Set forth below and elsewhere in this report
and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from
the results contemplated by the forward-looking statements contained in this report. The descriptions below include any material
changes to and supersede the description of the risk factors affecting our business previously disclosed in “Part II, Item
1A. Risk Factors” of the Annual Report.
Risks Related to Our Liquidity and Need for
Financing
We estimate that our existing capital
resources will not be sufficient to fund our operations beyond the third quarter of 2017.
On June 27, 2016, we entered into a SPA
with Sabby pursuant to which we received net proceeds of approximately $1,520,000 which was projected to fund our operations at
the current level for approximately four months beyond the filing date of the Form 10-Q. We will need to secure additional operating
capital to continue operations beyond the third quarter of 2017. We continuously monitor our cash use as well as the clinical
timelines. We will need to secure additional operating capital in 2017 and are evaluating options including the licensing of additional
rights to commercialize our clinical products as well as raising capital through the capital markets which may cause a reduction
in the trading price of our common stock.
We will need substantial additional capital
for the continued development of product candidates through marketing approval and for our longer-term future operations.
We anticipate that substantial new capital
resources will be required to continue our longer-term product development efforts, including any and all follow-on trials that
will result from our current clinical programs beyond those currently contemplated, and to scale up manufacturing processes for
our product candidates. However, the actual amount of funds that we will need will be determined by many factors, some of which
are beyond our control. These factors include, without limitation:
|
·
|
the scope of our, or our partners’,
clinical trials, which is significantly influenced by the quality of clinical data achieved as trials are completed and the requirements
established by regulatory authorities;
|
|
·
|
the speed with which we, or our partners,
complete our clinical trials, which depends on our ability to attract and enroll qualifying patients and the quality of the work
performed by our clinical investigators and contract research organizations chosen to conduct the studies;
|
|
·
|
the time required to prosecute, enforce
and defend our intellectual property rights, which depends on evolving legal regimes and infringement claims that may arise between
us and third parties;
|
|
·
|
the ability to manufacture at scales sufficient
to supply commercial quantities of any of our product candidates that receive regulatory approval, which may require levels of
effort not currently anticipated; and
|
|
·
|
the successful commercialization of our
product candidates, which will depend on our, or our partners’, ability to either create or partner with an effective commercialization
organization and which could be delayed or prevented by the emergence of equal or more effective therapies.
|
Emerging biotechnology companies like us may
raise capital through corporate collaborations and by licensing intellectual property rights to other biotechnology or pharmaceutical
enterprises. We intend to pursue this strategy, but there can be no assurance that we will be able to enter into additional license
agreements with respect to our intellectual property or product development programs on commercially reasonable terms, if at all.
There are substantial challenges and risks that will make it difficult to successfully implement any of these alternatives. If
we are successful in raising additional capital through such a license or collaboration, we may have to give up valuable rights
to our intellectual property. In addition, the business priorities of a strategic partner may change over time, which creates the
possibility that the interests of the strategic partner in developing our technology may diminish and could have a potentially
material negative impact on the value of our interest in the licensed intellectual property or product candidates.
Further, if we raise additional funds by selling
shares of our common stock or securities convertible into our common stock the ownership interest of our existing stockholders
may be significantly diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these
securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest
expense, restrictive covenants or the granting of security interests in our assets.
Our failure to successfully address our
long-term liquidity requirements would have a material negative impact on our business, including the possibility of surrendering
our rights to some technologies or product opportunities, delaying our clinical trials or ceasing our operations. At this time
we estimate that our existing capital resources will fund operations for approximately four months beyond the filing date of the
Form 10-Q. We will need to secure additional operating capital to continue operations beyond the third quarter of 2017.
We have incurred losses since inception
and expect to incur significant losses in the foreseeable future and may never become profitable.
We have not commercialized any product candidates
to date and incurred net operating losses every year since our inception in 1982. We believe these losses will continue for the
foreseeable future, and may increase, as we pursue our product development efforts related to Tß4. As of March 31, 2017,
our accumulated deficit totaled approximately $105 million.
As we expand our research and development efforts
and seek to obtain regulatory approval of our product candidates to make them commercially viable, we anticipate substantial and
increasing operating losses. Our ability to generate revenues and to become profitable will depend largely on our ability, alone
or through the efforts of third-party licensees and collaborators, to efficiently and successfully complete the development of
our product candidates, obtain necessary regulatory approvals for commercialization, scale-up commercial quantity manufacturing
capabilities either internally or through third-party suppliers, and market our product candidates. There can be no assurance that
we will achieve any of these objectives or that we will ever become profitable or be able to maintain profitability. Even if we
do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time
and are not otherwise able to raise necessary funds to continue our development efforts and maintain our operations, we may be
forced to cease operations.
Our common stock is quoted on the over-the-counter
market, which subjects us to the SEC’s penny stock rules and may decrease the liquidity of our common stock.
Our common stock is traded over-the-counter
on the OTC Bulletin Board. Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a
stock exchange. There may be a limited market for our stock now that it is quoted on the OTC Bulletin Board, trading in our stock
may become more difficult and our share price could decrease. Specifically, you may not be able to resell your shares of common
stock at or above the price you paid for such shares or at all.
In addition, our ability to raise additional
capital may be impaired because of the less liquid nature of the over-the-counter markets. While we cannot guarantee that we would
be able to complete an equity financing on acceptable terms, or at all, we believe that dilution from any equity financing while
our shares are quoted on an over-the-counter market would likely be substantially greater than if we were to complete a financing
while our common stock is traded on a national securities exchange. Further, we are unable to use short-form registration statements
on Form S-3 for the registration of our securities, which could impair our ability to raise additional capital as needed.
Our common stock is also subject to penny stock
rules, which impose additional sales practice requirements on broker-dealers who sell our common stock. The SEC generally defines
“penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exceptions.
The ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares in the secondary
market will be limited and, as a result, the market liquidity for our common stock will likely be adversely affected. We cannot
assure you that trading in our securities will not be subject to these or other regulations in the future.
The report of our independent registered
public accounting firm contains explanatory language that substantial doubt exists about our ability to continue as a going concern.
The report of our independent registered
public accounting firm on our financial statements for the year ended December 31, 2016 contains explanatory language that
substantial doubt exists about our ability to continue as a going concern, without raising additional capital. As described in
this report, we completed the sale of common stock and warrants to institutional investors and received net proceeds of approximately
$1,520,000 and we estimate that our existing capital resources will fund our operations for approximately four months beyond the
filing date of the Form 10-Q. We will need to secure additional operating capital to continue operations beyond the third quarter
of 2017. Therefore, we are seeking sources of capital, but if we are unable to obtain sufficient financing to support and complete
these activities, then we would, in all likelihood, experience severe liquidity problems and may have to curtail our operations.
If we curtail our operations, we may be placed into bankruptcy or undergo liquidation, the result of which will adversely affect
the value of our common shares.
Risks Related to Our Business
and Operations
Our planned Phase 2 clinical trial of
RGN-352 was placed on clinical hold by the FDA in March 2011 due to non-compliance of cGMP regulations by a contract manufacturer
and we are unsure when, if ever, we will be able to resume this trial.
In the second half of 2010, we implemented
the development plans for our Phase 2 clinical trial to evaluate RGN-352 in patients who have suffered an acute myocardial infarction,
or AMI. We had planned to begin enrolling patients near the end of the first quarter of 2011. However, in March 2011, we were notified
by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged failure to comply
with current Good Manufacturing Practice (“cGMP”) regulations. The FDA has prohibited us from using any of the active
drug or placebo manufactured by this manufacturer in human trials, which will require us to identify a cGMP-compliant manufacturer
and to have new material produced in the event that we seek to resume this trial. We have also learned that the contract manufacturer
has closed its manufacturing facility and has filed for bankruptcy protection. Significant preparatory time and procedures will
be required before any new suitable manufacturer would be able to manufacture RGN-352 for the AMI trial. Since we are unable to
estimate the length of time that the trial will be on clinical hold, we have elected to cease activities on this trial until the
FDA clinical hold is resolved and the requisite funding might be secured. Consequently, there can be no assurance that we will
be able to timely initiate trial activities or complete this trial, if at all.
All of our drug candidates are based
on a single compound.
Our current primary business focus is the development
of Tß4, and its analogues, derivatives and fragments, for the regeneration and accelerated repair of damaged tissue from
non-healing dermal and corneal wounds, cardiac injury, central/peripheral nervous system diseases and other conditions, as well
as an improvement in various functions, such as, but not limited to, cardiac and neurological. Unlike many pharmaceutical companies
that have a number of unique chemical entities in development, we are dependent on a single molecule, formulated for different
routes of administration and different clinical indications, for our potential commercial success. As a result, any common safety
or efficacy concerns for Tß4-based products that cross formulations would have a much greater impact on our business prospects
than if our product pipeline were more diversified.
We may never be able to commercialize
our product candidates.
Although Tß4 has shown biological activity
in
in vitro
studies and
in vivo
animal models and while we observed clinical activity and efficacious outcomes in
our recent RGN-259 Phase 2a trial and earlier Phase 2 dermal trials, we cannot assure you that our product candidates will exhibit
activity or importance in humans in large-scale trials. Our drug candidates are still in research and development, and we do not
expect them to be commercially available for the foreseeable future, if at all. Only a small number of research and development
programs ultimately result in commercially successful drugs. Potential products that appear to be promising at early stages of
development may not reach the market for a number of reasons. These include the possibility that the potential products may:
|
·
|
be found ineffective or cause harmful
side effects during preclinical studies or clinical trials;
|
|
·
|
fail to receive necessary regulatory approvals;
|
|
·
|
be precluded from commercialization by
proprietary rights of third parties;
|
|
·
|
be difficult to manufacture on a large
scale; or
|
|
·
|
be uneconomical or otherwise fail to achieve
market acceptance.
|
If any of these potential problems occurs,
we may never successfully market Tß4-based products.
We are subject to intense government
regulation, and we may not receive regulatory approvals for our drug candidates.
Our product candidates will require regulatory
approvals prior to sale. In particular, therapeutic agents are subject to stringent approval processes, prior to commercial marketing,
by the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and corresponding foreign approvals
is costly and time-consuming, and we cannot assure you that such approvals will be granted. Also, the regulations we are subject
to change frequently and such changes could cause delays in the development of our product candidates.
