory paragraph indicating that conditions
existed that raised substantial doubt about our ability to continue as a going concern. During 2016 we raised an aggregate of $29.1 million
through the sale of our securities which is sufficient to fund our planned operations for at least one year from the date of
this filing. As a result, our auditors’ report with respect to our December 31, 2016 financial statements does not
contain a paragraph indicating a going concern uncertainty.
Although we believe that we will be able to raise
additional capital in the future there can be no assurance we will be successful in these efforts. Moreover, although
our auditors’ report issued in connection with our December 31, 2016 financial statements does not contain a
paragraph indicating a going concern uncertainty, there can be no assurance that any future auditors’ report will not
contain such language.
We may not be able to continue as
a going concern if we do not obtain additional financing.
We have incurred losses since its inception and have not demonstrated an ability to generate revenues
from sales or services. Our ability to continue as a going concern is dependent on generating cash from the sale of its common
stock and/or obtaining debt financing.
Our cash and cash equivalents balance at December 31, 2016 was approximately $20,195,000. Based on our current
expected level of operating expenditures, we expect to be able to fund our operations into the second quarter of 2018. Our ability
to remain a going concern is wholly dependent upon our ability to continue to obtain sufficient financing to fund our operations.
Accordingly, despite our ability to secure
capital in the past, there is no assurance that additional equity or debt financing will be available to us when needed. In the
event that we are not able to secure financing, we may be forced to curtail operations, delay or stop ongoing clinical trials,
cease operations altogether or file for bankruptcy.
Risks
Relating to Our Business
Our
business is dependent on the successful development of our product candidates and our ability to raise additional capital.
Our business is
significantly dependent on our product candidates which are currently at different phases of pre-clinical and clinical development.
The process to approve our product candidates is time-consuming, involves substantial expenditures of resources, and depends upon
a number of factors, including the availability of alternative treatments, and the risks and benefits demonstrated in our clinical
trials. Our success will depend on our ability to achieve scientific and technological advances and to translate such advances
into FDA-approvable, commercially competitive products on a timely basis. Failure can occur at any stage of the process. If we
are not successful in developing our product candidates, we will have invested substantial amounts of time and money without developing
revenue-producing products. As we enter a more extensive clinical program for our product candidates, the data generated in these
studies may not be as compelling as the earlier results. This, in turn, could adversely impact our ability to raise additional
capital and pursue our business plan and planned research and development efforts.
Our proposed
products are not likely to be commercially available for at least several years, if at all. Our development schedules for our
proposed products may be affected by a variety of factors, including technological difficulties, clinical trial failures, regulatory
hurdles, competitive products, intellectual property challenges and/or changes in governmental regulation, many of which will
not be within our control. Any delay in the development, introduction or marketing of our product candidates could result either
in the shortening of the commercial lives of such products or in their being marketed at a time when their cost and performance
characteristics would not be competitive in the marketplace. In light of the long-term nature of our projects, the unproven technology
involved and the other factors described elsewhere in this section, there can be no assurance that we will be able to successfully
complete the development or marketing of any of our proposed product candidates.
Our
business relies on technologies that we may not be able to commercially develop and we are unable to predict when or if we will
be able to earn revenues.
We have allocated
the majority of our resources to the development of our stem cell and small molecule technologies. Our ability to generate revenue
and operate profitably will depend on being able to develop these technologies for human applications. These are emerging technologies
that may have limited human application. We cannot guarantee that we will be able to develop our technologies or that if developed,
our technologies will result in commercially viable products or have any commercial utility or value. We anticipate that the commercial
sale of our proposed products and/or royalty/licensing fees related to our technologies, will be our primary sources of revenue.
We recognized revenue of approximately $16,000, $10,000 and $19,000 for the years ended December 31, 2016, 2015 and 2014, respectively,
related to the licensing of certain intellectual property to third parties and certain subcontractor services that we provided.
If we are unable to develop our technologies, we may never realize any significant revenue. Additionally, given the uncertainty
of our technologies, product candidates and the need for government regulatory approval, we cannot predict when, or if ever, we
will be able to realize revenues related to our products. As a result, we will be primarily dependent on our ability to raise capital
through the sale of our securities for the foreseeable future.
Our
product development programs are based on novel technologies in an emerging field and are inherently risky.
We are subject to the risks inherent in
the development of products based on new technologies. The novel nature of therapies in the field of regenerative medicine creates
significant challenges in regard to product development and optimization, manufacturing, government regulation, third party reimbursement,
and market acceptance. For example, the pathway to regulatory approval for cell-based therapies, including our stem cell based
product candidates, may be more complex and lengthy than the pathway for conventional drugs. These challenges may prevent us from
developing and commercializing products on a timely or profitable basis or at all. Regenerative medicine is still an emerging field.
There can be no assurances that we will ultimately produce any viable commercialized products and processes. Even if we are able
to produce a commercially viable product, there may be strong competitors in this field and our products may not be able to successfully
compete against them.
Our stem cell therapy programs rely
on experimental surgical devices and experimental and highly invasive surgical procedures.