Three of our drug candidates are currently
in the clinical development stage, and we cannot be certain that we, or our partners, will successfully complete the clinical trials
necessary to receive regulatory product approvals. The regulatory approval process is lengthy, unpredictable and expensive. To
obtain regulatory approvals in the United States, we or a partner must ultimately demonstrate to the satisfaction of the FDA that
our product candidates are sufficiently safe and effective for their proposed administration to humans. Many factors, known and
unknown, can adversely impact clinical trials and the ability to evaluate a product candidate’s safety and efficacy, including:
|
·
|
the FDA or other health regulatory authorities,
or institutional review boards, or IRBs, do not approve a clinical trial protocol or place a clinical trial on hold;
|
|
·
|
suitable patients do not enroll in a clinical
trial in sufficient numbers or at the expected rate, for reasons such as the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the trial, the perceptions of investigators and patients regarding safety, and
the availability of other treatment options;
|
|
·
|
clinical trial data is adversely affected
by trial conduct or patient withdrawal prior to completion of the trial;
|
|
·
|
there may be competition with ongoing
clinical trials and scheduling conflicts with participating clinicians;
|
|
·
|
patients experience serious adverse events,
including adverse side effects of our drug candidates, for a variety of reasons that may or may not be related to our product candidates,
including the advanced stage of their disease and other medical problems;
|
|
·
|
patients in the placebo or untreated control
group exhibit greater than expected improvements or fewer than expected adverse events;
|
|
·
|
third-party clinical investigators do
not perform the clinical trials on the anticipated schedule or consistent with the clinical trial protocol and good clinical practices,
or other third-party organizations do not perform data collection and analysis in a timely or accurate manner;
|
|
·
|
service providers, collaborators or co-sponsors
do not adequately perform their obligations in relation to the clinical trial or cause the trial to be delayed or terminated;
|
|
·
|
we are unable to obtain a sufficient supply
of manufactured clinical trial materials;
|
|
·
|
regulatory inspections of manufacturing
facilities, which may, among other things, require us or a co-sponsor to undertake corrective action or suspend the clinical trials,
such as the clinical hold with respect to our Phase 2 clinical trial of RGN-352;
|
|
·
|
the interim results of the clinical trial
are inconclusive or negative;
|
|
·
|
the clinical trial, although approved
and completed, generates data that is not considered by the FDA or others to be clinically relevant or sufficient to demonstrate
safety and efficacy; and
|
|
·
|
changes in governmental regulations or
administrative actions affect the conduct of the clinical trial or the interpretation of its results.
|
There can be no assurance that our, or our
partners’, clinical trials will in fact demonstrate, to the satisfaction of the FDA and others, that our product candidates
are sufficiently safe or effective. The FDA or we may also restrict or suspend our clinical trials at any time if it is believed
that subjects participating in the trials are being exposed to unacceptable health risks.
Clinical trials for product candidates such
as ours are often conducted with patients who have more advanced forms of a particular condition or other unrelated conditions.
For example, in clinical trials for our product candidate RGN-137, we have studied patients who are not only suffering from chronic
epidermal wounds but who are also older and much more likely to have other serious adverse conditions. During the course of treatment
with our product candidates, patients could die or suffer other adverse events for reasons that may or may not be related to the
drug candidate being tested. Further, and as a consequence that all of our drug candidates are based on Tß4, crossover risk
exists such that a patient in one trial may be adversely impacted by one drug candidate, and that adverse event may have implications
for our other trials and other drug candidates. However, even if unrelated to our product candidates, such adverse events can nevertheless
negatively impact our clinical trials, and our business prospects would suffer.
These factors, many of which may be outside
of our control, may have a negative impact on our business by making it difficult to advance product candidates or by reducing
or eliminating their potential or perceived value. As a consequence, we may need to perform more or larger clinical trials than
planned. Further, if we are forced to contribute greater financial and clinical resources to a study, valuable resources will be
diverted from other areas of our business. If we fail to complete or if we experience material delays in completing our clinical
trials as currently planned, or we otherwise fail to commence or complete, or experience delays in, any of our other present or
planned clinical trials, including as a result of the actions of third parties upon which we rely for these functions, our ability
to conduct our business as currently planned could materially suffer.
We may not successfully establish and
maintain development and testing relationships with third-party service providers and collaborators, which could adversely affect
our ability to develop our product candidates.
We have only limited resources, experience
with and capacity to conduct requisite testing and clinical trials of our drug candidates. As a result, we rely and expect to continue
to rely on third-party service providers and collaborators, including corporate partners, licensors and contract research organizations,
or CROs, to perform a number of activities relating to the development of our drug candidates, including the design and conduct
of clinical trials, and potentially the obtaining of regulatory approvals. For example, we currently rely on several third-party
contractors to manufacture and formulate Tß4 into the product candidates used in our clinical trials, develop assays to assess
Tß4’s effectiveness in complex biological systems, recruit clinical investigators and sites to participate in our trials,
manage the clinical trial process and collect, evaluate and report clinical results.
We may not be able to maintain or expand our
current arrangements with these third parties or maintain such relationships on favorable terms. Our agreements with these third
parties may also contain provisions that restrict our ability to develop and test our product candidates or that give third parties
rights to control aspects of our product development and clinical programs. In addition, conflicts may arise with our collaborators,
such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial
provisions or the ownership of intellectual property developed during the collaboration. If any conflicts arise with our existing
or future collaborators, they may act in their self-interest, which may be adverse to our best interests. Any failure to maintain
our collaborative agreements and any conflicts with our collaborators could delay or prevent us from developing our product candidates.
We and our collaborators may fail to develop products covered by our present and future collaborations if, among other things:
|
·
|
we or our partners do not achieve our
objectives under our collaboration agreements;
|
|
·
|
we or our partners are unable to obtain
patent protection for the products or proprietary technologies we develop in our partnerships;
|
|
·
|
we are unable to manage multiple simultaneous
product development partnerships;
|
|
·
|
our partners become competitors of ours
or enter into agreements with our competitors;
|
|
·
|
we or our partners encounter regulatory
hurdles that prevent commercialization of our product candidates; or
|
|
·
|
we develop products and processes or enter
into additional partnerships that conflict with the business objectives of our other partners.
|
We also have less control over the timing and
other aspects of our clinical trials than if we conducted the monitoring and supervision entirely on our own. Third parties may
not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol
or applicable regulations. We, and our partners, also rely on clinical research organizations to perform much of our data management
and analysis. They may not provide these services as required or in a timely manner. If any of these parties do not meet deadlines
or follow proper procedures, including procedures required by law, the preclinical studies and clinical trials may take longer
than expected, may be delayed or may be terminated, which would have a materially negative impact on our product development efforts.
If we were forced to find a replacement entity to perform any of our preclinical studies or clinical trials, we may not be able
to find a suitable entity on favorable terms or at all. Even if we were able to find a replacement, resulting delays in the tests
or trials may result in significant additional expenditures and delays in obtaining regulatory approval for drug candidates, which
could have a material adverse impact on our results of operations and business prospects.
GtreeBNT Co., Ltd. has limited drug development
experience.
We are a party to several license agreements
and a Joint Venture with GtreeBNT. Historically, GtreeBNT’s business focus has been in the IT software industry in Korea
with strong IP positions addressing specific software tools and apps such as optimized multimedia software for smart phones. GtreeBNT
made a strategic decision in November 2013 to expand into the biopharmaceutical business through selected strategic alliances with
biopharmaceutical companies in the U.S. and EU. The collaboration with RegeneRx is the first strategic investment in this initiative.
While GtreeBNT has hired executives and staff with significant pharmaceutical experience, the company has no internal drug development
experience. As a result, GtreeBNT may face more and different challenges in the development of these product candidates than would
more established pharmaceutical companies.
We are subject to intense competition
from companies with greater resources and more mature products, which may result in our competitors developing or commercializing
products before or more successfully than we do.
We are engaged in a business that is highly
competitive. Research and development activities for the development of drugs to treat indications within our focus are being sponsored
or conducted by private and public research institutions and by major pharmaceutical companies located in the United States and
a number of foreign countries. Most of these companies and institutions have financial and human resources that are substantially
greater than our own and they have extensive experience in conducting research and development activities and clinical trials and
in obtaining the regulatory approvals necessary to market pharmaceutical products that we do not have. As a result, they may develop
competing products more rapidly that are safer, more effective, or have fewer side effects, or are less expensive, or they may
develop and commercialize products that render our product candidates non-competitive or obsolete.
With respect to our product candidate RGN-259,
there are also numerous ophthalmic companies developing drugs for corneal wound healing and other front-of-the-eye diseases and
injuries, including dry eye syndrome. Amniotic membranes have been successfully used to treat corneal wounds in certain cases,
as have topical steroids and antibacterial agents. Most specialty ophthalmic companies have a number of products on the market
that could compete with RGN-259. There are numerous antibiotics to treat eye infections to promote corneal wound healing and many
eye lubrication products that are soothing to the eye and help eye healing, many of which are sold without prescriptions. Companies
also market steroids to treat certain conditions within our area of interest. Allergan, Inc. markets Restasis™, Ophthalmic
Emulsion, which was the only commercially available and FDA-approved eye drop to treat dry eye. Shire PLC recently received FDA
approval to market Lifitegrast for the treatment of dry eye and will be launching the product in the U.S. Restasis, and other products,
have been approved for marketing in certain other countries where we have licensed RGN-259.
We have initially targeted our product candidate
RGN-352 for cardiovascular indications. Most large pharmaceutical companies and many smaller biomedical companies are vigorously
pursuing the development of therapeutics to treat patients after heart attacks and for other cardiovascular indications.
With respect to our product candidate RGN-137
for wound healing, Johnson & Johnson has previously marketed Regranex™ for this purpose in patients with diabetic foot
ulcers. Other companies, such as Novartis, are developing and marketing artificial skins, which we believe could also compete with
RGN-137. Moreover, wound healing is a large and highly fragmented marketplace attracting many companies, large and small, to develop
products for treating acute and chronic wounds, including, for example, honey-based ointments, hyperbaric oxygen therapy, and low
frequency cavitational ultrasound.
We are also developing potential cosmeceutical
products, which are loosely defined as products that bridge the gap between cosmetics and pharmaceuticals, for example, by improving
skin texture and reducing the appearance of aging. This industry is intensely competitive, with potential competitors ranging from
large multinational companies to very small specialty companies. New cosmeceutical products often have a short product life and
are frequently replaced with newer products developed to address the latest trends in appearance and fashion. We may not be able
to adapt to changes in the industry as quickly as larger and more experienced cosmeceutical companies. Further, larger cosmetics
companies have the financial and marketing resources to effectively compete with smaller companies like us in order to sell products
aimed at larger markets.
Even if approved for marketing, our technologies
and product candidates are unproven and they may fail to gain market acceptance.
Our product candidates, all of which are based
on the molecule Tß4, are new and unproven and there is no guarantee that health care providers or patients will be interested
in our product candidates, even if they are approved for use. If any of our product candidates are approved by the FDA, our success
will depend in part on our ability to demonstrate sufficient clinical benefits, reliability, safety, and cost effectiveness of
our, or our partners’, product candidates relative to other approaches, as well as on our ability to continue to develop
our product candidates to respond to competitive and technological changes. If the market does not accept our product candidates,
when and if we are able to commercialize them, then we may never become profitable. Factors that could delay, inhibit or prevent
market acceptance of our product candidates may include:
|
·
|
the timing and receipt of marketing approvals;
|
|
·
|
the safety and efficacy of the products;
|
|
·
|
the emergence of equivalent or superior
products;
|
|
·
|
the cost-effectiveness of the products;
and
|
It is difficult to predict the future growth
of our business, if any, and the size of the market for our product candidates because the markets are continually evolving. There
can be no assurance that our product candidates will prove superior to products that may currently be available or may become available
in the future or that our research and development activities will result in any commercially profitable products.
We have no marketing experience, sales
force or distribution capabilities. If our product candidates are approved, and we are unable to recruit key personnel to perform
these functions, we may not be able to commercialize them successfully.
Although we do not currently have any marketable
products, our ability to produce revenues ultimately depends on our, or our partners’, ability to sell our product candidates
if and when they are approved by the FDA and other regulatory authorities. We currently have no experience in marketing or selling
pharmaceutical products, and we do not have a marketing and sales staff or distribution capabilities. Developing a marketing and
sales force is also time-consuming and could delay the launch of new products or expansion of existing product sales. In addition,
we will compete with many companies that currently have extensive and well-funded marketing and sales operations. If we fail to
establish successful marketing and sales capabilities or fail to enter into successful marketing arrangements with third parties,
our ability to generate revenues will suffer.