We are subject to the risks inherent in
the use and development of experimental surgical devices and procedures. We have limited experience with medical devices and must
rely on outside consultants and manufacturers to develop and seek any required approvals for the device we use in connection with
our stem cell therapy program. Additionally, the surgical procedure required to administer our stem cell therapy is experimental,
highly invasive and is required to be performed by highly experienced neurosurgeons who have received special training. We cannot
guarantee consistent and safe performance of the device or the surgical procedure. A surgery related adverse event may result
in a clinical hold and may have long-term and damaging effects on our ability to complete development of the stem cell therapy
programs, including the completion of any ongoing or planned clinical trials. Even if one or more of our programs is successful
and receives marketing approval from a regulatory authority, due to the specialized nature of the device and surgical procedure,
there may not be sufficient train surgeons to administer our therapy.
We are unable
to predict when or if we will be able to earn revenues.
Given the uncertainty
of our technologies and the need for government regulatory approval, we cannot predict when, or if ever, we will be able to realize
revenues related to our products.
Our proposed products
are not likely to be commercially available for at least several or more years, if ever. Accordingly, we do not foresee generating
any significant revenue during such time. As a result, we will be primarily dependent on our ability to raise capital through the
sale of our securities to fund our operations for the foreseeable future.
Our reliance
on third parties to manufacture and store our stem cells and small molecule compounds could adversely impact our business.
We currently outsource
most of the manufacturing of our stem cells and small molecule pharmaceutical compounds to third party contractors and as such
have limited ability to adequately control the manufacturing process and the safe storage thereof. Any manufacturing or storage
irregularity, error, or failure to comply with applicable regulatory procedure would require us to find new third parties to outsource
our manufacturing and storage responsibilities or our business would be impacted.
The manufacture
of our therapeutic products is a complicated and difficult process, dependent upon substantial know-how and subject to the need
for continual process improvements. In addition, our suppliers’ ability to scale-up manufacturing to satisfy the various
requirements of our planned clinical trials is uncertain. Additionally, many of the materials that we use to prepare our cell-based
products are highly specialized, complex and available from only a limited number of suppliers. The loss of one or more of these
sources would likely delay our ability to conduct planned clinical trials and otherwise adversely affect our business.
If
we are unable to complete pre-clinical and clinical testing and trials or if clinical trials of our product candidates are prolonged,
delayed, suspended or terminated, our business and results of operations could be materially harmed.
We are currently
in clinical trials for NSI-566 and NSI-189, two of our product candidates, with regard to multiple indications. Although we have
commenced a number of trials, the ultimate outcome of the trials is uncertain. If we are unable to satisfactorily complete such
trials, or if such trials yield unsatisfactory results, we may be unable to obtain regulatory approval for and commercialize our
proposed products. No assurances can be given that our clinical trials will be completed or result in successful outcomes. A number
of events, including any of the following, could delay the completion of our planned clinical trials and negatively impact our
ability to obtain regulatory approval for, and to market and sell, a particular product candidate:
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conditions imposed on us by the FDA or any foreign regulatory authority regarding the scope or design of our clinical trials;
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delays in obtaining, or our inability to obtain, required approvals from institutional review boards, or IRBs, or other reviewing entities at clinical sites selected for participation in our clinical trials;
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insufficient supply or deficient quality of our product candidates or other materials necessary to conduct our clinical trials;
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delays in obtaining regulatory agency agreement for the conduct of our clinical trials;
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lower than anticipated enrollment and retention rate of subjects in clinical trials;
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serious and unexpected side effects experienced by patients in our clinical trials which are related to the use of our product candidates; or
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failure of our third-party contractors to meet their contractual obligations to us in a timely manner.
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Clinical trials
may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended
or terminated by us, the FDA, the clinical trial site IRBs, or a data safety monitoring board, or DSMB, overseeing the clinical
trial at issue, or other regulatory authorities due to a number of factors. Additionally, changes in regulatory requirements and
guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit
our clinical trial protocols to IRBs for reexamination, which may impact the cost, timing or successful completion of a clinical
trial. We do not know whether our clinical trials will be conducted as planned, will need to be restructured or will be completed
on schedule, if at all. Delays in our clinical trials will result in increased development costs for our drug candidates. In addition,
if we experience delays in the completion of, or if we terminate, any of our clinical trials, the commercial prospects for our
drug candidates may be harmed and our ability to generate product revenues will be jeopardized. Furthermore, many of the factors
that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of
regulatory approval of a drug candidate. If regulatory authorities do not approve our products or if we fail to maintain regulatory
compliance, we would be unable to commercialize our proposed products, and our business and results of operations could be materially
harmed.
The
results of pre-clinical studies and clinical trials may not be predictive of the results of our later-stage clinical trials and
our proposed products may not have favorable results in later-stage clinical trials or receive regulatory approval.
Seemingly positive
results from pre-clinical studies or our Phase 1 and Phase 2 trials should not be relied upon as evidence that our clinical trials
will succeed. Even if our product candidates achieve positive results in pre-clinical studies or during our Phase 1 and Phase
2 studies, we will be required to demonstrate through further clinical trials that our product candidates are safe and effective
for use in a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely
high rate of attrition from the failure of product candidates as they proceed through clinical trials. If any product candidate
fails to demonstrate sufficient safety and efficacy in any clinical trial, then we may experience potentially significant delays
in, or be required to abandon development of that product candidate. Additionally, failure to demonstrate safety and efficacy
results acceptable to the FDA in later stage trials could impair our development prospects and even prevent regulatory approval
of our current and future product candidates. Any such delays or abandonment in our development efforts of any of our product
candidates would materially impair our ability to generate revenues.
Our
research and development expenses are subject to uncertainty.
Factors affecting our research and
development expenses include, but are not limited to:
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competition from companies that have substantially greater assets and financial resources than we have;
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need for acceptance of our proposed products;
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ability to anticipate and adapt to a competitive market and rapid technological developments;
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amount and timing of operating costs and capital expenditures relating to outsourcing of manufacturing and management of pre-clinical and clinical trials;
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need to rely on multiple levels of outside funding due to the length of drug development cycles and governmental approved protocols associated with the pharmaceutical industry; and
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dependence upon key personnel including key independent consultants and advisors.
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There can be no
guarantee that our research and development expenses will be consistent from period to period. We may be required to accelerate
or delay incurring certain expenses depending on the results of our studies and the availability of adequate funding.
We
are subject to numerous risks inherent in conducting clinical trials.
We outsource the
management of our clinical trials to third parties. Agreements with clinical investigators and medical institutions for clinical
testing and with other third parties for data management services, place substantial responsibilities on these parties that, if
unmet, could result in delays in, or termination of, our clinical trials. For example, if any of our clinical trial sites fail
to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical
investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to
meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to
adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be
unable to obtain regulatory approval for, or successfully commercialize, our proposed products. Delays in recruitment, lack of
clinical benefit or unacceptable side effects would delay or prevent the completion of our clinical trials.
We or our regulators
may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials
if at any time we believe they present an unacceptable risk to the patients enrolled in our clinical trials or do not demonstrate
clinical benefit. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials
at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements
or that they present an unacceptable safety risk to the patients enrolled in our clinical trials.
Our clinical trial
operations are subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites
are not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations
or warning letters detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem
our responses to be inadequate, or are dissatisfied with the corrective actions we or our clinical trial sites have implemented,
our clinical trials may be temporarily or permanently discontinued, we may be fined, we or our investigators may be precluded from
conducting any ongoing or any future clinical trials, the government may refuse to approve our marketing applications or allow
us to manufacture or market our products, and we may be criminally prosecuted.
The lengthy approval
process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval
for our proposed products, which would materially harm our business, results of operations and prospects.
There
are no assurances that we will be able to submit a pre-market application or obtain FDA approval in order to market and sell our
products.
There can be no
assurance that even if the clinical trial of any potential product candidate is successfully initiated and completed, that we will
be able to submit a Biologics License Application (“BLA”) or New Drug Application (“NDA”) to the FDA, or
that any BLA or NDA that we submit will be approved in a timely manner, if at all. If we are unable to submit a BLA or NDA with
respect to any future product, or if such application is not approved by the FDA, we will be unable to commercialize that product.
The FDA can and does reject BLAs and NDAs and may require additional clinical trials, even when product candidates performed well
or achieved favorable results during initial clinical trials. If we fail to commercialize our product candidates and are unable
to generate sufficient revenues to attain profitability our business will be adversely effected.
We may be
subject to litigation that will be costly to defend or pursue and uncertain in its outcome.
Our business may
bring us into conflict with licensees, licensors, or others with whom we have contractual or other business relationships or with
our competitors or others whose interests differs from ours. If we are unable to resolve these conflicts on terms that are satisfactory
to all parties, we may become involved in litigation brought by or against such parties. Any litigation is likely to be expensive
and may require a significant amount of management's time and attention, at the expense of other aspects of our business. The outcome
of litigation is always uncertain, and in some cases could include judgments against us which could have a materially adverse effect
on our business.
We may not be able to obtain necessary licenses to third-party patents and other rights.
A number of companies,
universities and research institutions have filed patent applications or have received patents relating to technologies in our
field. We cannot predict which, if any, of these applications will issue as patents or how many of these issued patents will be
found valid and enforceable. There may also be existing issued patents on which we would infringe by the commercialization of our
product candidates. If so, we may be prevented from commercializing these products unless the third party is willing to grant a
license to us. We may be unable to obtain licenses to the relevant patents at a reasonable cost, if at all, and may also be unable
to develop or obtain alternative non-infringing technology. If we are unable to obtain such licenses or develop non-infringing
technology at a reasonable cost, our business could be significantly harmed. Also, any infringement lawsuits commenced against
us may result in significant costs, divert our management’s attention and result in an award against us for substantial damages,
or potentially prevent us from continuing certain operations.
We may not
be able to obtain government or third-party payor coverage and reimbursement.
Our ability to
successfully commercialize our product candidates, if approved, depends to a significant degree on the ability of patients to be
reimbursed for the costs of such products and related treatments. We cannot assure you that reimbursement in the U.S. or in foreign
countries will be available for any products developed, or, if available, will not decrease in the future, or that reimbursement
amounts will not reduce the demand for, or the price of, our products. There is considerable pressure to reduce the cost of therapeutic
products. Government and other third party payors are increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products and by refusing, in some cases, to provide any coverage for uses of
approved products for disease indications for which the FDA or other relevant authority has not granted marketing approval. Moreover,
in some cases, government and other third party payors have refused to provide reimbursement for uses of approved products for
disease indications for which the FDA or other relevant authority has granted marketing approval. Significant uncertainty exists
as to the reimbursement status of newly approved health-care products or novel therapies such as ours. We cannot predict what additional
regulation or legislation relating to the health care industry or third-party coverage and reimbursement may be enacted in the
future or what effect such regulation or legislation may have on our business. If additional regulations are overly onerous or
expensive or if healthcare related legislation makes our business more expensive or burdensome than originally anticipated, we
may be forced to significantly downsize our business plans or completely abandon the current business model.