If we enter markets outside the United
States our business will be subject to political, economic, legal and social risks in those markets, which could adversely affect
our business.
There are significant regulatory and legal
barriers to entering markets outside the United States that must be overcome if we, or our partners, seek regulatory approval to
market our product candidates in countries other than the United States. We would be subject to the burden of complying with a
wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience
difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would
be subject to political, economic and social uncertainties including, among others:
|
·
|
changes and limits in import and export
controls;
|
|
·
|
increases in custom duties and tariffs;
|
|
·
|
changes in currency exchange rates;
|
|
·
|
economic and political instability;
|
|
·
|
changes in government regulations and
laws;
|
|
·
|
absence in some jurisdictions of effective
laws to protect our intellectual property rights; and
|
|
·
|
currency transfer and other restrictions
and regulations that may limit our ability to sell certain product candidates or repatriate profits to the United States.
|
Any changes related to these and other factors
could adversely affect our business if and to the extent we enter markets outside the United States. Additionally, we have entered
into license agreements with Sigma-Tau S.p.A, Lee’s Pharmaceutical Limited and GtreeBNT Co, Ltd. for the development of certain
of our product candidates in international markets. As a result, these development activities will be subject to compliance in
all respects with local laws and regulations and may be subject to many of the risks described above.
Governmental and third-party payors may
subject any product candidates we develop to sales and pharmaceutical pricing controls that could limit our product revenues and
delay profitability.
The successful commercialization of our product
candidates, if they are approved by the FDA, will likely depend on our ability to obtain reimbursement for the cost of the product
and treatment. Government authorities, private health insurers and other organizations, such as health maintenance organizations,
are increasingly seeking to lower the prices charged for medical products and services. Also, the trend toward managed health care
in the United States, the growth of healthcare maintenance organizations, and recently enacted legislation reforming healthcare
and proposals to reform government insurance programs could have a significant influence on the purchase of healthcare services
and products, resulting in lower prices and reducing demand for our product candidates. The cost containment measures that healthcare
providers are instituting and any healthcare reform could reduce our ability to sell our product candidates and may have a material
adverse effect on our operations. We cannot assure you that reimbursement in the United States or foreign countries will be available
for any of our product candidates, and that any reimbursement granted will be maintained, or that limits on reimbursement available
from third-party payors will not reduce the demand for, or the price of, our product candidates. The lack or inadequacy of third-party
reimbursements for our product candidates would decrease the potential profitability of our operations. We cannot forecast what
additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted
in the future, or what effect the legislation or regulation would have on our business.
We have no manufacturing or formulation
capabilities and are dependent upon third-party suppliers to provide us with our product candidates. If these suppliers do not
manufacture our product candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we are
unable to identify suitable replacement suppliers if needed, our clinical development efforts could be delayed, prevented or impaired.
We do not own or operate manufacturing facilities
and have little experience in manufacturing pharmaceutical products. We currently rely, and expect to continue to rely, primarily
on peptide manufacturers to supply us with Tß4 for further formulation into our product candidates. We have historically
engaged three separate smaller drug formulation contractors for the formulation of clinical grade product candidates, one for each
of our three product candidates in clinical development, although, as described in this report, the contractor we engaged to formulate
and vial RGN-352 has filed for bankruptcy and closed its manufacturing facility, and our clinical trial involving RGN-352 has been
placed on clinical hold. We currently do not have an alternative source of supply for either Tß4 or the individual drug candidates.
If these suppliers, together or individually, are not able to supply us with either Tß4 or individual product candidates
on a timely basis, in sufficient quantities, at acceptable levels of quality and at a competitive price, or if we are unable to
identify a replacement manufacturer to perform these functions on acceptable terms as needed, our development programs could be
seriously jeopardized.
The clinical hold on our RGN-352 trial will
require us to have new material manufactured by a cGMP-compliant manufacturer in the event that we seek to resume this trial. Significant
preparatory time and procedures will be required before any new manufacturer would be able to manufacture RGN-352 for the AMI trial,
due to the time required for revalidation of processes and assays related to such production that were already in place with the
original manufacturer. Since we are unable to estimate the length of time that the trial will be on clinical hold, we have elected
to cease activities on this trial until the FDA clinical hold is resolved and the requisite funding might be secured.
Other risks of relying solely on single suppliers
for each of our product candidates include:
|
·
|
the possibility that our other manufacturers,
and any new manufacturer that we, or our partners, may identify for RGN-352, may not be able to ensure quality and compliance with
regulations relating to the manufacture of pharmaceuticals;
|
|
·
|
their manufacturing capacity may not be
sufficient or available to produce the required quantities of our product candidates based on our planned clinical development
schedule, if at all;
|
|
·
|
they may not have access to the capital
necessary to expand their manufacturing facilities in response to our needs;
|
|
·
|
commissioning replacement suppliers would
be difficult and time-consuming;
|
|
·
|
individual suppliers may have used substantial
proprietary know-how relating to the manufacture of our product candidates and, in the event we must find a replacement or supplemental
supplier, our ability to transfer this know-how to the new supplier could be an expensive and/or time-consuming process;
|
|
·
|
an individual supplier may experience
events, such as a fire or natural disaster, that force it to stop or curtail production for an extended period;
|
|
·
|
an individual supplier could encounter
significant increases in labor, capital or other costs that would make it difficult for them to produce our products cost-effectively;
or
|
|
·
|
an individual supplier may not be able
to obtain the raw materials or validated drug containers in sufficient quantities, at acceptable costs or in sufficient time to
complete the manufacture, formulation and delivery of our product candidates.
|
Our suppliers may use hazardous and biological
materials in their businesses. Any claims relating to improper handling, storage or disposal of these materials could be time-consuming
and costly to us, and we are not insured against such claims.
Our product candidates and processes involve
the controlled storage, use and disposal by our suppliers of certain hazardous and biological materials and waste products. We
and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture, storage,
handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the standards
prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely
eliminated. In the event of an accident, we could be held liable for any damages that result, and we do not carry insurance for
this type of claim. We may also incur significant costs to comply with current or future environmental laws and regulations.
We face the risk of product liability
claims, which could adversely affect our business and financial condition.
We, or our partners, may be subject to product
liability claims as a result of our testing, manufacturing, and marketing of drugs. In addition, the use of our product candidates,
when and if developed and sold, will expose us to the risk of product liability claims. Product liability may result from harm
to patients using our product candidates, such as a complication that was either not communicated as a potential side effect or
was more extreme than anticipated. We require all patients enrolled in our clinical trials to sign consents, which explain various
risks involved with participating in the trial. However, patient consents provide only a limited level of protection, and it may
be alleged that the consent did not address or did not adequately address a risk that the patient suffered. Additionally, we will
generally be required to indemnify our clinical product manufacturers, clinical trial centers, medical professionals and other
parties conducting related activities in connection with losses they may incur through their involvement in the clinical trials.
Our ability to reduce our liability exposure
for human clinical trials and commercial sales, if any, of Tß4 is dependent in part on our ability to obtain sufficient product
liability insurance or to collaborate with third parties that have adequate insurance. Although we intend to obtain and maintain
product liability insurance coverage if we gain approval to market any of our product candidates, we cannot guarantee that product
liability insurance will continue to be available to us on acceptable terms, or at all, or that its coverage will be sufficient
to cover all claims against us. A product liability claim, even one without merit or for which we have substantial coverage, could
result in significant legal defense costs, thereby potentially exposing us to expenses significantly in excess of our revenues,
as well as harm to our reputation and distraction of our management.
If any of our key employees discontinue
their services with us, our efforts to develop our business may be delayed.
We are highly dependent on the principal members
of our management team. The loss of our chairman and Chief Scientific Officer, Allan Goldstein, or chief executive officer, J.J.
Finkelstein could prevent or significantly delay the achievement of our goals. We cannot assure you that Dr. Goldstein or Mr. Finkelstein,
or any other key employees or consultants, will not elect to terminate their employment or consulting arrangements. In addition,
we do not maintain a key man life insurance policy with respect to any of our management personnel. In the future, we anticipate
that we will also need to add additional management and other personnel. Competition for qualified personnel in our industry is
intense, and our success will depend in part on our ability to attract and retain highly skilled personnel. We cannot assure you
that our efforts to attract or retain such personnel will be successful.
Mauro Bove, a member of our Board, was
also a director and officer of entities affiliated with Sigma-Tau and is a director of Lee’s Pharmaceuticals, relationships
which could give rise to a conflict of interest for Mr. Bove.
Mauro Bove is a member of our Board of Directors,
and, until March 31, 2014, was a director and officer of entities affiliated with Sigma-Tau, which collectively make up our largest
stockholder group. At this time Mr. Bove remains engaged with Sigma-Tau as a consultant. Sigma-Tau has subsequently merged into
Alfa Wassermann, S.p.A. Sigma-Tau previously provided us with significant funding and is also our strategic partner in Europe with
respect to the development of certain of our drug candidates. We have issued shares of common stock, convertible promissory notes
and common stock warrants to Sigma-Tau and its affiliates in several private placement financing transactions, including as recently
as September 2013. We have licensed certain rights to our product candidates generally for the treatment of dermal and internal
wounds to Sigma-Tau/Alfa Wassermann. Because of Mr. Bove’s relationship with these entities, there could be a conflict
of interest respect to these and other agreements. Any decision in the best interests of Sigma-Tau/Alfa Wassermann may not be in
the best interest of our other stockholders.
Additionally, Mr. Bove is a non-executive director
of Lee’s Pharmaceuticals, in which affiliates of Sigma-Tau have a significant equity interest. There can be no assurance
that we will ever receive any further payments from Lee’s under the agreement. As a result of Mr. Bove’s relationship
with Lee’s and Sigma-Tau, Mr. Bove may have interests that are different from our other stockholders in connection with these
and other agreements and circumstances that may require the exercise of the Board’s discretion with respect to Lee’s
or Sigma-Tau. These conflicts could result in decisions that are not in the best interest of our other stockholders.
Risks Related to Our
Intellectual Property
We are partially reliant on our license
from the National Institutes of Health for the rights to Tß4, and any loss of these rights could adversely affect our business.
We have received an exclusive worldwide license
to intellectual property discovered at the National Institutes of Health, or NIH, pertaining to the use of Tß4 in wound healing
and tissue repair. The intellectual property rights from this license, along with independent patent applications we have filed,
as well as patents and patent applications under licenses we acquired, form the basis for our current commercial development focus
with Tß4. The NIH license terminates upon the last to expire of the patent applications that are filed, or any patents that
may issue from such applications, in connection with the license. This license requires us to pay a minimum annual royalty to the
NIH, regardless of the success of our product development efforts, plus certain other royalties upon the sale of products created
by the intellectual property granted under the license. In 2013 we amended certain provisions of the exclusive license; we were
permitted to credit amounts paid to prosecute or maintain the licensed patent rights during the 2013 calendar year against the
2013 minimum annual royalty of $25,000. Beginning in 2014 the minimum annual royalty is $2,000. While to date we believe that we
have complied with all requirements to maintain the license, the loss of this license could have an adverse effect on our business
and business prospects.
We may not be able to maintain broad
patent protection for our product candidates, which could limit the commercial potential of our product candidates.