Our products may not be profitable
due to manufacturing costs and our inability to receive favorable pricing.
Our products may
be significantly more expensive to manufacture than other drugs or therapies currently on the market today due to a fewer number
of potential manufacturers, greater level of needed expertise and other general market conditions affecting manufacturers of our
proposed products. Even if we are able to receive approval for the reimbursement of our proposed products the amount of reimbursement
may be significantly less than the manufacturing costs of our products. Additionally, other market factors may limit the price
which we can charge for our proposed products while still being competitive. Accordingly, even if we are successful in developing
our proposed products, we may not be able to charge a high enough price for us to earn a profit.
We
are dependent on the acceptance of our products by the healthcare community.
Our product candidates,
if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community, in
general, may decide not to accept and utilize these products. The products that we are attempting to develop represent substantial
departures from established treatment methods and will compete with a number of more conventional therapies marketed by major pharmaceutical
companies. If the healthcare community does not accept our products for any reason, our business will be materially harmed.
We depend on a limited number
of employees and consultants for our continued operations and future success.
We are highly
dependent on a limited number of employees and outside consultants. Although we have entered into employment and consulting
agreements with these parties, these agreements can be terminated at any time. The loss of any of our employees or consultants
could adversely affect our opportunities and materially harm our future prospects. In addition, we anticipate growth
and expansion into areas and activities requiring additional expertise, such as clinical testing, regulatory compliance, manufacturing
and marketing. We anticipate the need for additional management personnel as well as the development of additional expertise
by existing management personnel. There is intense competition for qualified personnel in the areas of our present and planned
activities, and there can be no assurance that we will be able to attract and retain the qualified personnel necessary for the
development our business.
The employment contracts of certain key employees contain significant anti-termination provisions which could make changes
in management difficult or expensive.
We have entered
into employment agreements with Messrs. Daly and Lloyd Jones and Dr. Johe. Each of these employment agreements require the payment
of severance, in the event certain conditions are met, if these individuals are terminated. These provisions will make the replacement
of these employees very costly and could cause difficulty in effecting a change in control.
Our
competition has significantly greater experience and financial resources.
The biotechnology
industry is characterized by rapid technological developments and a high degree of competition. We compete against numerous companies,
many of which have substantially greater resources. Several such enterprises have initiated cell therapy research programs and/or
efforts to treat the same diseases which we target. Given our current stage of development and resources, it may be extremely difficult
for us to compete against more developed companies.
As a result, our
proposed products could become obsolete before we recoup any portion of our related research and development and commercialization
expenses. Competition in the biopharmaceutical industry is based significantly on scientific and technological factors. These factors
include the availability of patent and other protection for technology and products, the ability to commercialize technological
developments and the ability to obtain governmental approval for testing, manufacturing and marketing. We compete with specialized
biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies
that are applying biotechnology to their operations. Many major pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions
and governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified
scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will
also depend to a considerable degree on the continuing availability of capital to us.
We believe that
our proposed products under development and in pre-clinical testing and clinical trials will address unmet medical needs for those
indications for which we are focusing our development efforts. Our competition will be determined in part by the potential indications
for which our proposed products are developed and ultimately approved by regulatory authorities. Additionally, the timing of market
introduction of some of our proposed products or of competitors’ products may be an important competitive factor. Accordingly,
the relative speed with which we can develop our proposed products, complete preclinical testing, clinical trials and approval
processes and supply commercial quantities to market is expected to be important competitive factors. We expect that competition
among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability,
price and patent position.
Our outsource model depends on
third parties to assist in developing and testing our proposed products.
Our strategy for
the development, clinical and pre-clinical testing and commercialization of our proposed products is based in large part on an
outsource model. This model requires us to engage third parties in order to further develop our technology and products as well
as for the day to day operations of our business. In the event we are not able to enter into such relationships in the future,
our ability to operate and develop products may be seriously hindered or we may be required to spend considerable time and resources
to bring such functions in-house. Either outcome could result in our inability to develop a commercially feasible product or in
the need for substantially more working capital to complete the research in-house.
The commercialization of therapeutic
products exposes us to product liability claims.
Product liability
claims could result in substantial litigation costs and damage awards against us. We attempt to mitigate this risk by obtaining
and maintaining appropriate insurance coverage. Historically, we have obtained liability insurance that covers our clinical trials.
If we begin commercializing products, we will need to increase our insurance coverage. We may not be able to obtain insurance
on acceptable terms, if at all, and the policy limits on our insurance policies may be insufficient to cover our potential liabilities.
We currently rely heavily upon third
party FDA-regulated manufacturers and suppliers for our products
We currently manufacture our cells both
in-house and on an outsource basis. We outsource the manufacture of our pharmaceutical compound to third party manufacturers.
We manufacture cells in-house which are not required to meet stringent FDA requirements. We use these cells in our research and
collaborative programs. At present, we outsource all the manufacturing and storage of our stem cells and pharmaceuticals compound
to be used in clinical work, and which are subject to higher FDA requirements, to Charles River Laboratories, Inc., of Wilmington,
Massachusetts (stem cells) and Albany Molecular Resources, Inc. (small molecule). Failure by our contract manufacturer to achieve
and maintain high manufacturing standards could result in patient injury or death, product recalls or withdrawals, delays or failures
in testing or delivery, cost overruns, or other problems that could seriously hurt our business. Contract manufacturers may encounter
difficulties involving production yields, quality control, and quality assurance. These manufacturers are subject to ongoing periodic
and unannounced inspections by the FDA and corresponding state and foreign agencies to ensure strict compliance with cGMPs, GTPs
and other applicable government regulations and corresponding foreign standards; however, we do not have control over third-party
manufacturers’ compliance with these regulations and standards.
Because manufacturing
facilities are subject to regulatory oversight and inspection, failure to comply with regulatory requirements could result in material
manufacturing delays and product shortages, which could delay or otherwise negatively impact our clinical trials and product development.
Moreover, we do not have quantity or volume commitment orders from these manufacturers and we cannot assure you that the manufacturers
will be able to manufacture in the quantity we require on a timely basis or at all. In the event we are required to seek alternative
third party suppliers or manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable
terms. Any such event would materially impact our business prospects and could delay the development of our products. Moreover,
there can be no assurance that any manufacturer or supplier that we select will be able to supply our products in a timely or cost
effective manner or in accordance with applicable regulatory requirements or our specifications. In addition, due to the novelty
of our products and product development, there can be no assurances that we would be able to find other suitable third party FDA-regulated
manufacturers on a timely basis and at terms reasonable to us. Even if we were to locate alternative manufacturers there may be
delays before they are able to begin manufacturing. Failure to secure such third party manufacturers or suppliers would materially
impact our business.
We
rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays
that prevent us from successfully commercializing our product candidates.
We do not have
the in-house capability to conduct clinical trials for our product candidates. We rely, and will rely in the future, on medical
institutions, clinical investigators, contract research organizations, contract laboratories, and collaborators to perform data
collection and analysis and other aspects of our clinical trials. Our reliance on these third parties for clinical development
activities results in reduced control over these activities. Furthermore, these third parties may also have relationships with
other entities, some of which may be our competitors. Our preclinical activities or clinical trials conducted in reliance on third
parties may be delayed, suspended, or terminated if:
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the third parties do not successfully carry out their contractual duties;
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the third parties fail to meet FDA and other regulatory obligations or expected deadlines;
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we replace a third party for any reason; or
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the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other reasons.
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Third party performance
failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization
of our product candidates. While we believe that there are numerous alternative sources to provide these services, in the event
that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional
costs.
Risks
Relating to Intellectual Property
We may not be able to withstand
challenges to our intellectual property rights.
We rely on our
intellectual property, including issued and applied-for patents, as the foundation of our business. Our intellectual property rights
may come under challenge. No assurances can be given that our current and potential future patents will survive such challenges.
For example, in 2005 one of our patents was challenged in the USPTO. Although we prevailed in this particular matter, these cases
are complex, lengthy, expensive, and could potentially be adjudicated adversely to our interests, removing the protection afforded
by an issued patent. The viability of our business would suffer if such patent protection were limited or eliminated. Moreover,
the costs associated with defending or settling intellectual property claims would likely have a material adverse effect on our
business and future prospects.
We may not be able to adequately
protect against the piracy of the intellectual property in foreign jurisdictions.
We conduct research
in countries outside of the U.S., including through our subsidiary in the People’s Republic of China. A number of our competitors
are located in these countries and may be able to access our technology or test results. The laws protecting intellectual property
in some of these countries may not adequately protect our trade secrets and intellectual property. The misappropriation of our
intellectual property may materially impact our position in the market and any competitive advantages, if any, that we may have.
Risks
Relating to Our Common Stock
The market price for our common
shares is particularly volatile.
The market for
our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share
price will continue to be more volatile than those of a seasoned issuer. The volatility in our share price is attributable to a
number of factors. Mainly however, we are a speculative or “risky” investment due to our limited operating history,
lack of significant revenues to date and the uncertainty of FDA approval. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned
issuer. Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following
periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
In January, 2017 we undertook a 1-for-13
reverse stock split in order to regain compliance with Nasdaq minimum bid-price listing standards. On October 18, 2016, we received
notice from the Listing Qualifications Staff (the “Staff”) of The NASDAQ Stock Market LLC (“Nasdaq”) indicating
that the Staff had determined to delist the Company’s securities from The Nasdaq Capital Market due to the Company’s
continued non-compliance with the $1.00 bid price requirement. At the time of receipt of notification from Nasdaq, we had been
non-compliant with the minimum bid price requirement for in excess of 180 days. While our 1-for-13 reverse stock split has enabled
us to regain compliance with Nasdaq minimum bid price requirements, we cannot be sure we will meet the requirements for continued
listing of our shares on the Nasdaq Capital Market in the future or that we will comply with the other continued listing requirements.