Our success will depend in part on our,
or our partners’ ability to obtain, defend and enforce patents, both in the United States and abroad. We have attempted
to create a substantial intellectual property portfolio, submitting patent applications for various compositions of matter, methods
of use and fragments and derivatives of Tß4. As described elsewhere in this report, we currently do not have adequate financial
resources to fund our ongoing business activities substantially beyond 4 months from the filing of the Form 10-Q without additional
funding. As a result of our current financial condition, we continuously evaluate our issued patents and patent applications and
may decide to limit their therapeutic and/or geographic coverage in an effort to enhance our ability to focus on certain medical
conditions and countries within our financial constraints. As a result, we may not be able to protect our intellectual property
rights in indications and/or territories that we otherwise would, and, therefore, our ability to commercialize Tß4, if at
all, could be substantially limited, which could have a material adverse impact on our future results of operations.
If we, or our partners, are not able
to maintain adequate patent protection for our product candidates, we may be unable to prevent our competitors from using our technology
or technology that we license.
Our success will depend in substantial part
on our, or our partners’, abilities to obtain, defend and enforce patents, maintain trade secrets and operate without infringing
upon the proprietary rights of others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the
NIH, we have exclusive rights to use Tß4 in the treatment of non-healing wounds. While patents covering our use of Tß4
have issued in some countries, we cannot guarantee whether or when corresponding patents will be issued, or the scope of any patents
that may be issued, in other countries. We have attempted to create a substantial intellectual property portfolio, submitting patent
applications for various compositions of matter, methods of use and fragments and derivatives of Tß4. We have also in-licensed
other intellectual property rights from third parties that could be subject to the same risks as our own patents. If any of these
patent applications do not issue, or do not issue in certain countries, or are not enforceable, the ability to commercialize Tß4
in various medical indications could be substantially limited or eliminated.
In addition, the patent positions of the products
being developed by us and our collaborators involve complex legal and factual uncertainties. As a result, we cannot assure you
that any patent applications filed by us, or by others under which we have rights, will result in patents being issued in the United
States or foreign countries. In addition, there can be no assurance that any patents will be issued from any pending or future
patent applications of ours or our partners, that the scope of any patent protection will be sufficient to provide us with competitive
advantages, that any patents obtained by us or our partners will be held valid if subsequently challenged or that others will not
claim rights in or ownership of the patents and other proprietary rights we or our partners may hold. Unauthorized parties may
try to copy aspects of our product candidates and technologies or obtain and use information we consider proprietary. Policing
the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no harm or threat will be made to our or
our partners’ intellectual property. In addition, changes in, or different interpretations of, patent laws in the United
States and other countries may also adversely affect the scope of our patent protection and our competitive situation.
Due to the significant time lag between the
filing of patent applications and the publication of such patents, we cannot be certain that our licensors were the first to file
the patent applications we license or, even if they were the first to file, also were the first to invent, particularly with regards
to patent rights in the United States. In addition, a number of pharmaceutical and biotechnology companies and research and academic
institutions have developed technologies, filed patent applications or received patents on various technologies that may be related
to our product candidates. Some of these technologies, applications or patents may conflict with our or our licensors’ technologies
or patent applications. A conflict could limit the scope of the patents, if any, that we or our licensors may be able to obtain
or result in denial of our or our licensors’ patent applications. If patents that cover our activities are issued to other
companies, we may not be able to develop or obtain alternative technology.
Additionally, there is certain subject matter
that is patentable in the United States but not generally patentable outside of the United States. Differences in what constitutes
patentable subject matter in various countries may limit the protection we can obtain outside of the United States. For example,
methods of treating humans are not patentable in many countries outside of the United States. These and other issues may prevent
us from obtaining patent protection outside of the United States, which would have a material adverse effect on our business, financial
condition and results of operations.
Changes to U.S. patent laws could materially
reduce any value our patent portfolio may have.
The value of our patents depends in part on
their duration. A shorter period of patent protection could lessen the value of our rights under any patents that may be obtained
and may decrease revenues derived from its patents. For example, the U.S. patent laws were previously amended to change the term
of patent protection from 17 years following patent issuance to 20 years from the earliest effective filing date of the
application. Because the time from filing to issuance of biotechnology applications may be more than three years depending on the
subject matter, a 20-year patent term from the filing date may result in substantially shorter patent protection. Future changes
to patent laws could shorten our period of patent exclusivity and may decrease the revenues that we might derive from the patents
and the value of our patent portfolio.
We, or our partners, may not have adequate
protection for our unpatented proprietary information, which could adversely affect our competitive position.
In addition to our patents, we, and our partners,
also rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain
our competitive position. However, others may independently develop substantially equivalent proprietary information and techniques
or otherwise gain access to our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality
agreements with employees, consultants and potential collaborators. However, we may not have such agreements in place with all
such parties and, where we do, these agreements may not provide meaningful protection of our trade secrets or adequate remedies
in the event of unauthorized use or disclosure of such information. Also, our trade secrets or know-how may become known through
other means or be independently discovered by our competitors. Any of these events could prevent us from developing or commercializing
our product candidates.
We may be subject to claims that we or
our employees have wrongfully used or disclosed alleged trade secrets of former employers.
As is commonplace in the biotechnology industry,
we employ now, and may hire in the future, individuals who were previously employed at other biotechnology or pharmaceutical companies,
including competitors or potential competitors. Although there are no claims currently pending against us, we may be subject to
claims that we or certain employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information
of former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against
these claims, litigation could result in substantial costs and would be a significant distraction to management.
Risks Related to Our
Securities
Our common stock price is volatile, our
stock is highly illiquid, and any investment in our securities could decline substantially in value.