The following
factors may add to the volatility in the price of our common shares: actual or anticipated variations in our quarterly or annual
operating results; the results of clinical trials for our product candidates; FDA’s determination with respect to filings
for new clinical studies, new drug applications and new indications; government regulations; announcements of significant acquisitions,
strategic partnerships or joint ventures; our capital commitments; offerings of our securities and additions or departures of our
key personnel. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless
of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect
the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.
The
requirements of being a public company may strain our resources, divert management’s attention and affect our ability to
attract and retain qualified board members.
As a public company,
we incur significant legal, accounting and other expenses that we would not incur as a private company, including costs associated
with public company reporting requirements. We also incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, the
Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be implemented by the SEC and the
Nasdaq. The expenses incurred by public companies generally for reporting, insurance and corporate governance purposes have been
increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities
more time-consuming and costly. These laws and regulations could also make it more difficult or costly for us to obtain certain
types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make
it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as
our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as
a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially
civil litigation.
We
have never paid a cash dividend and do not intend to pay cash dividends on our common stock in the foreseeable future.
We have never
paid cash dividends nor do we anticipate paying cash dividends in the foreseeable future. Accordingly, any return on your investment
will be as a result of stock appreciation if any. Additionally, we are prohibited from paying any cash dividends under the terms
of our loan and security agreement.
Our anti-takeover
provisions may delay or prevent a change of control, which could adversely affect the price of our common stock.
Our amended and
restated certificate of incorporation and amended and restated bylaws contain provisions that may make it difficult to remove our
board of directors and management and may discourage or delay “change of control” transactions, which could adversely
affect the price of our common stock. These provisions include, among others:
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our board of directors is divided into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new board of directors at an annual meeting;
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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors and propose matters to be brought before an annual meeting of our stockholders may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
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our board of directors may, without stockholder approval, issue series of preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control.
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If
securities or industry analysts do not publish research reports, or publish unfavorable research about our business, the price
and trading volume of our common stock could decline.
The trading market
for our common stock will depend in part on the research and reports that securities or industry analysts publish about us and
our business. We currently have limited research coverage by securities and industry analysts. In the event an analyst downgrades
our securities, the price of our securities would likely decline. If analysts cease to cover us or fails to publish regular reports
on us, interest in our securities could decrease, which could cause the price of our common stock and other securities and their
trading volume to decline.
Our charter
documents and Delaware law contain provisions that could make it difficult for us to be acquired in a transaction that might be
beneficial to our stockholders.
Our board of directors
has the authority to issue shares of preferred stock and to fix the rights, preferences, privileges, and restrictions of these
shares without stockholder approval. Additionally, our Bylaws provide for a staggered board. These provisions
in our charter documents, along with certain provisions under Delaware law, may make it more difficult for a third party to acquire
us or discourage a third party from attempting to acquire us, even if the acquisition might be beneficial to our stockholders.
Our
board of directors has broad discretion to issue additional securities which might dilute the net tangible book value per share
of our common stock for existing stockholders.
We are entitled
under our certificate of incorporation to issue up to 300,000,000 shares of common stock and 7,000,000 “blank check”
shares of preferred stock. Shares of our blank check preferred stock provide our board of directors with broad authority to determine
voting, dividend, conversion, and other rights. As of December 31, 2016 we have issued and outstanding 11,032,858 shares of common
stock and we have 9,026,609 shares of common stock reserved for future grants under our equity compensation plans and for issuances
upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of December 31, 2016,
we had 1,000,000 shares of preferred stock issued and outstanding. Accordingly, we are entitled to issue up to 279,940,533 additional
shares of common stock and 6,000,000 additional shares of “blank check” preferred stock. Our board may generally issue
those common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders.
Any preferred shares we may issue will have such rights, preferences, privileges and restrictions as may be designated from time-to-time
by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.
It is likely that we will be required to issue a large amount of additional securities to raise capital in order to further our
development and marketing plans. It is also likely that we will be required to issue a large amount of additional securities to
directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone
grants or under our various stock plans. The issuance of additional securities may cause substantial dilution to our shareholders.
Risks Related to Our Reverse Stock Split
Our reverse stock split may adversely affect the liquidity
of our common stock.
On January 6, 2017, we completed a 1:13
reverse stock split and as a result, the liquidity of the shares of our common stock may be affected adversely given the reduced
number of shares that will be outstanding following the reverse stock split. In addition, the reverse stock split may increase
the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders
to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.
The market price of our common stock may further decline.
Historically, after a reverse stock split, the market price of a company’s shares declines. On
January 6, 2017 we completed a 1:13 reverse stock split. Immediately after the reverse stock split, the price of our common shares
was $4.00. As of March 17, 2017, the price of our common stock had increased to $5.71. Although our stock price has increased,
there can be no assurance that the price of our common stock will not decline in the future.
Risks Related
to Government Regulation and Approval of our Product Candidates.
The regulatory
approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and
our products may not receive regulatory approval.
The time required to obtain approval by
the FDA and comparable foreign authorities is inherently unpredictable but typically takes many years following the commencement
of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition,
approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course
of a drug candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for
any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to
develop in the future will ever obtain regulatory approval.