For the period from January 1, 2015 through
May 12, 2017 the closing price of our common stock has ranged from $0.13 to $0.75, with an average daily trading volume of approximately
57,000 shares. Considering our small size and limited resources, as well as the uncertainties and risks that can affect our business
and industry, our stock price is expected to continue to be highly volatile and can be subject to substantial drops, with or even
in the absence of news affecting our business. The following factors, in addition to the other risk factors described in this report,
and the potentially low volume of trades in our common stock since it is not listed on a national securities exchange, may have
a significant impact on the market price of our common stock, some of which are beyond our control:
|
·
|
results of pre-clinical studies and clinical
trials;
|
|
·
|
commercial success of approved products;
|
|
·
|
corporate partnerships;
|
|
·
|
technological innovations by us or competitors;
|
|
·
|
changes in laws and government regulations
both in the U.S. and overseas;
|
|
·
|
changes in key personnel at our company;
|
|
·
|
developments concerning proprietary rights,
including patents and litigation matters;
|
|
·
|
public perception relating to the commercial
value or safety of any of our product candidates;
|
|
·
|
other issuances of our common stock, or
securities convertible into or exercisable for our common stock, causing dilution;
|
|
·
|
anticipated or unanticipated changes in
our financial performance;
|
|
·
|
general trends related to the biopharmaceutical
and biotechnological industries; and
|
|
·
|
general conditions in the stock market.
|
The stock market in general has recently experienced
relatively large price and volume fluctuations. In particular, the market prices of securities of smaller biotechnology companies
have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of these companies.
Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline
in its value. You should also be aware that price volatility may be worse if the trading volume of the common stock remains limited
or declines.
Our principal stockholders have significant
voting power and may take actions that may not be in the best interests of our other stockholders.
Our officers, directors and principal stockholders
together control approximately 49.8% of our outstanding common stock. Included in this group is Sigma-Tau (merged with Alfa Wasserman
S.p.A.) and its affiliates, which together hold outstanding shares representing approximately 28.1% of our outstanding common stock
and GtreeBNT which owns approximately 18.3% of our outstanding common stock. These stockholders also hold options, warrants, convertible
promissory notes and stock purchase rights that provide them with the right to acquire significantly more shares of common stock.
Accordingly, if these stockholders acted together they could control the outcome of all stockholder votes. This concentration of
ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our
common stock, and therefore may not be in the best interest of our other stockholders.
If securities or industry analysts do
not publish research or reports or publish unfavorable research about our business, the price of our common stock and other securities
and their trading volume could decline.
The trading market for our common stock and
other securities will depend in part on the research and reports that securities or industry analysts publish about us or our business.
We do not currently have and may never obtain research coverage by securities and industry analysts. If securities or industry
analysts do not commence or maintain coverage of us, the trading price for our common stock and other securities would be negatively
affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades
our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover us or fails
to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our
common stock and other securities and their trading volume to decline.
The exercise of options and warrants,
conversion of convertible promissory notes, and other issuances of shares of common stock or securities convertible into common
stock will dilute your interest.
As of March 31, 2017, there were outstanding
options to purchase an aggregate of 7,639,961 shares of our common stock under our 2000 and 2010 incentive equity plans at exercise
prices ranging from $0.14 per share to $0.64 per share and outstanding warrants to purchase 5,804,412 shares of our common stock
at a weighted average exercise price of $0.48 per share (warrants issued in 2016 offering include down round protection until August
3, 2017). In addition to the outstanding options and warrants we have also issued five series of convertible promissory notes which
are presently convertible into an aggregate of 13,683,334 shares of our common stock. In October 2012, we sold convertible promissory
notes totaling $300,000 that are convertible into 2,000,000 shares of common stock at a conversion price of $0.15 per share. In
October 2014, the maturity date of these notes was extended for an additional three years. In 2013, we sold three additional series
of convertible promissory notes, which notes totaled $646,000 and are initially convertible into 10,766,667 shares of common stock
at a conversion price of $0.06 per share. In January 2014, we sold a fifth series of convertible promissory notes, which notes
totaled $55,000 and are initially convertible into 916,667 shares of common stock at a conversion price of $0.06 per share. The
notes issued in 2013 and January 2014 contain down round provisions under which the conversion prices of these notes could be decreased
as a result of future equity offerings below the conversion price of the notes. The exercise of options and warrants or note conversions
at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additional
dilution may result from the issuance of shares of our capital stock in connection with collaborations or manufacturing arrangements
or in connection with other financing efforts.
Any issuance of our common stock that is not
made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock dividend or stock split,
will result in dilution to each stockholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover,
if we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised or we issue
restricted stock, stockholders may experience further dilution. Holders of shares of our common stock have no preemptive rights
that entitle them to purchase their pro rata share of any offering of shares of any class or series.
In addition, most of the outstanding warrants
to purchase shares of our common stock have an exercise price above the current market price for our common stock. As a result,
these warrants may not be exercised prior to their expiration, in which case we would not realize any proceeds from their exercise.
Our certificate of incorporation and
Delaware law contain provisions that could discourage or prevent a takeover or other change in control, even if such a transaction
would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders
to replace or remove our current management.
Our certificate of incorporation provides our
Board with the power to issue shares of preferred stock without stockholder approval. In addition, we are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. Subject to specified exceptions, this section provides
that a corporation may not engage in any business combination with any interested stockholder, as defined in that statute, during
the three-year period following the time that such stockholder becomes an interested stockholder. This provision could also have
the effect of delaying or preventing a change of control of our company. The foregoing factors could reduce the price that investors
or an acquirer might be willing to pay in the future for shares of our common stock.
We may become involved in securities
class action litigation that could divert management’s attention and harm our business and our insurance coverage may not
be sufficient to cover all costs and damages.
The stock market has from time to time experienced significant price
and volume fluctuations that have affected the market prices for the common stock of pharmaceutical and biotechnology companies.
These broad market fluctuations may cause the market price of our common stock to decline. In the past, following periods of volatility
in the market price of a particular company’s securities, securities class action litigation has often been brought against
that company. If we experience this sort of volatility, we may become involved in this type of litigation in the future. Litigation
often is expensive and diverts management’s attention and resources, which could hurt our business, operating results and
financial condition.