Our drug candidates could fail to receive regulatory approval
for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA, NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; or
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
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We are currently
undertaking clinical trials for our lead products candidates NSI-189 and NSI-566. We cannot assure you that we will
successfully complete any clinical trials in connection with such INDs. Further, we cannot predict when we might first
submit any product license application (NDA or BLA) for FDA approval or whether any such product license application will be granted
on a timely basis, if at all. Any delay in obtaining, or failure to obtain, such approvals could have a material adverse
effect on the marketing of our products and our ability to generate product revenue.
In addition,
even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited
indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may
approve a drug candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization
of that drug candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our drug candidates.
Development of our product candidates is subject to extensive government regulation.
Our research and
development efforts, as well as any future clinical trials, and the manufacturing and marketing of any products we may develop,
will be subject to, and restricted by, extensive regulation by governmental authorities in the U.S. and other countries. The process
of obtaining FDA and other necessary regulatory approvals is lengthy, expensive and uncertain. FDA and other legal and regulatory
requirements applicable to our proposed products could substantially delay or prevent us from initiating additional clinical trials.
We may fail to obtain the necessary approvals to commence clinical testing or to manufacture or market our potential products in
reasonable time frames, if at all. In addition, the U.S. Congress and other legislative bodies may enact regulatory reforms or
restrictions on the development of new therapies that could adversely affect the regulatory environment in which we operate or
the development of any products we may develop.
A substantial
portion of our research and development entails the use of stem cells obtained from human tissue. The U.S. federal and state governments
and other jurisdictions impose restrictions on the acquisition and use of human tissue, including those incorporated in federal
Good Tissue Practice, or “GTP,” regulations. These regulatory and other constraints could prevent us from obtaining
cells and other components of our products in the quantity or of the quality needed for their development or commercialization.
These restrictions change from time to time and may become more onerous. Additionally, we may not be able to identify or develop
reliable sources for the cells necessary for our potential products — that is, sources that follow all state and federal
laws and guidelines for cell procurement. Certain components used to manufacture our stem and progenitor cell product candidates
will need to be manufactured in compliance with the FDA’s GMP. Accordingly, we will need to enter into supply agreements
with companies that manufacture these components to GMP standards. There is no assurance that we will be able to enter into any
such agreements.
Noncompliance
with applicable regulatory requirements can subject us, our third party suppliers and manufacturers and our other collaborators
to administrative and judicial sanctions, such as, among other things, warning letters, fines and other monetary payments, recall
or seizure of products, criminal proceedings, suspension or withdrawal of regulatory approvals, interruption or cessation of clinical
trials, total or partial suspension of production or distribution, injunctions, limitations on or the elimination of claims we
can make for our products, refusal of the government to enter into supply contracts or fund research, or government delay in approving
or refusal to approve new drug applications.
We cannot predict if or when
we will be able to commercialize our products due to regulatory constraints.
Federal, state
and local governments and agencies in the U.S. (including the FDA) and governments in other countries have significant regulations
in place that govern many of our activities. We are, or may become, subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use
of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with its research and development
work. The preclinical testing and clinical trials of our proposed products are subject to extensive government regulation that
may prevent us from creating commercially viable products. In addition, our sale of any commercially viable product will be subject
to government regulation from several standpoints, including manufacturing, advertising, marketing, promoting, selling, labeling
and distributing. If, and to the extent that, we are unable to comply with these regulations, our ability to earn revenues,
if any, will be materially and negatively impacted.
If our clinical
trials fail to demonstrate that any of our product candidates are safe and effective for the treatment of particular diseases,
the FDA may require us to conduct additional clinical trials or may not grant us marketing approval for such product candidates
for those diseases.
We are not permitted
to market our product candidates in the United States until we receive approval of a BLA or NDA from the FDA. Before obtaining
regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate with evidence
gathered in preclinical and well-controlled clinical trials, and, with respect to approval in the United States, to the satisfaction
of the FDA and, with respect to approval in other countries, similar regulatory authorities in those countries, that the product
candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls
used to produce the product are compliant with applicable statutory and regulatory requirements. Our failure to adequately demonstrate
the safety and effectiveness of any of our product candidates for the treatment of particular diseases may delay or prevent our
receipt of the FDA’s approval and, ultimately, may prevent commercialization of our product candidates for those diseases.
The FDA has substantial discretion in deciding whether, based on the benefits and risks in a particular disease, any of our product
candidates should be granted approval for the treatment of that particular disease. Even if we believe that a clinical trial or
trials has demonstrated the safety and statistically significant efficacy of any of our product candidates for the treatment of
a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data can be interpreted by the FDA and other
regulatory authorities in different ways, which could delay, limit or prevent regulatory approval. If regulatory delays are significant
or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for those of our product
candidates involved will be harmed, and our prospects for profitability will be significantly impaired.
Satisfaction of
these and other regulatory requirements is costly, time consuming, uncertain, and subject to unanticipated delays. Despite our
efforts, our drug candidates may not:
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offer improvement over existing comparable products;
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be proven safe and effective in clinical trials; or
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meet applicable regulatory standards.
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In addition, in
the course of its review of a BLA or NDA or other regulatory application, the FDA or other regulatory authorities may conduct audits
of the practices and procedures of a company and its suppliers and contractors concerning manufacturing, clinical study conduct,
non-clinical studies and several other areas. If the FDA and/or other regulatory authorities conducts an audit relating to a BLA,
NDA or other regulatory application and finds a significant deficiency in any of these or other areas, the FDA or other regulatory
authorities could delay or not approve such BLA, NDA or other regulatory application. If regulatory delays are significant or regulatory
approval is limited or denied altogether, our financial results and the commercial prospects for those of our products or product
candidates involved will be harmed, and our prospects for profitability will be significantly impaired.
Both before
and after marketing approval, our product candidates are subject to extensive and rigorous ongoing regulatory requirements and
continued regulatory review, and if we fail to comply with these continuing requirements, we could be subject to a variety of sanctions.
Both before and
after the approval of our product candidates, we, our product candidates, our operations, our facilities, our suppliers, and our
contract manufacturers, contract research organizations, and contract testing laboratories are subject to extensive regulation
by governmental authorities in the United States and other countries, with regulations differing from country to country. In the
United States, the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy,
potency, labeling, packaging, adverse event reporting, storage, record keeping, quality systems, advertising, promotion, sale and
distribution of therapeutic products. These requirements include submissions of safety and other post-marketing information and
reports, registration, as well as continued compliance with cGMP, requirements and current good clinical practice, or cGCP, requirements
for any clinical trials that we conduct post-approval. Failure to comply with applicable requirements could result in, among other
things, one or more of the following actions: restrictions on the marketing of our products or their manufacturing processes, notices
of violation, untitled letters, warning letters, civil penalties, fines and other monetary penalties, unanticipated expenditures,
delays in approval or refusal to approve a product candidate, suspension or withdrawal of regulatory approvals, product, seizure
or detention, voluntary or mandatory product recalls and related publicity requirements, interruption of manufacturing or clinical
trials, operating restrictions, injunctions, import or export bans, and criminal prosecution. We or the FDA, or an institutional
review board, may suspend or terminate human clinical trials at any time on various grounds, including a finding that the subjects
are being exposed to an unacceptable health risk.
The FDA’s policies may change and
additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates.
If we are slow or unable to adapt to changes in existing or new requirements or policies, or if we are not able to maintain regulatory
compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects
and ability to achieve or sustain profitability.
If side effects are identified during
the time our drug candidates are in development or after they are approved and on the market, we may choose to or be required to
perform lengthy additional clinical trials, discontinue development of the affected drug candidate, change the labeling of any
such products, or withdraw any such products from the market, any of which would hinder or preclude our ability to generate revenues.
Undesirable side effects caused by our
drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more
restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Drug-related
side effects could affect patient recruitment or the ability of enrolled patients to complete a trial or result in potential product
liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Even if any
of our drug candidates receives marketing approval, as greater numbers of patients use a drug following its approval, an increase
in the incidence of side effects or the incidence of other post-approval problems that were not seen or anticipated during pre-approval
clinical trials could result in a number of potentially significant negative consequences, including:
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regulatory authorities may withdraw their approval of the product;
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regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
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we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these events could substantially
increase the costs and expenses of developing, commercializing and marketing any such drug candidates or could harm or prevent
sales of any approved products.
Even if our product candidates receive
regulatory approval in the United States, we may never receive approval or commercialize our products outside of the United States.
In order to market any products outside
of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding
safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative
review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval.
The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United
States as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure
or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure
to obtain regulatory approval in other countries or any delay or setback in obtaining such approval would impair our ability to
develop foreign markets for our drug candidates.
Our product candidates for which
we intend to seek approval as biologic products may face competition sooner than anticipated.
We expect our stem cell product candidates
to be regulated by the FDA as biologic products and we intend to seek approval for these products pursuant to the BLA pathway.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for the approval of biosimilar
and interchangeable biologic products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and
approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its
similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA
until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and
implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain
when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse
effect on the future commercial prospects for our biologic products.
We believe that
any of our product candidates approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity.
However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will
not consider our drug candidates to be reference products for competing products, potentially creating the opportunity for generic
competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one
of our reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear,
and will depend on a number of marketplace and regulatory factors that are still developing.
ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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None
We currently operate two facilities located
in the United States and one facility located in China. Our corporate offices and primary research facilities are located in Germantown,
Maryland, where we license approximately 1,500 square feet. This license provides for monthly payments of approximately $5,500
per month with the term expiring on December 31, 2017.
In 2015, we entered into a lease consisting
of approximately 3,100 square feet of research space in San Diego, California. This lease provides for current monthly payments
of approximately $11,000 and expires on August 31, 2019.
In 2016, we entered into a license for
an Incubator Laboratory Facility in Urbana, Illinois. The license provides for monthly payments of $1,800, expires on December
31, 2019 and can be terminated by us upon 90 days written notice. In January, 2017 we served notice to terminate this lease and
relinquish the property.
We lease a research facility in People’s
Republic of China. This lease expires on September 30, 2018 with lease payments of approximately $3,200 per month.
ITEM 3.
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LEGAL PROCEEDINGS
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As of the date of this Annual Report, there
are no material pending legal or governmental proceedings relating to our company or properties to which we are a party, and to
our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse
to us or which have a material interest adverse to us.
ITEM 4.
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MINE SAFETY DISCLOSURE
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Not Applicable